AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MAY 13, 1999.
REGISTRATION NO. 333-74589
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ----------------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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NATIONAL WINE & SPIRITS, INC.
(Exact name of Registrant as
specified in its charter)
INDIANA 5182 35-2064429
- ------------------------ ---------------------------- -------------------
(State of Incorporation) (Primary S.I.C. Code Number) (I. R. S. Employer
Identification No.)
And the following additional
Registrants, each a
Subsidiary Guarantor:
INDIANA NATIONAL WINE & SPIRITS CORPORATION 35-0540650
ILLINOIS NWS, INC. 36-3784235
ILLINOIS NWS-ILLINOIS, LLC 36-4266415
MICHIGAN NWS MICHIGAN, INC. 38-3319025
- ---------------------------- -----------------------------------
(State or other jurisdiction (Exact name of Guarantor (I.R.S. Employer
of incorporation or as specified in its charter) Identification No.)
or organization)
</TABLE>
P.O. Box 1602
700 W. Morris Street
Indianapolis, Indiana 46206
(317) 636-6092
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive
office)
James E. LaCrosse
Chairman, President and Chief Executive Officer
P.O. Box 1602
700 W. Morris Street
Indianapolis, Indiana 46206
(317) 636-6092
(Name, address, including zip code, and telephone number, including area code,
of agent of service)
Copies To:
Joseph E. DeGroff
Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282-0002
(312) 236-2100
APPROXIMATE DATE OF COMMENCEMENT OF
PROPOSED SALE TO PUBLIC: As soon as practicable
after the effective date of this registration
statement.
<PAGE>
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please 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 company 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 SEC, acting pursuant to said Section 8 (a), may
determine.
<PAGE>
PROSPECTUS
May ___, 1999.
NATIONAL WINE & SPIRITS, INC.
Exchange Offer for
$110,000,000
10.125% Senior Notes Due 2009
Guaranteed by
National Wine & Spirits Corporation
NWS, Inc.
NWS Michigan, Inc.
NWS-Illinois, LLC
Terms of the Exchange Offer
o Expires 5:00 p.m. New York City time, __________, 1999, unless extended.
o All old notes that are validly tendered and not validly withdrawn will be
exchanged.
o Tenders of old notes may be withdrawn any time prior to the expiration of
the exchange offer.
o Not subject to any condition, other than that the exchange offer does not
violate applicable law or any applicable interpretation of the Staff of the
Securities and Exchange Commission.
o We will not receive any proceeds from the exchange offer.
o The exchange of notes should not be a taxable exchange for U.S. federal
income tax purposes.
o The terms of the notes to be issued are substantially identical to the old
notes, except for transfer restrictions and registration rights relating
to the old notes.
o There is no existing market for the exchange notes, and we do not intend to
apply for their listing on any securities exchange.
This investment involves risk. See the Risk Factors section beginning on page
11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
[INSIDE COVER PAGE]
Additional information regarding our business and financial information is
available to you without charge upon written or oral request. Please contact us
at P.O. Box 1602, Indianapolis, Indiana 46206, attention J. Smoke Wallin (317)
636-6092. To obtain timely delivery, please request the information no later
than five business days in advance of any investment decision.
<PAGE>
PROSPECTUS SUMMARY
This summary sets forth the material features of the offering. This
prospectus includes the terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this prospectus in its entirety. We have included below a list to help
you understand what we are referring to in the prospectus. Unless the context of
the prospectus indicates otherwise, the following terms have the following
meanings:
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NWS...................................... After December 31, 1998, the
combined business of NWS and its
subsidiaries, NWS-Indiana,
NWS-Illinois, NWS-Michigan and
NWS-LLC.
Prior to December 31, 1998, the
combined business of NWS-Indiana,
NWS-Illinois and NWS-Michigan.
Old Notes................................ 10.125% Senior Notes due 2009 that
were issued on January 25, 1999.
Exchange Notes........................... 10.125% Senior Notes due 2009 that
we are offering here.
Notes.................................... The old notes and the exchange
notes, collectively.
Summary of the Exchange Offer
Registration Rights Agreement............ We sold the old notes in January,
1999 to the initial purchasers in a
transaction exempt
from the registration requirements
of the Securities Act. At the same
time, NWS and the initial purchasers
entered into a registration rights
agreement which grants the holders
of the old notes exchange and
registration rights. This exchange
offer satisfies those rights which
terminate upon consummation of the
exchange offer. You will not be
entitled to any exchange or
registration rights with respect to
the exchange notes.
The Exchange Offer....................... We are offering to exchange up to
$110.0 million of exchange notes
for up to $110.0 million of the old
notes. To exchange your old notes,
you must properly tender them, and
we must accept them. We will
exchange all old notes that you
validly tender and do not validly
withdraw. We will issue registered
exchange notes at the end of the
exchange offer.
<PAGE>
Resales.................................. We believe that you can offer for
resale, resell and otherwise transfer
the exchange notes without complying
with the registration and prospectus
delivery requirements of the
Securities Act if:
o you acquire the exchange notes
in the ordinary course of your
business;
o you are not participating, do
not intend to participate,
and have no arrangement or
understanding with any person
to participate, in the
distribution of the exchange
notes; and
o you are not an "affiliate" of
NWS, as defined in Rule 405 of
of the Securities Act.
If any of these conditions are not
satisfied and you transfer any
exchange note without delivering a
proper prospectus or without
qualifying for a registration
exemption, you may incur liability
under the Securities Act. We do not
assume or indemnify you against such
liability.
Each broker-dealer acquiring
exchange notes for its own account
in exchange for old notes, which it
acquired through market-making or
other trading activities, must
acknowledge that it will deliver a
proper prospectus when any exchange
notes are transferred. A
broker-dealer may use this
prospectus for an offer to resell, a
resale or other retransfer of the
exchange notes.
Expiration Date........................... The exchange offer expires at 5:00
p.m., New York Central time,
______________, 1999, unless we
extend the expiration date.
Conditions to the Exchange Offer.......... The exchange offer is subject to
customary conditions, some of which
we may waive.
Procedures for Tendering Old
Exchange Notes....................... If you wish to accept the exchange
offer, you must complete, sign and
date the letter of transmittal in
accordance with the instructions,
and deliver the letter of transmittal,
along with the old notes and any
other required documentation, to
the exchange agent. By executing the
letter of transmittal, you will
represent to us that, among other
things:
o any exchange notes you receive
will be acquired in the ordinary
course of your business,
o you have no arrangement with
any person to participate in
the distribution of the exchange
notes, and
<PAGE>
o you are not an "affiliate," as
defined in Rule 405 of the
Securities Act, of NWS or, if
you are an affiliate, you will
comply with the registration
and prospectus delivery
requirements of the Securities
Act to the extent applicable.
If you hold your old notes through
the Depository Trust Corporation and
wish to participate in the exchange
offer, you may do so through the
Depository Trust Corporation's
Automated Tender Offer Program. By
participating in the exchange offer,
you will agree to be bound by the
letter of transmittal as though you
had executed such letter of
transmittal.
Special Procedures for Beneficial
Owners............................... If you are a beneficial owner whose
old notes are registered in the name
of a broker, dealer, commercial bank,
trust company or other nominee and
wish to tender your old notes in the
exchange offer, please contact the
registered holder as soon as possible
and instruct it to tender on your
behalf and comply with our instructions
set forth elsewhere in this prospectus.
Withdrawal Rights......................... You may withdraw the tender of your
old notes at any time before 5:00 p.m.
New York City time on __________,
1999, unless we extend the date.
Federal Income Tax Considerations......... With respect to the exchange of the
old notes for the exchange notes:
o the exchange is not a taxable
exchange for U.S. federal
income tax purposes.
o you will not recognize any gain
or loss as a result of the exchange.
Use of Proceeds........................... We will not receive any proceeds from
the exchange of notes, and we will
pay the expenses of the exchange offer.
Exchange Agent............................ We have appointed Norwest Bank
Minnesota, N.A. as the exchange agent
in the exchange offer. The exchange
agent's address, and telephone and
facsimile numbers are Norwest Bank
Minnesota, N.A., Corporate Trust,
Northwest Center, 6th & Marquette,
Minneapolis, Minnesota 55479, Phone:
(612) 667-9764, Fax: (612) 667-9825
attention: Corporate Trust Services.
</TABLE>
Summary of Terms of the Notes and Guarantees
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes, except that the exchange notes will be
registered under the Securities Act. As a result, the exchange notes will not
bear legends restricting their transfer and will not contain the registration
rights and liquidated damage provisions contained in the old notes.
<PAGE>
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Issuer.................................... National Wine & Spirits, Inc.
Guarantors................................ NWS - Indiana, NWS - Illinois, NWS -
Michigan, NWS - LLC
Total Amount of Exchange Notes
Offered................................... $110,000,000 aggregate principal
amount of 10.125% senior exchange
notes due 2009.
Maturity Date............................. January 15, 2009.
Interest Rate............................. 10.125 % per year
Interest Payment Dates.................... January 15 and July 15 of each year,
beginning on July 15, 1999
Ranking................................... The notes:
o are unsecured;
o rank senior in right of payment
to all subordinated
indebtedness of NWS;
o rank equally in right of payment
with all existing and future
unsubordinated indebtedness of
NWS; and
o rank junior in right of payment
with all existing and future
secured indebtedness of NWS.
Optional Redemption....................... On or after January 15, 2004, we may
redeem some or all of the notes at
any time at the redemption prices
listed in the section "Description
of the Exchange Notes" under the
heading "Optional Redemption."
Before January 15, 2002, we may
redeem up to 33.33% of the total
initial amount of the notes with the
proceeds of one or more equity
offerings, at the prices listed in
the section "Description of the
Exchange Notes" under the heading
"Optional Redemption."
Guarantees................................ The guarantees are general unsecured
obligations of the guarantors and are
subordinated in right of payment to
all existing and future guarantor
secured indebtedness. The
guarantees are joint and several.
Change of Control......................... Upon a change of control of NWS, you
will have the right to require us to
repurchase the notes at a price equal
to 101% of their total principal
amount on the date of purchase, plus
accrued and unpaid interest to the
date of repurchase.
Certain Covenants......................... We will issue the notes under an
indenture with Norwest Bank Minnesota,
N.A. The indenture will be governed
by New York law. The indenture will,
among other things, restrict our
ability and the ability of our
subsidiaries to:
<PAGE>
o borrow additional money;
o pay dividends or make certain
other restricted payments or
investments;
o create liens;
o sell certain assets;
o enter into transactions with
affiliates;
o merge or consolidate with any
other person;
o sell all or substantially all
of our assets; and
o engage in certain lines of
business.
These covenants are subject to
important exceptions and qualifications.
Form and Denomination..................... The notes will be represented by one
or more permanent global securities
in bearer form deposited with Norwest
Bank Minnesota, N.A., as book-entry
depositary, for the benefit of DTC.
You will not receive notes in
registered form unless one of the
events set forth under the heading
"Description of the Exchange Notes -
Book-Entry; Delivery and Form"
occurs. Instead, beneficial ownership
of the notes will be reflected only on
records maintained in book-entry form by
DTC. Transfer of ownership will
also take place through DTC.
Use of Proceeds........................... We will not receive any cash proceeds
in the exchange offer.
</TABLE>
National Wine
We are one of the largest distributors of wine and spirits in the United
States. We are the largest spirits distributor in Indiana and Michigan, and one
of the largest in Illinois. Our markets include Chicago and Detroit, which are
the largest and sixth largest United States metropolitan markets for spirits.
Recent Developments
Illinois Franchise Law. In December, 1998 legislation was introduced into
the Illinois general assembly which, if adopted, would limit the ability of
suppliers to terminate distributors and transfer their product lines to new
distributors. One house of the Illinois general assembly has passed this
legislation, and action by the other house is expected in the near future.
Other states have adopted similar franchise legislation which has generally
resulted in price stabilization. We can give you no assurance that the
legislation will become law.
Brand Representation. In March, 1999, one of our suppliers, Diageo-UDV,
announced the sale of several non-core brands. Some of these brands we currently
distribute, including Black Velvet Whiskey, Christian Brothers Brandy and Arrow
Cordials. These brands represent approximately 357,000 cases in Michigan and
47,000 cases in Indiana. As of April, 1999, we believe 125,000 cases will stay
with us, 81,000 cases will be distributed by others, and the balance of 279,000
cases remain undecided. There can be no assurances that we will retain the
undecided brands.
As of April 1, 1999, we will no longer distribute Kenwood Wines in Illinois
due to a competing supplier's purchase of the brand. As of May, 1999, we will
have obtained the exclusive distribution rights to Wild Turkey Bourbon in
Illinois. Wild Turkey sold approximately 6,500 cases in Illinois in 1998. As of
June, 1999 we will no longer distribute Bombay Gin in Indiana. The brand
realignment was caused by required divestitures by suppliers related to the
formation of Diageo-UDV. Effective July, 1999, we will also represent Allied
Domecq in Michigan. During 1998, Allied Domecq represented approximately 240,000
cases in Michigan.
<PAGE>
Additional Acquisition. On April 30, 1999, we acquired R.M. Gilligan, a
spirits sales brokerage in Michigan. This $1.8 million purchase will give us a
significant presence in the Michigan sales arena and the opportunity to
represent Allied Domecq in Michigan. In 1997, R.M. Gilligan had sales of $1.8
million.
Lawsuit Settlement. We settled a long running age discrimination lawsuit
in April, 1999. As part of the settlement, NWS agreed to pay the plaintiffs
$475,000 over 5 years and the plaintiffs agreed to dismiss all charges.
Industry Lawsuit. In April, 1999, a lawsuit was filed in Wisconsin against
over 35 defendants, including among others, various brewers, distillers,
vintners, wholesalers, advertisers and insurers. The focus of this complaint is
an alleged conspiracy among the major manufacturers of alcohol-based beverage
products to mislead, deceive, and confuse the public regarding the use of
alcohol-based beverages. Among other remedies sought, plaintiffs seek $1
billion in monetary damages and civil penalties. NWS was among those named even
though we do not do business in Wisconsin. We intend to defend this litigation
vigorously.
Risk Factors
See the section entitled "Risk Factors" beginning on page 11 for a
discussion of factors that you should consider in connection with your
investment in the exchange notes.
Summary Consolidated Financial And Other Data
The following summary historical financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this prospectus. The pro forma income statement
data and other data for the twelve months ended December 31, 1998 give effect to
the offering and our new credit facility as if they had occurred at the
beginning of the period presented.
Distribution fees include our per case distribution fee for cases of
spirits delivered in and on behalf of the State of Michigan. We do not take
title to or finance any inventory in Michigan. Please also note that we have
elected S corporation status under the Internal Revenue Code. Consequently, we
do not incur liability for federal and certain state income taxes.
The following will also assist in the review of the financial information set
forth below:
o For purposes of calculating earnings to fixed charges, earnings consist of
net income plus fixed charges. Fixed charges consist of interest expense,
amortization of debt expense and discount or premium relating to
Indebtedness and the portion of rental expense on operating leases which we
estimate to be representative of the interest factor attributable to rental
expense.
For 1994, earnings were inadequate to cover fixed charges by $1,281,000.
o For pro forma interest expense, the effective interest rate on our new
credit facility is assumed to be 7.75%. Pro forma interest expense has been
reduced by $454,000 which represents interest expense on the shareholder
notes payable which will be set off against the interest income on the
shareholder notes receivable under the amended terms of the shareholder
notes.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
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Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31,
----------------------------------------------------------- ---------------------- ------------------
1994 1995 1996 1997 1998 1997 1998 1998
(Dollars and cases in thousands, except per case amount)
Statement of Income Data:
Net product sales...... $ 396,360 $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 401,927 $ 423,367 $ 526,581
Distribution fees...... -- -- 2,729 16,270 13,121 14,010 17,159
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Total revenue.......... 396,360 427,218 443,257 490,800 521,411 415,048 437,377 543,740
Cost of products sold.. 330,698 354,478 364,792 402,072 411,734 329,566 346,516 428,684
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Gross profit........... 65,662 72,740 78,465 88,728 109,677 85,482 90,861 115,056
Selling, general and
administrative
expenses............ 62,884 64,431 68,925 80,299 99,118 75,044 78,690 102,764
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Income from operations. 2,778 8,309 9,540 8,429 10,559 10,438 12,171 12,292
Interest expense....... (4,907) (7,341) (7,935) (8,486) (9,672) (7,325) (8,018) (10,365)
Gain on sale of assets. 176 89 172 41 4,139 4,225 97 11
Other income........... 672 1,122 1,247 1,619 2,085 938 1,336 2,483
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Net income (loss)...... $ (1,281) $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 8,276 $ 5,586 $ 4,421
=========== ========== ========== ========== ========== ========== ========== ==================
Other Financial Data:
EBITDA (1)............. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
EBITDA margin.......... 1.7% 3.0% 3.3% 2.9% 3.4% 3.7% 4.2% 3.8%
Cash provided (used)
by operating
activities.......... $ (7,111) $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ (14,931) $ (6,643) $ (18,071)
Cash used by investing
activities......... (15,876) (7,424) (5,077) (9,937) (9,908) (11,003) (14,972) (13,877)
Cash provided (used)
by financing
activities ......... 21,946 1,729 11,789 4,918 (1,900) 24,463 23,462 (2,901)
Depreciation and
amortization........ 3,800 4,561 4,902 5,757 7,115 5,052 6,074 8,137
Capital expenditures
(2)................. 12,002 6,503 3,609 10,447 13,952 12,069 6,518 8,401
Ratio of earnings to
fixed charges....... N/A 1.3x 1.4x 1.2x 1.6x 2.0x 1.6x 1.4x
Operating Statistics:
Product Sales
Operations
Cases shipped (spirits
and
wine)............... N/A 6,006 6,109 6,099 6,343 5,039 5,035 6,339
Net product price per
case................ N/A $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 73.23 $ 74.62 $ 73.96
Gross profit margin.... 16.6% 17.0% 17.7% 17.6% 18.5% 18.0% 18.2% 18.6%
Fee Operations
Cases shipped (spirits) -- -- -- 396 2,545 1,990 2,124 2,679
Distribution fee per
case................ -- -- -- $ 6.50 $ 6.50 $ 6.50 $ 6.50 $ 6.50
Pro Forma Information:
Adjusted EBITDA (1).... -- -- -- -- -- -- -- 21,175
Interest expense....... -- -- -- -- -- -- -- 11,299
Income from operations. -- -- -- -- -- -- -- 12,292
Adjusted
EBITDA/Interest 1.9x
Expense............. -- -- -- -- -- -- --
Net Debt/Adjusted
EBITDA ............. -- -- -- -- -- -- -- 5.8x
Income from operations/
Interest Expense.... -- -- -- -- -- -- -- 1.1x
Net Debt/Income from...
operations.......... -- -- -- -- -- -- -- 10.0x
</TABLE>
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As of December 31, 1998
-----------------------
Actual As Adjusted
(In thousands)
Balance Sheet Data:
Cash................................ $ 3,217 $ 100
Total assets........................ 202,136 202,570
Total debt.......................... 120,945 123,338
Stockholders' equity................ 25,119 23,160
</TABLE>
<PAGE>
(1) EBITDA is defined as income from operations plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO charges,
as follows:
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Nine Months Twelve Months
Ended Ended
Years Ended March 31, December 31, December 31,
----------------------------------------------------- ------------------ ---------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
EBITDA................. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
LIFO charge............ 65 145 545 1,455 570 429 605 746
--------- --------- --------- --------- --------- --------- ---------- -----------
Adjusted EBITDA..... $ 6,643 $ 13,015 $ 14,987 $ 15,641 $ 18,244 $ 15,919 $ 18,850 $ 21,175
========= ========= ========= ========= ========= ========= ========== ===========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis of
debt service capability. Adjusted EBITDA is presented because we believe it may
assist in evaluating our ability to service our indebtedness, including the
exchange notes. EBITDA and Adjusted EBITDA are not intended to represent cash
flows for the periods presented, nor have they been presented as an alternative
to operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance and cash
flow prepared in accordance with generally accepted accounting principles. The
EBITDA and Adjusted EBITDA information reflected above may not be comparable to
similarly titled measures used by other companies.
(2) The breakdown of our capital expenditures by significant project is set
forth below:
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended
Years Ended March 31, December 31, December 31,
------------------------------------------------------ ------------------ ---------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
Business expansion.... $10,733 $3,930 $ 786 $ 5,855 $10,758 $ 9,740 $ 4,033 $ 5,051
Information systems... 403 1,743 1,553 2,446 1,781 1,225 921 1,447
Maintenance........... 866 830 1,270 2,146 1,413 1,104 1,564 1,873
--------- --------- --------- ---------- --------- --------- --------- -----------
$12,002 $6,503 $3,609 $10,447 $13,952 $12,069 $ 6,518 $ 8,401
========= ========= ========= ========== ========= ========= ========= ===========
</TABLE>
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, as well as the
other information contained in this prospectus, in evaluating whether or not you
should participate in the exchange offer.
We Have Significant Debt and We May Not Be Able to Meet Our Obligations
We have now and, after the exchange offer, will continue to have a
significant amount of indebtedness. The following chart summarizes important
information and is presented assuming we received the proceeds from the sale of
the old notes and our new credit facility as of December 31, 1998:
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At December 31, 1998
Total unsubordinated debt.......................................... $ 122.4 million
Ratio of unsubordinated debt
to total capitalization.......................................... 83.5%
For the Twelve Months
Ended December 31, 1998
Ratio of earnings to fixed charges................................ 1.3x
</TABLE>
Our substantial debt could have important consequences to you as a
holder of notes, including the following:
o We may be unable to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purpose;
o A significant portion of our cash flow from operations must be dedicated
to the repayment of the indebtedness, thereby reducing the amount of cash we
have available for other purposes; and
o We may be disadvantaged as compared to our competitors as a result of the
significant amount of debt we now owe.
In addition, we and our subsidiaries may be able to incur additional
indebtedness in the future. Under the indenture, our ratio of earnings to fixed
charges is permitted to increase to 2.0 to 1.0 after the first anniversary of
the issue date, and 2.25 to 1.0 after the second anniversary. Our new credit
facility permits borrowings of up to $60.0 million. If new debt is added to our
and our subsidiaries' current debt levels, the related risks that we and they
now face could intensify.
<PAGE>
To Service Our Indebtedness, We Will Require A Significant Amount of Cash.
Our Ability to Generate Cash May Depend on Factors Beyond Our Control
Our ability to make payments on and to refinance our indebtedness,
including these notes, and to fund planned capital expenditures will depend on
our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative and regulatory
factors that are beyond our control.
Because our operations are conducted through our subsidiaries, we are
dependent upon the cash flow of our subsidiaries to meet our obligations,
including obligations under the notes. Based on our subsidiaries' current level
of operations and anticipated cost savings and operating improvements, we
believe our cash flow from operations, available cash and available borrowings
under our credit facility, will be adequate to meet our future liquidity needs
for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness, including these notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
these notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our credit facility and these
notes, on commercially reasonable terms or at all.
Your Right to Receive Payments on These Notes Is Junior to Our and Our
Guarantors' Existing and Future Secured Indebtedness
These notes and the subsidiary guarantees rank behind all of our and the
guarantors' existing and future secured indebtedness. At December 31, 1998, and
after giving effect to the offering and our new credit facility, these notes and
the guarantees would have been effectively subordinated to approximately $12.0
million of secured debt and would have been equal in rank to approximately
$300,000 of debt. As a result, upon any distribution to our creditors or the
creditors of the guarantors in a bankruptcy, liquidation or reorganization or
similar proceeding relating to us or the guarantors or our or their property,
the holders of secured debt of NWS and the guarantors will be entitled to be
paid in full in cash before any payment may be made with respect to these notes
or the guarantees. The obligations under our new credit facility are secured by
the accounts receivable and inventory of NWS and all of the guarantors.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to NWS or the guarantors, holders of the notes will
participate with trade creditors and all other holders of subordinated
indebtedness of NWS and the guarantors in the assets remaining after we and the
guarantors have paid all of the secured debt. Holders of the notes may receive
less, ratably, than holders of trade payables in any such proceeding. In any of
these cases, we and the subsidiary guarantors may not have sufficient funds to
pay all of our creditors and holders of notes may receive less, ratably, than
the holders of secured debt.
NWS Could Face Corporate Tax Liability
We have elected to be treated as an S-corporation and for each of our
subsidiaries to be qualified subchapter S subsidiaries or other similar
pass-through entities for tax purposes. Accordingly, our shareholders are
directly subject to tax on their respective proportionate shares of our and our
subsidiaries' taxable income for federal and certain state income tax purposes.
<PAGE>
We believe that we qualify and will continue to qualify as an S-corporation
and that our subsidiaries have qualified and will continue to qualify as
subchapter S subsidiaries or other pass-through entities for federal and state
income tax purposes. However, if this qualification was successfully challenged,
we could be required to pay federal and state income taxes plus interest and
possibly penalties on our past and future taxable income. These payments of tax
could be substantial and could reduce the amount of cash available to meet our
obligations to the holders of the notes. While our shareholders have agreed to
indemnify us if our tax status is successfully challenged, we can give no
assurance that the resulting payment of taxes, interest and penalties would not
have a material adverse effect on our financial condition.
Our Indenture and New Credit Facility May Restrict Our Ability to Take
Various Actions
The indenture and our credit facility impose a number of significant
operating and financial restrictions on us and our subsidiaries. The
restrictions could limit our ability to meet our obligations to the holders of
the notes. These covenants limit our ability to, among other things:
o borrow additional money;
o pay dividends or make certain other or investments;
o sell subsidiary stock;
o enter into transactions with our affiliates;
o participate in sale-leaseback transactions;
o create liens;
o establish new lines of business;
o merge or consolidate with any other person; and
o sell all or substantially all our assets.
In addition, the identure prohibits certain restrictions on distributions
from our guarantors, as well as requires a guarantee from our future
subsidiaries. However, the indenture allows NWS to make quarterly tax
distributions to its shareholders.
Our credit facility contains covenants similar to those described above. In
addition, the credit facility requires us to meet several financial tests. If we
are unable to pay our debts or to comply with these covenants, we would default
under our existing debt agreements. If our creditors did not waive this default,
the default could accelerate payments on our debt. We cannot ensure you that our
assets would be sufficient to repay such debt, including the exchange notes, on
an accelerated basis.
We May Not Have the Ability to Raise the Funds Necessary to Finance the
Change of Control Offer Which May Be Required by the Indenture
If a change of control occurs, holders of the notes then outstanding may
require NWS to repurchase their notes. Our credit facility prohibits us from
repurchasing any notes, with limited exceptions, and also provides that a change
of control could constitute a default. In the event a change of control occurs
at a time when we are prohibited from purchasing the notes, we could seek the
consent of our lenders to purchase the notes or could attempt to refinance the
borrowings that contain such a prohibition. If we cannot obtain such a consent
or refinance such borrowings, we would be prohibited from purchasing the notes.
In such case, our failure to purchase tendered notes would constitute a default
under the indenture, which, in turn, could result in amounts owed under our
credit facility being declared due and payable. In the event of a change of
control, there can be no assurance that we would have sufficient assets to
satisfy all of our obligations under the credit facility and the notes.
<PAGE>
Federal and State Statutes Allow Courts, Under Specific Circumstances, to
Void Guarantees and Require Noteholders to Return Payments Received from
Guarantors
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
o received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee and was insolvent or rendered insolvent by
reason of such incurrence; or
o was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, if any payment is made by any guarantor, it is possible that a
payment could be ordered to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets, or
o the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and mature, or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have incurred
debts beyond its ability to pay such debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.
You May Find It Difficult to Sell Your Notes
While the old notes are presently eligible for trading in the PORTAL market
of the NASD by qualified institutional buyers, there is no existing market for
the exchange notes. The initial purchasers have advised us that they intend to
make a market in the exchange notes following the exchange offer, but they are
not obligated to do so. The initial purchasers could stop market-making at any
time without notice. We do not intend to apply for a listing of the exchange
notes on any securities exchange. In addition, the liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall market for high yield securities
and by changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that an
active trading market will develop for these notes.
<PAGE>
We Are Dependent on Key Suppliers
Although we distribute numerous suppliers' products, the majority of our
revenue comes from a few major suppliers. The following table illustrates 1998
total revenue from the sales of our major suppliers' products:
<TABLE>
<CAPTION>
<S> <C>
Percent of 1998
Supplier total revenue
Seagram............................. 32.6%
Fortune Brands...................... 17.7
Diageo-UDV.......................... 7.7
Canandaigua......................... 7.4
</TABLE>
We have entered into written distribution agreements with several of our
principal suppliers. While the agreements may be extended year by year by our
suppliers, the agreements are terminable by the suppliers upon 30 days or 60
days written notice to us. In addition, we distribute the products of many of
our suppliers under informal arrangements such as purchase orders. However,
under the terms of written distribution agreements suppliers can transfer or
terminate our distributorship rights with little notice. For example, as part of
our reorganization, substantially all of our Illinois operations were
transferred from NWS-Illinois to NWS-LLC. Although we have notified all of our
Illinois suppliers of this transfer of operations, and while we believe that
these suppliers will have no objection, we can give no assurance that they will
not terminate their agreements.
The relative strength of the major suppliers in our industry could also
affect our competitive position, including our ability to expand geographically
and to add brands. From time to time, we and other distributors pay franchise
fees to suppliers in order to add key brands or enter new markets. We can give
no assurance that we will not pay additional franchise fees to our key suppliers
in the future, or that such fees will not be material. We can also give no
assurance that future acquisitions or mergers of suppliers will not affect our
relationships with our existing suppliers. For example, the acquisition or
merger of one of our suppliers in Illinois, Indiana or Michigan by a supplier
that has a relationship with one or more of our competitors could result in the
loss of that account in one or more of our markets. Competitors in other markets
could also enter our markets through acquisition of one or more distributors
with the expectation that suppliers would terminate their relationship with us
in order to further consolidate distributors or for other reasons. The
termination of our written or informal distribution agreements or an adverse
change in the terms of these distribution agreements could have a negative
impact on our business.
We Are Dependent on Key Management Personnel
Our success depends on the continued services of our senior management,
particularly our Chairman, President and Chief Executive Officer, James E.
LaCrosse and our Senior Vice President, Martin H. Bart. Mr. LaCrosse, Mr. Bart
and other senior management personnel have long and well-established
relationships with key suppliers and customers. Mr. Bart worked at Seagram for
37 years prior to joining our organization, and maintains a strong relationship
with Seagram, which is our largest supplier of distilled spirits. Mr. LaCrosse
and Mr. Bart do not have employment agreements or non-compete agreements with
NWS. The loss of the services of Mr. LaCrosse, Mr. Bart, or any other member of
senior management could have a negative impact on our business. We maintain key
person life insurance on Mr. LaCrosse in the amount of $9.1 million, some of
which is currently pledged to support our indebtedness.
<PAGE>
Government Regulation Could Adversely Affect the Alcohol Based Beverage
Industry
Extensive Governmental Regulation. The distribution of alcohol-based
beverages is subject to extensive regulation. We are required to comply with
various laws and regulations and maintain certain permits and licenses to
import, warehouse, transport, distribute and sell wine and spirits. We believe
that we are operating in compliance with all federal and state laws, regulations
and policy in all material respects. However, we can give no assurance that the
various governmental regulations applicable to the alcohol-based beverage
industry will not change and become more stringent. If we fail to comply with
applicable governmental regulations or the conditions of our licenses or
permits, our licenses and permits could be revoked or suspended.
Federal and State Taxation. The distribution of alcohol-based beverages is
also subject to extensive federal and state taxation. Our operations may be
subject to increased taxation as compared with those of non-alcohol related
businesses. In such case, we may have to raise prices on our products in order
to maintain profit margins. The effect of such an increase could negatively
impact our sales or profitability.
Legislative Initiatives. The alcohol-based beverage industry has become the
subject of considerable societal and political attention in recent years due to
increasing public concern over alcohol-related societal problems, including
driving while intoxicated, underage drinking, alcoholism and health consequences
from the abuse of alcohol. Illinois has established .08% or above as the blood
alcohol level for driving under the influence of alcohol. Indiana and Michigan
remain at .10%, but several other states have recently lowered the blood alcohol
levels for driving under the influence of alcohol, and legislation has been
introduced in the United States Congress to adopt .08% as the national standard.
This federal legislation was not enacted but could be in the future. Similar
measures are likely to be introduced in Indiana and Michigan in the future.
There has also been discussion at the federal and state levels about restricting
or prohibiting print or electronic advertising or other promotional activities,
including billboard advertising and other promotions which allegedly target
youth as potential consumers of alcohol-based beverages. In certain
jurisdictions, including certain precincts in Chicago, Illinois, recent ballot
initiatives have been passed which limit the sale of alcohol at specified
locations or in specified areas. You should be aware that the passage of such
legislation could have a material adverse effect on our business.
Direct Shipment Programs. In recent years, there has been growth in direct
shipments by suppliers such as "wine-of-the-month," Internet-based or 1-800
direct ordering systems, or other direct marketing promotions or programs by
wine or craft beer producers. These direct sales programs threaten the three
tier regulatory structure currently in place by allowing suppliers or third
party shippers to deal directly with consumers. Although many states, such as
Indiana, have adopted legislation either prohibiting or more closely regulating
direct shipments of alcohol-based beverages into those states, we can give no
assurance that these direct marketing programs will not result in reduced
purchases by our customers.
Potential Class Action Litigation. The alcohol-based beverage industry also
faces the possibility of class action or other similar litigation alleging that
the continued excessive use or abuse of alcohol-based beverages has caused death
or serious health problems. It is also possible that federal or state
governments could assert that the use of alcohol-based beverages has
significantly increased that portion of health care costs paid for by the
government. Litigation or assertions of this type have adversely affected
companies in the tobacco industry. Although we bottle and blend our own
private-label spirits for resale, we are not generally engaged in the
manufacture of alcohol-based beverages. It is possible, however, that our
suppliers could be named in litigation of this type which could have a material
adverse effect on their business and, in turn, could also have a material
adverse effect on our business.
<PAGE>
The Alcohol Based Beverage Distribution Industry Is Highly Competitive
The wine and spirits wholesale distribution industry is highly competitive.
Some of our competitors have greater financial and other resources. The
competitors could threaten our relationships with our key suppliers and
customers. One of the larger distributors in the United States has joined with
another distributor to purchase a controlling interest in our principal
competitor in Indiana. You should be aware that entry into Indiana by this
competitor may have a negative impact on our relationship with our suppliers or
our Indiana market share. We can give no assurance that we will be able to
compete successfully against current and future sources of competition.
Our Volatility Is Caused By Seasonal Variations
Our quarterly results are subject to the changing seasons. Because
consumption of alcohol-based beverages increases during the last quarter of the
calendar year, particularly during the Christmas season, our revenues tend to be
substantially higher during our fiscal third quarter and lower during our fiscal
fourth quarter, when we routinely experience operating losses. We also
experience seasonally high working capital requirements and indebtedness in our
third quarter.
A Single Stockholder Controls NWS
Mr. LaCrosse, the Chairman, President and Chief Executive Officer of NWS,
owns approximately 83% of NWS' voting common stock. As a result, Mr. LaCrosse is
able to:
o elect our Board of Directors;
o approve or disapprove other matters requiring stockholder approval; and
o exercise control over our policies and management.
NWS and Mr. LaCrosse intend to nominate and elect up to four independent
directors to our Board of Directors prior to July 31, 1999. However, you should
be aware that Mr. LaCrosse's interests as our controlling equity stock holder
may differ from your interests.
Year 2000 Issues May Adversely Affect Our Operations and Financial Results
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in our
supply, processing, distribution and financial chains.
We are currently assessing our exposure to potential Year 2000 issues.
Although we have not completed our assessment and remediation of our IT and
non-IT systems, we do not expect, based on the limited information now
available, that Year 2000 issues will have a material adverse effect on our
business. We are also surveying our key customers and suppliers regarding their
preparation for the Year 2000. Although we are not presently aware of any
significant customer or supplier with a Year 2000 issue that would materially
impact our operations, we have no means of ensuring that our customers or
suppliers will be Year 2000 ready. Our failure to properly assess, remediate and
plan for potential Year 2000 problems could result in disruptions of our normal
business operations.
Due to the general uncertainty inherent in the Year 2000 issue, resulting
in part from the uncertainty of the Year 2000 readiness of our third-party
suppliers and customers, the consequences of Year 2000 failures could have a
material impact on our business.
<PAGE>
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical facts, included in this
prospectus are forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate" or "believe". We believe
that the expectations reflected in such forward-looking statements are accurate.
However, we cannot assure you that such expectations will occur. Our actual
future performance could differ materially from such statements.
You should not unduly rely on these forward-looking statements, which speak
only as of the date of this prospectus. Except as required by law, we are not
obligated to publicly release any revisions to these forward-looking statements
to reflect events or circumstances occurring after the date of this prospectus
or to reflect the occurrence of unanticipated events. Important factors that
could cause our actual results to differ materially from our expectations are
discussed under "Risk Factors" and elsewhere in this prospectus. All subsequent
written and oral forward-looking statements attributable to NWS, or persons
acting on its behalf, are expressly qualified in their entirety by the
statements in those sections.
THE EXCHANGE OFFER
Purpose of the Exchange Offer
At the same time we issued the old notes, we agreed to file a registration
statement regarding the exchange of the old notes for notes with terms identical
in all material respects and to use our reasonable best efforts to cause that
registration statement to become effective with the SEC.
In the event that applicable interpretations of the staff of the SEC do not
permit NWS to conduct the exchange offer, or if any holders of the old notes
notify NWS that they are not eligible to participate in, or would not receive
freely tradable exchange notes in exchange for tendered old notes in, the
exchange offer, NWS will use its best efforts to cause to become effective a
shelf registration statement with respect to the resale of the old notes. NWS
also agreed to use its best efforts to keep the shelf registration statement
effective at least two years after its date of effectiveness.
Terms of the Exchange Offer
NWS is offering to exchange up to $110,000,000 total principal amount of
exchange notes for $110,000,000 of old notes. The old notes must be tendered
properly on or before 5:00 p.m. New York City time on ____________, 1999.
The exchange offer is not conditioned upon holders tendering minimum
principal amount of old notes. As of the date of this prospectus, $110,000,000
aggregate principal amount of exchange notes are old. The old notes may be
tendered only in integral multiples of $1,000.
Holders of the old notes do not have any appraisal or dissenters' rights in
the exchange offer. If holders do not tender old notes or tender old notes that
NWS does not accept, their old notes will remain old. Any old notes will be
entitled to the benefits of the indenture but will not be entitled to any
further registration rights under the registration rights agreement, except
under limited circumstances.
<PAGE>
After the expiration date, NWS will return to the holder any tendered old
notes that NWS did not accept for exchange.
Holders exchanging old notes will not have to pay brokerage commissions or
fees or transfer taxes if they follow the instructions in the letter of
transmittal. NWS will pay the charges and expenses, other than certain taxes
described below, in the exchange offer.
Neither NWS nor the board of directors of NWS recommends you to tender or
not tender old notes in the exchange offer. In addition, NWS has not authorized
anyone to make any recommendation. You must decide whether to tender in the
exchange offer and, if so, the aggregate amount of old notes to tender.
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on __________, 1999
unless we extend the exchange offer.
NWS has the right, in accordance with applicable law, at any time to:
o delay the acceptance of the old notes;
o terminate the exchange offer if NWS determines that any of the
conditions to the exchange offer have not occurred or have not
been satisfied;
o extend the expiration date of the exchange offer and keep all old
notes tendered other than those notes properly withdrawn; and
o waive any condition or amend the terms of the exchange offer.
If NWS materially changes the exchange offer, or if NWS waives a material
condition of the exchange offer, NWS will promptly distribute a prospectus
supplement to the holders of the old notes disclosing the change or waiver. NWS
will also extend the exchange offer as required by Rule l4e-1 under the
Exchange Act.
If NWS exercises any of the rights listed above, it will promptly give oral
or written notice of the action to the exchange agent and will issue a release
to an appropriate news agency. In the case of an extension, an announcement will
be made no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Interest on Exchange Notes
The exchange notes will bear interest at a rate of 10.125% per annum,
payable semi-annually, on January 15 and July 15 of each year, commencing July
15, 1999. Holders of exchange notes will receive interest on July 15, 1999 from
the date of initial issuance of the exchange notes, plus any accrued interest.
Interest on the old notes accepted for exchange will cease to accrue upon
issuance of the exchange notes.
<PAGE>
Acceptance for Exchange and Issuance of Exchange Notes
NWS will issue to the exchange agent exchange notes for old notes tendered
and accepted and not withdrawn promptly after the expiration date. The exchange
agent might not deliver the exchange notes to all tendering holders at the same
time. The timing of delivery depends upon when the exchange agent receives and
processes the required documents.
NWS will be deemed to have exchanged old notes validly tendered and not
withdrawn when NWS gives oral or written notice to the exchange agent of their
acceptance. The exchange agent is an agent for NWS for receiving tenders of old
notes, letters of transmittal and related documents. The exchange agent is also
an agent for tendering holders for receiving old notes, letters of transmittal
and related documents and transmitting exchange notes to validly tendering
holders. If for any reason, NWS
o delays the acceptance or exchange of any old notes,
o extends the exchange offer, or
o is unable to accept or exchange notes,
then the exchange agent may, on behalf of NWS and subject to Rule
14e-1(c) under the Exchange Act, retain tendered notes. Exchange notes retained
by the exchange agent may not be withdrawn, except according to the withdrawal
procedures outlined in the section entitled "--Withdrawal Rights" below.
In tendering old notes, you must warrant in the letter of transmittal or in
an agent's message (described below) the following:
o you have full power and authority to tender, exchange, sell, assign
and transfer old notes,
o NWS will acquire good, marketable and unencumbered title to the
tendered old notes, free and clear of all liens, restrictions, charges
and other encumbrances, and
o the old notes tendered for exchange are not subject to any adverse
claims or proxies. You also must warrant and agree that you will, upon
request, execute and deliver any additional documents requested by NWS
or the exchange agent to complete the exchange, sale, assignment, and
transfer of the old notes.
Procedures for Tendering Old Notes
Valid Tender
Only a holder of exchange notes or, in the case of global exchange notes
held by DTC, a DTC participant listed in an official DTC proxy, may tender such
exchange notes in the exchange offer. To tender in the exchange offer, a holder
or DTC participant must complete, sign and date the letter of transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if required by the
letter of transmittal and mail or otherwise deliver such letter of transmittal
or such facsimile, together with the exchange notes and any other required
documents, to the exchange agent so as to be received by the exchange agent at
the address set forth below prior to 5:00 p.m., New York City time, on
_________, 1999. Delivery of the exchange notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the exchange agent prior to the
expiration date.
By executing the letter of transmittal, each holder or DTC participant will
make to NWS and the guarantors the representation set forth below in the second
paragraph under the heading "-- Resales of Exchange Notes."
The tender by a holder or DTC participant and the acceptance thereof by NWS
will constitute an agreement between such holder or DTC participant and NWS in
accordance with the terms and subject to the conditions set forth herein and in
the letter of transmittal.
<PAGE>
The method of delivery of notes and the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holder or DTC participant. Instead of delivery by mail, it is recommended that
holders and DTC participants use an overnight or hand delivery service, in all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No letter of transmittal or notes should be
sent to NWS. Beneficial owners may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such beneficial owners.
Any beneficial owner whose exchange notes are held through a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contract such nominee promptly and instruct such nominee to tender on
such beneficial owner's behalf. Such instructions should be given in sufficient
time to ensure that the nominee will be able to take the necessary steps to
tender such exchange notes before the expiration date.
Signature Guarantees
Signatures on the letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution, as defined later in
this paragraph, unless the exchange notes tendered pursuant thereto are
tendered:
o by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
o for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the letter of transmittal is signed by 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 NWS, evidence satisfactory to NWS of
their authority to so act must be submitted with the letter of transmittal.
Book-Entry Transfer; ATOP
NWS understands that the exchange agent will make a request promptly after
the date of this prospectus to establish an account with respect to the exchange
notes at DTC for the purpose of facilitating the exchange offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC may make book-entry delivery of the exchange notes by causing DTC to
transfer such exchange notes into the exchange agent's account with respect to
the exchange notes in accordance with DTC's procedures for such transfer.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the book-entry facility ATOP. Accordingly, DTC participants listed
on an official DTC proxy may electronically transmit their acceptance of the
exchange offer by causing DTC to transfer exchange notes to the exchange agent
in accordance with DTC's ATOP procedures for transfer. DTC will then send an
agent's message to the exchange agent.
<PAGE>
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgement from the
participant in DTC tendering exchange notes which are the subject of such
book-entry confirmation, that such participant has received and agrees to be
bound by terms of the letter of transmittal and that NWS and the guarantors may
enforce such agreement against the participant. In the case of an agent's
message relating to guaranteed delivery, the term means a message transmitted by
DTC and received by the exchange agent which states that DTC has received an
express acknowledgement from the participant in DTC tendering exchange notes
that such participant has received and agrees to be bound by the Notice of
Guaranteed Delivery.
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 the letter of transmittal.
Guaranteed Delivery
If a holder wants to tender old notes in the exchange offer and (1) the
certificates for the old notes are not immediately available or all required
documents are unlikely to reach the exchange agent on or before the expiration
date, or (2) a book-entry transfer cannot be completed in time, the old notes
may be tendered if the holder complies with the following guaranteed delivery
procedures:
o the tender is made by or through an eligible institution;
o prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed Notice of
Guaranteed Delivery setting forth the name and address of the holder,
the certificate number(s) of such exchange notes and the principal
amount of exchange 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 certificate(s)
representing the exchange notes, or a confirmation of book-entry
transfer of such exchange 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
o such properly completed and executed letter of transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered exchange notes in proper form for transfer, or a confirmation
of book-entry transfer of such exchange 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.
NWS' acceptance of properly tendered old notes is a binding agreement
between the tendering holder and NWS upon the terms and subject to the
conditions of the exchange offer.
<PAGE>
Determination of Validity
NWS will resolve all questions regarding the form of documents, validity,
eligibility, including time of receipt, and acceptance for exchange of any
tendered old notes. NWS' resolution of these questions as well as NWS'
interpretation of the terms and conditions of the exchange offer, including the
letter of transmittal, is final and binding on all parties. A tender of old
notes is invalid until all irregularities have been cured or waived. Neither
NWS, any affiliates or assigns of NWS, the exchange agent nor any other person
is under any obligation to give notice of any irregularities in tenders nor will
they be liable for failing to give any such notice. NWS reserves the absolute
right, in its sole and absolute discretion, to reject any tenders determined to
be in improper form or unlawful. NWS also reserves the absolute right to waive
any of the conditions of the exchange offer or any condition or irregularity in
the tender of old notes by any holder. NWS need not waive similar conditions or
irregularities in the case of other holders.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless waived
by NWS, the person must submit proper evidence satisfactory to NWS, in its sole
discretion, of his or her authority to so act.
A beneficial owner of old notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to participate
in the exchange offer.
Resales of Exchange Notes
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, NWS believes that exchange notes issued
pursuant to the exchange offer in exchange for old notes may be offered for
resale, resold and otherwise transferred by any owner of such exchange notes,
other than any such owner which is an "affiliate" of NWS 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 owner's business and
such owner does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of such
exchange notes. Any owner of exchange notes who tenders in the exchange offer
with the intention to participate, or for the purpose of participating, in a
distribution of the exchange notes may not rely on the position of the staff of
the SEC enunciated in Exxon Capital Holdings Corporation (April 13, 1988) and
Morgan Stanley & Co., Incorporated (June 5, 1991) or similar no-action letters
but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K under the Securities Act. Each
broker-dealer that receives exchange notes for its own broker-dealer as a result
of market-making activities or other trading activities, may be a statutory
underwriter and must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
exchange notes.
By tendering in the exchange offer, each holder or DTC participant, in the
case of tenders of interests in the global exchange notes held by DTC, will
represent to NWS and the guarantors that, among other things,
o 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 registered
holder or DTC participant,
<PAGE>
o neither the holder or DTC participant nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such exchange notes and
o the holder or DTC participant and such other person acknowledge that
if they participate in the exchange offer for the purpose of
distributing the exchange notes (a) they must, in the absence of an
exemption therefrom, comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale of the exchange notes and cannot rely on the no-action letters
referenced above and (b) failure to comply with such requirements in
such instance could result in such holder or DTC participant or such
other person incurring liability under the Securities Act for which
such holder or DTC participant or such other person is not indemnified
by NWS or any guarantor.
Further, by tendering in the exchange offer, each holder or DTC participant and
such other person that may be deemed an "affiliate", as defined under Rule 405
of the Securities Act, of NWS will represent to NWS and the guarantors that such
holder or DTC participant and such other person understand and acknowledge that
the exchange notes may not be offered for resale, resold or otherwise
transferred by that holder or DTC participant or such other person without
registration under the Securities Act or an exemption therefrom.
Withdrawal Rights
You can withdraw tenders of old notes at any time on or before the
expiration date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a Notice of Withdrawal to the exchange agent
on or before the expiration date. The Notice of Withdrawal must specify the name
of the person tendering the old notes to be withdrawn, the total principal
amount of old notes withdrawn, and the name of the registered holder of the old
notes if different from the person tendering the old notes. If you delivered old
notes to the exchange agent, you must submit the serial numbers of the old notes
to be withdrawn and the signature on the Notice of Withdrawal must be guaranteed
by an eligible institution, except in the case of old notes tendered for the
account of an eligible institution. If you tendered old notes as a book-entry
transfer, the Notice of Withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of old notes and you must
deliver the Notice of Withdrawal to the exchange agent by written, telegraphic,
telex or facsimile transmission. You may not rescind withdrawals of tender. Old
notes properly withdrawn may again be tendered at any time on or before the
expiration date.
We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. Neither NWS, any affiliate or assign of NWS, the exchange agent
nor any other person is under any obligation to give notice of any
irregularities in any Notice of Withdrawal, nor will they be liable for failing
to give any such notice. Withdrawn old notes will be returned to the holder
after withdrawal.
Conditions to the Exchange Offer
NWS need not exchange any old notes, may terminate the exchange offer or
may waive any conditions to the exchange offer or amend the exchange offer, if
any of the following conditions have occurred:
o the Staff of the SEC no longer allows the exchange notes to be offered
for resale, resold and otherwise transferred by certain holders
without compliance with the registration and prospectus delivery
provisions of the Securities Act; or
<PAGE>
o a governmental body passes any law, statute, rule or regulation which,
in NWS' opinion, prohibits or prevents the exchange offer; or
o the SEC or any state securities authority issues a stop order
suspending the effectiveness of the registration statement or
initiates or threatens to initiate a proceeding to suspend the
effectiveness of the registration statement; or
o NWS is unable to obtain any governmental approval that NWS believes is
necessary to complete the exchange offer.
If NWS reasonably believes that any of the above conditions has occurred,
it may
(1) terminate the exchange offer, whether or not any old notes have been
accepted for exchange,
(2) waive any condition to the exchange offer, or
(3) amend the terms of the exchange offer in any respect.
If NWS' waiver or amendment materially changes the exchange offer, NWS will
promptly disclose the waiver or amendment through a prospectus supplement,
distributed to the registered holders of the old notes. The prospectus
supplement also will extend the exchange offer as required by Rule 14e-1 of the
Exchange Act.
Exchange Agent
NWS appointed Norwest Bank Minnesota, N. A. as exchange agent for the
exchange offer. Holders should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for Notice of Guaranteed Delivery to the exchange agent
addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
By Registered, Certified Mail,
Hand or Overnight Delivery: Confirm By Telephone: Facsimile Transmissions:
Norwest Bank Minnesota, N.A. (612) 667-9764 (612) 667-9825
Corporate Trust Attention: Corporate
Northwest Center Trust Services
6th & Marquette
Minneapolis, Minnesota 55479
Attention: Corporate Trust
Services
</TABLE>
If you deliver letters of transmittal and any other required documents to
an address or facsimile number other than those listed above, your tender is
invalid.
Fees and Expenses
NWS will pay all costs incidental to the exchange offer including the
reasonable and customary fees of the exchange agent for its services and
reasonable out-of-pocket expenses. NWS will also pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for
sending copies of this prospectus and related documents to holders of old notes,
and in handling or tendering for their customers.
NWS will pay the transfer taxes for the exchange of the old notes in the
exchange offer. If, however, exchange notes are delivered to or issued in the
name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of old notes in the exchange
offer, then the tendering holder will pay the transfer taxes. If a tendering
holder does not submit satisfactory evidence of payment of taxes or exemption
from taxes with the letter of transmittal, the taxes will be billed directly to
the tendering holder.
<PAGE>
NWS will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the exchange offer.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes. Accordingly, NWS will not recognize any gain or loss for accounting
purposes. NWS intends to amortize the expenses of the exchange offer and
issuance of the old notes over the term of the exchange notes.
REORGANIZATION OF THE COMPANY
Historically, NWS' operations in Indiana, Michigan and Illinois have been
conducted through wholly-owned subsidiaries for Indiana, NWS-Indiana, and
Michigan, NWS-Michigan, and through an affiliate for llinois, NWS-Illinois.
Prior to the reorganization, James E. LaCrosse, or a trust for the benefit of
his family, and Norma M. Johnston owned substantially all of the voting and
non-voting shares of common stock of NWS-Indiana and, together with Martin H.
Bart, owned all of the voting and non-voting shares of common stock of
NWS-Illinois.
In December, 1998, a reorganization took place which created a new holding
company, NWS, into which all of the shares of capital stock in NWS-Indiana and
NWS-Illinois owned by Mr. LaCrosse, or a trust for the benefit of his family, or
Mrs. Johnston were contributed in exchange for shares of NWS. In addition,
NWS-Indiana subsequently distributed all of its shares in NWS-Michigan to NWS.
Finally, NWS-LLC was created as a new limited liability company subsidiary of
NWS-Illinois into which substantially all of NWS' Illinois operations were
transferred. Currently, NWS-LLC is owned 75% by NWS-Illinois and 25% by Mr.
Bart. Allocations of profits and losses are different, currently 96% for
NWS-Illinois and 4% for Mr. Bart, given the capital investment disparity between
NWS-Illinois and Mr. Bart. The profit and loss allocations would be subject to
change in the future depending on the relative capital accounts of the members,
which in turn would affect the amount of Mr. Bart's minority interest reflected
in NWS' financial statements. NWS is substantially wholly-owned by Mr. LaCrosse,
or a trust for the benefit of his family, and Mrs. Johnston. Each of
NWS-Indiana, NWS-Illinois, NWS-Michigan and NWS-LLC is a guarantor of the notes.
The primary purpose of the reorganization was to establish a holding
company structure for NWS-Indiana and all of its significant affiliated
companies. The reorganization was accounted for as a combination of entities
under common control, similar to a pooling-of-interest. As such, the NWS
financial statements have been presented to reflect this accounting treatment.
USE OF PROCEEDS
The exchange offer will not generate cash proceeds for NWS. NWS used the
net proceeds from the sale of the old notes to repay NWS' existing credit
facility, a $15.0 million short-term bank facility, of which $7.5 million was
outstanding as of December 31, 1998, and certain other outstanding indebtedness
of NWS. The existing credit facility was used to fund accounts receivable,
inventories, capital expenditures and acquisitions.
<PAGE>
CAPITALIZATION
The table set forth below reflects as of December 31, 1998 (1) our actual,
and (2) our capitalization as adjusted to give effect to the offering, the
application of the estimated net proceeds from the offering and the new credit
facility. This table should be read in conjunction with "Use of Proceeds,"
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this prospectus.
Of the $32.6 million of unsubordinated indebtedness as of December 31,
1998, $7.5 million had been borrowed under a credit facility which was repaid in
full with the proceeds of the January, 1999 offering. The $32.6 million also
included term debt with prepayment penalties of $0.2 million. This amount,
together with unamortized deferred financing costs of approximately $0.3
million, was recorded as a loss on extinguishment of debt at the time of
repayment.
Total borrowings of up to $60.0 million are available on a revolving basis
under our new credit facility. Undrawn amounts will be available for working
capital and general corporate purposes. Our actual borrowings at the closing of
the exchange offer will depend on our seasonal working capital requirements.
Subordinated indebtedness includes a subordinated note payable to a former
employee in the amount of $350,000, and a $600,000 note payable to a former
stockholder pursuant to a five-year non-compete agreement and does not include
any obligations under notes due stockholders, $1.8 million of which were
converted into equity prior to December 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
As of December 31, 1998
-------------------------
Actual As Adjusted
(In thousands)
Cash............................................... $ 3,217 $ 100
========= =========
Total debt:
Existing Credit Facility........................ $ 87,390 $ --
Other existing unsubordinated indebtedness...... 32,605 296
New Credit Facility ............................ -- 12,092
Notes........................................... -- 110,000
Subordinated indebtedness....................... 950 950
--------- ---------
Total debt .................................. 120,945 123,338
Stockholders' equity............................... 25,119 23,160
========= =========
Total capitalization............................... $ 146,064 $ 146,498
========= =========
</TABLE>
<PAGE>
The adjustments to stockholders' equity are shown in the table below (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity at December 31, 1998............................... $ 25,119
Dividends paid prior to the initial offering............................ (1,800)
Stockholder contributions made prior to the initial offering............ 300
Unamortized deferred financing costs written off........................ (279)
Prepayment penalties.................................................... (180)
------------
Stockholders' equity at December 31, 1998, as adjusted.................. $ 23,160
------------
</TABLE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary of historical financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere herein. The pro forma income statement data and other
data for the twelve months ended December 31, 1998 give effect to the initial
offering and the new credit facility as if they had occurred at the beginning of
the period presented.
Distribution fees include our per case distribution fee for cases of
spirits delivered in and on behalf of the State of Michigan. We do not take
title to or finance any inventory in Michigan. Please also note that we have
elected "S" corporation status under the Internal Revenue Code and consequently,
we do not incur liability for federal and certain state income taxes.
The following will also assist in the review of the following financial
information:
o For purposes of calculating earnings to fixed charges, earnings consist of
net income plus fixed charges. Fixed charges consist of interest expense,
amortization of debt expense and discount or premium relating to
Indebtedness and the portion of rental expense on operating leases which we
estimate to be representative of the interest factor attributable to rental
expense. For 1994, earnings were inadequate to cover fixed charges by
$1,281,000.
o For pro forma interest expense, the effective interest rate on our new
credit facility is assumed to be 7.75%. Pro forma interest expense has been
reduced by $454,000 which represents interest expense on the shareholder
notes payable which will be set off against the interest income on the
shareholder notes receivable pursuant to the amended terms of the
shareholder notes.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve
Ended Months
Years Ended March 31, December 31, Ended
December
31,
------------------------------------------------------------- -------------------------- -----------
1994 1995 1996 1997 1998 1997 1998 1998
(Dollars and cases in thousands, except per case amount)
Statement of Income Data:
Net product sales....... $ 396,360 $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 401,927 $ 423,367 $ 526,581
Distribution fees ...... -- -- -- 2,729 16,270 13,121 14,010 17,159
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Total revenue........... 396,360 427,218 443,257 490,800 521,411 415,048 437,377 543,740
Cost of products sold... 330,698 354,478 364,792 402,072 411,734 329,566 346,516 428,684
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Gross profit............ 65,662 72,740 78,465 88,728 109,677 85,482 90,861 115,056
Selling, general and
administrative
expenses............. 62,884 64,431 68,925 80,299 99,118 75,044 78,690 102,764
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Income from operations.. 2,778 8,309 9,540 8,429 10,559 10,438 12,171 12,292
Interest expense........ (4,907) (7,341) (7,935) (8,486) (9,672) (7,325) (8,018) (10,365)
Gain on sale of assets.. 176 89 172 41 4,139 4,225 97 11
Other income............ 672 1,122 1,247 1,619 2,085 938 1,336 2,483
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Net income (loss) ...... $ (1,281) $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 8,276 $ 5,586 $ 4,421
=========== =========== =========== ========== ========= ============ =========== ===========
Other Financial Data:
EBITDA (1).............. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
EBITDA margin........... 1.7% 3.0% 3.3% 2.9% 3.4% 3.7% 4.2% 3.8%
Cash provided (used) by
operating activities. $ (7,111) $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ (14,931) $ (6,643) $ (18,071)
Cash used by investing
activities.......... (15,876) (7,424) (5,077) (9,937) (9,908) (11,003) (14,972) (13,877)
Cash provided (used) by
financing activities 21,946 1,729 11,789 4,918 (1,900) 24,463 23,462 (2,901)
Depreciation and 3,800 4,561 4,902 5,757 7,115 5,052 6,074 8,137
amortization.........
Capital expenditures (2) 12,002 6,503 3,609 10,447 13,952 12,069 6,518 8,401
Ratio of earnings to
fixed charges........ N/A 1.3x 1.4x 1.2x 1.6x 2.0x 1.6x 1.4x
Operating Statistics:
Product Sales Operations
Cases shipped (spirits
and wine)............ N/A 6,006 6,109 6,099 6,343 5,039 5,035 6,339
Net product price per
case................. N/A $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 73.23 $ 74.62 $ 73.96
Gross profit margin..... 16.6% 17.0% 17.7% 17.6% 18.5% 18.0% 18.2% 18.6%
Fee Operations
Cases shipped (spirits). -- -- -- 396 2,545 1,990 2,124 2,679
Distribution fee per case -- -- -- $ 6.50 $ 6.50 $ 6.50 $ 6.50 $ 6.50
Pro Forma Information:
Adjusted EBITDA (1)..... -- -- -- -- -- -- -- 21,175
Interest expense........ -- -- -- -- -- -- -- 11,299
Income from operations.. -- -- -- -- -- -- -- 12,292
Adjusted EBITDA/Interest
Expense.............. -- -- -- -- -- -- -- 1.9x
Net Debt/Adjusted
EBITDA............... -- -- -- -- -- -- -- 5.8x
Income from operations/
Interest Expense..... -- -- -- -- -- -- -- 1.1x
Net Debt/Income from
Operations........... -- -- -- -- -- -- -- 10.0x
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
As of March 31, As of December 31,
----------------------------------------------------------- ----------------------------
Balance Sheet Data: 1994 1995 1996 1997 1998 1997 1998
(In thousands)
Cash.................... $ 1,244 $ 1,489 $ 1,475 $ 3,395 $ 1,370 $ 2,924 $ 3,217
Total assets............ 120,824 122,189 143,316 160,366 169,102 188,383 202,136
Total debt.............. 70,373 71,072 86,908 99,545 102,434 126,504 120,945
Stockholders' equity.... 12,909 15,363 14,209 10,470 14,582 17,253 25,119
</TABLE>
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(1) EBITDA is defined as income from operations plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO charges,
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31, 1998
------------------------------------------------------- ---------------- ----------------
1994 1995 1996 1997 1998 1997 1998
(In thousands)
EBITDA................... $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $18,245 $ 20,429
LIFO charge.............. 65 145 545 1,455 570 429 605 746
----------- ---------- --------- --------- --------- ---------- --------- -----------
Adjusted EBITDA....... $ 6,643 $ 13,015 $ 14,987 $ 15,641 $ 18,244 $ 15,919 $18,850 $ 21,175
=========== ========== ========= ========= ========= ========== ========= ===========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies
on the basis of debt service capability. Adjusted EBITDA is presented
because management believes it may assist in evaluating our ability to
service our Indebtedness, including the exchange notes. EBITDA and
Adjusted EBITDA are not intended to represent cash flows for the
periods presented, nor have they been presented as an alternative to
operating income as an indicator of operating performance and should
not be considered in isolation or as a substitute for measures of
performance and cash flow prepared in accordance with generally
accepted accounting principles. The EBITDA and Adjusted EBITDA
information selected above may not be comparable to similarly titled
measures used by other companies.
(2) The breakdown of capital expenditures for NWS by significant project is set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31,
--------------------------------------------------- ----------------- ----------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
Business expansion........ $10,733 $3,930 $ 786 $ 5,855 $ 10,758 $ 9,740 $ 4,033 $ 5,051
Information systems....... 403 1,743 1,553 2,446 1,781 1,225 921 1,447
Maintenance............... 866 830 1,270 2,146 1,413 1,104 1,564 1,873
-------- ------- --------- --------- --------- --------- --------- ------------
$12,002 $6,503 $ 3,609 $ 10,447 $ 13,952 $ 12,069 $ 6,518 $ 8,401
======== ======= ========= ========= ========= ========= ========= ============
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial and Other Data" and NWS' historical consolidated
financial statements and the accompanying notes included elsewhere in this
prospectus. Unless otherwise indicated, all references to years are to NWS'
fiscal year ended March 31.
<PAGE>
Overview
NWS is one of the largest distributors of wine and spirits in the United
States. Substantially all of NWS' current operations are in Illinois, Indiana
and Michigan. NWS' reported revenues include net product sales in Indiana and
Illinois, and distribution fees in Michigan. In Indiana and Illinois, NWS' net
product sales are comprised of sales to retail customers of wine and spirits
products and, to a much lesser extent, beer, water and other related products.
NWS purchases these products from suppliers and resells them to customers at
more than 24,000 retail locations in Indiana and Illinois through NWS'
approximately 600 person sales organization. In Michigan, which privatized
certain aspects of the wholesale distribution of spirits in 1997, NWS serves as
an "authorized distribution agent" for the state and collects a flat $6.50 per
case delivery fee set by the state and paid by suppliers for each case of
spirits delivered to approximately 12,000 locations throughout Michigan. NWS
does not take title to or finance any inventory in Michigan and operates with a
relatively small sales force.
For 1998, net product sales in Indiana and Illinois were $505.1 million
compared to $488.1 million in 1997. Distribution fees for 1998, which was NWS'
first full year of operations in Michigan, were $16.3 million compared to $2.7
million during 1997. For purposes of illustrating the scale of NWS' operations
in Michigan, the total wholesale prices of products delivered by NWS in Michigan
in 1997 and 1998 were $42.9 million and $280.5 million, respectively, based on
the fixed wholesale prices of the spirits delivered by NWS. NWS' gross profit
includes the gross margin on product sales in Indiana and Illinois and 100% of
NWS' distribution fees in Michigan since NWS does not take title to inventory in
Michigan. NWS' selling, general and administrative expenses reflect
administrative expenses and the costs of logistics and warehousing in all
markets, and selling expenses that relate almost exclusively to product sales in
Illinois, Indiana or through U.S. Beverage.
During 1997 and 1998, selling, general and administrative expenses included
certain start-up expenses related to NWS' new operations in Michigan and its
specialty and craft beer marketing business (U.S. Beverage). Management believes
that these start-up expenses are one-time costs directly related to the
commencement of these business operations that will not impact operating
performance or cash flow on an ongoing basis. NWS anticipates no additional
start-up costs in Michigan and expects that business to be solidly profitable
for the first time in 1999. Management believes U.S. Beverage should achieve
operating profitability in 2000 as a result of the addition of exclusive U.S.
distribution rights to the Hooper's Hooch flavored malt beverage acquired in
September, 1998 from Bass, PLC.
With the inclusion of NWS' distribution fees in Michigan, comparisons of
consolidated sales, gross profit and selling, general and administrative
expenses between years are difficult. For example, because 100% of the
distribution fees are included in gross profit, increases in distribution fees
as a percentage of total sales tend to increase overall gross margin. By
contrast, logistical and warehousing expenses are a far higher percentage of
distribution fee business in Michigan than they are of the product sales in
Illinois and Indiana so that increases in the distribution fee business have
increased selling, general and administrative expenses as a percentage of
revenue and decreased operating margins. Now that NWS' business in Michigan has
completed its start-up phase and fee revenue is becoming more consistent as a
percentage of total revenue, there should be less impact on period to period
margin comparisons in the future. NWS has been able to expand its business
through distribution fees in Michigan without the need for corresponding growth
in, or financing of, working capital and sales force.
NWS' results of operations are typically highly seasonal as the result of a
number of factors, particularly the Christmas season. The third quarter ending
December 31, for example, represents the largest portion of NWS' annual net
income. The fourth quarter is usually not profitable, and the first and second
quarters are typically marginally profitable or slightly unprofitable after
interest expense. NWS' accounts receivable balance at December 31, is
historically between $50.0 and $60.0 million, due largely to seasonality.
<PAGE>
NWS announced an average $3.65 per case across-the-board price increase on
all spirits in Indiana to become effective January 1, 1999 for the products of
most suppliers, and February 1, 1999 for the balance of spirits suppliers. This
increase caused retail customers to purchase additional case volume in December,
1998 before the increase took effect; therefore, NWS shipped more volume in
December, 1998 relative to previous years, with potential reductions in volume
in the quarter ending March 31, 1999. NWS' single spirits competitor in Indiana,
Olinger Distributing, followed by announcing its own set of across-the-board
price increases. The last across-the-board price increase announced by NWS was
in 1995 and was effective. Although there can be no assurance, NWS believes this
price increase will also be effective in the marketplace. If and to the extent
the increase is effective, management believes that it will have a positive
effect on the financial performance of NWS' Indiana operation. NWS sold
approximately 1.5 million cases of spirits in Indiana in fiscal 1998. Assuming
constant volume, management believes that the across-the-board price increase
would have generated an estimated $5.5 million of additional revenues in fiscal
1998, a significant portion of which would represent an improvement in gross
margin. Management believes that there will be no material incremental operating
expenses associated with these revenues.
Results of Operations
The following table includes information regarding total cases shipped by
NWS in 1996, 1997, 1998 and for the nine months ended December 31, 1997 compared
with the nine months ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
Years ended March 31, December 31,
-------------------------------------------------- --------------------------------
1996 1997 1998 1997 1998
-------- ------------------- ------------------- --------- ---------------------
Percent Percent Percent
Cases Cases Change Cases Change Cases Cases Change
Cases in thousands)
Wine (product sales operations)...... 2,775 2,838 2.3% 2,981 5.0% 2,340 2,419 3.4%
Spirits (product sales operations)... 3,334 3,261 (2.2) 3,362 3.1 2,699 2,616 (3.1)
Spirits (distribution fee operations) -- 396 -- 2,545 542.7 1,990 2,124 6.7
------ -------- -------- --------- ---------
Total wine and spirits......... 6,109 6,495 6.3 8,888 36.8 7,029 7,159 1.8
Other................................ 1,480 1,691 14.3 1,971 16.6 1,557 1,704 9.4
------ -------- -------- --------- ---------
Total.......................... 7,589 8,186 7.9% 10,859 32.7% 8,586 8,863 3.2%
====== ======== ======== ========= =========
</TABLE>
Nine Months Ended December 31, 1998 Compared with Nine Months Ended December 31,
1997
Revenue. NWS reported product sales in the nine months ended December 31,
1998 of $423.4 million, an increase of $21.4 million, or 5.3%, over the
comparable prior year period. This increase resulted primarily from the
continued shift by consumers to more premium brands, and the addition of
Sebastiani Wines in the Chicago market, which more than offset a slight decline
in total spirits cases sold. Contributing to the decline in the sale of spirits
cases was the additional customer purchases of spirits cases in the fourth
quarter of fiscal 1998 in advance of an announced price increase on certain key
brands. This increased case sales in fiscal 1998 and decreased case sales in the
nine months ended December 31, 1998. In addition, U.S. Beverage contributed $5.7
million of revenue, all of which was incremental compared to the prior year.
Distribution fees increased 6.8% for the nine month period to $14.0 million on
increased volume of existing brands and the addition of new suppliers. NWS'
recent addition of certain new supplier brands in Michigan, McCormick and
Austin-Nichols, did not occur until the middle of the second quarter of 1999
and, therefore, is only partially reflected in NWS' 1999 nine month results. The
recent loss of the J&B brand in Michigan, which was due to supplier realignment,
did not occur until November, but management does not expect it to have a
material impact on the distribution fee operations of NWS.
<PAGE>
Gross Profit. Gross profit on NWS' total revenue increased to $90.9 million
in the nine months ended December 31, 1998 from $85.5 million in the comparable
prior year period. This represented a 6.3% increase, due to improving gross
margins on NWS' product sales for the nine months from 18.0% to 18.2% and the
additional volume in Michigan with no corresponding cost of products sold. Gross
margins on product sales continued to benefit slightly from the continuing shift
in product mix to higher profit premium brands and from gradual reductions in
trade discounts in the competitive Chicago market. Additionally, the U.S.
Beverage business contributed slightly with margins of 18.1% for the nine months
ended December 31, 1998. As a result of this improvement and since gross profit
in Michigan is 100% of fee revenues, NWS' overall gross profit margin grew from
20.6% in the nine months ended December 31, 1997 to 20.8% for the nine-month
period ended December 31, 1998. Cost of products sold included a non-cash LIFO
charge of $0.6 million in the nine months ended December 31, 1998 compared with
$0.5 million for the comparable prior year period. Interim LIFO calculations are
based on management's estimates of expected year-end inventory levels and costs.
Over the past five years, LIFO adjustments have ranged between $0.1 and $1.5
million per year.
Selling, General and Administrative Expenses. Overall, operating expenses
increased $3.6 million to $78.7 million for the nine months ended December 31,
1998 from $75.0 million for the comparable period ended December 31, 1997. As a
percent of total revenue, selling, general and administrative expenses decreased
from 18.1% for the nine-month period ended December 31, 1997 to 18.0% for the
comparable current year period.
Selling expenses for product markets increased $4.7 million, or from 6.1%
to 6.9% of total revenues, for the nine-month period ended December 31, 1998,
primarily as a result of increased manpower to support the Illinois and Indiana
product markets, including additional sales staff in Illinois to support the
newly acquired Sebastiani brand line. Additionally, U.S. Beverage contributed
$2.6 million to overall selling, warehouse and delivery expenses during the
current nine-month period compared to no selling, warehouse and delivery
expenses in the prior year. Finally, in order to acquire additional lines in
Michigan, NWS created a sales team for the first time in that market. This
increased selling expenses by $0.2 million for the nine-month period ended
December 31, 1998. While small, selling expenses are expected to grow slightly
as NWS continues to increase its sales force in Michigan.
Total administrative expenses increased slightly by $0.6 million or 2.6%
over NWS' nine-month period ended December 31, 1997, which is down as a
percentage of total revenue from 5.2% to 5.1%. The increase in administrative
expenses was primarily a result of the installation of new computer systems in
Indiana and from general employee benefit cost increases across NWS.
Start-up expenses decreased 100%, or $3.2 million for the nine months ended
December 31, 1998, as U.S. Beverage moved out of its start-up phase and incurred
ongoing operating expenses, and NWS-Michigan completed its start-up in fiscal
1998.
Income from Operations. Operating income increased 16.6% or $1.7 million
for the nine months ended December 31, 1998. As a percent of total revenue,
income from operations improved from 2.5% for the nine month period ended
December 31, 1997 to 2.8% for the current year period. The increased revenues
for the nine month period ended December 31, 1998 and improved gross margins
more than offset the increase in operating expenses, and the increase in LIFO
reserve during the period.
Interest Expense. Interest expense increased 9.5% to $8.0 million during
the nine months ended December 31, 1998. The increase was attributable to
additional borrowings to finance the capital expenditures needed for NWS'
Michigan operations as well as an upgrade to the Chicago material handling
system and to finance NWS' Kentucky acquisition. This more than offset a
decrease in NWS' cost of borrowing as a result of the Federal Reserve's interest
rate cuts which directly impact NWS' interest expenses under its bank loans
during the third quarter.
<PAGE>
Other Income. Other income decreased by $3.7 million in the nine-month
period ended December 31, 1998, compared to the prior year period, due to a $4.1
million gain on the sale of certain licensed brands, trademarks, and tradenames
in Illinois in fiscal 1998. Excluding the one-time gain, other income increased
due to NWS' share of income in Commonwealth Wine & Spirits, LLC.
Net Income. For its nine-month period ended December 31, 1998, NWS reported
$5.6 million in net income compared to $8.3 million for the nine months ended
December 31, 1997 primarily due to the $4.1 million gain on the sale of certain
assets during the fiscal 1998 nine month period. Without the one-time gain, net
income for NWS was up 33.8% or $1.4 million for the nine months ended December
31, 1998.
Fiscal 1998 Compared with Fiscal 1997
Revenue. NWS reported product sales in 1998 of $505.1 million, an increase
of $17.1 million, or 3.5%, from 1997 product sales of $488.1 million, primarily
from volume gains on existing brands. Product sales also benefited from consumer
shifts to higher priced brands. Cases of spirits and wine delivered increased
3.1% and 5.0%, respectively, from 1997 to 1998. Distribution fees in Michigan
increased from $2.7 million in 1997 to $16.3 million in 1998, as NWS completed
its first full year of operations in Michigan. The complete year of Michigan
business was the leading contributor to growth in total case volume for NWS from
8.2 million cases in 1997 to 10.9 million cases in 1998, an increase of 32.7%.
NWS' beer, water and other products have experienced significant shipment growth
but have not yet represented a material portion of NWS' revenues or materially
impacted operating performance.
Gross Profit. Gross profit on NWS' total revenue increased to $109.7
million in 1998 from $88.7 million in 1997, a 23.6% increase, due to an
improvement in gross margins on product sales from 17.6% to 18.5% and the
increase in Michigan distribution fees which have no corresponding cost of
products sold. The gross margin improvement on product sales was primarily due
to reduced trade discounts and the continuation of a shift towards premium,
higher-margin wine and spirits brands. As a result of this improvement, and
because gross profit in Michigan is 100% of fee revenues, NWS' overall gross
profit margin grew from 18.1% to 21.0%. Cost of products sold included a
non-cash LIFO charge of $0.6 million in 1998 and $1.5 million in 1997.
Selling, General and Administrative Expenses. Between 1997 and 1998 total
selling, general and administrative expenses, including start-up expenses
related to NWS' Michigan and U.S. Beverage operations, increased to $99.1
million, or 19.0% of total revenue, from $80.3 million, or 16.4% of total
revenue, primarily because of increased warehouse and delivery expenses relating
to the growth of the Michigan business, increased administrative expenses and
the start-up expenses. Management does not believe that a year to year
comparison of selling, general and administrative expenses as a percentage of
revenue is particularly meaningful due to the impact on the comparison of the
Michigan operation, which generates relatively low distribution fee revenues as
discussed above, resulting in proportionately higher warehouse, delivery and
administrative expenses. Warehouse and delivery expenses for Indiana and
Illinois remained fairly constant from 1997 to 1998. Warehouse and delivery
expenses were $11.2 million in Michigan in 1998 compared to $2.1 million in
1997.
Selling expenses increased $1.4 million or 4.6%, which is flat as a
percentage of total revenue compared to 1997. The increase in selling expenses
was primarily related to higher commission expenses on higher revenues in
Indiana.
Administrative expenses increased by $5.3 million, or 21.4%, primarily as a
result of approximately $4.0 million in additional administrative costs related
to a full year of operations in Michigan, including accounting and computer
services, customer support personnel and miscellaneous administrative costs.
For 1998, NWS also incurred start-up costs of $3.3 million, a $2.2 million
increase from 1997. The $3.3 million of start-up costs consisted of $1.2 million
related to NWS' Michigan operations and $2.1 million related to U.S. Beverage.
The Michigan start-up expenses included temporary employees, temporary warehouse
facilities and special product delivery costs incurred while NWS' new Michigan
distribution network was being put into place. U.S. Beverage's start-up expenses
in 1998 of $2.1 million included brand registration costs and other expenses,
net of revenue, related to the establishment of the 32-state U.S. Beverage
distribution network. Start-up expenses in Michigan and U.S. Beverage were
substantially completed in 1998.
<PAGE>
Income from Operations. Operating income increased $2.1 million, or 25.3%,
to $10.6 million in 1998 over 1997. NWS' increases in selling, general and
administrative expenses, start-up expenses, a small operating loss in Michigan's
first full year and the U.S. Beverage losses were more than offset by increased
revenues and improved gross margins in wine and spirits product sales. As a
percent of total revenue, income from operations improved from 1.7% in 1997 to
2.0% in 1998. Without start-up expenses, NWS' 1998 operating income would have
been $13.9 million, or 2.7% of total revenue, compared to $9.6 million in 1997,
or 2.0% of total revenue.
Interest Expense. Interest expense in 1998 was $9.7 million, an increase of
$1.2 million over 1997. The increase was primarily due to additional debt
incurred to finance capital expenditures for NWS' Michigan operations. Interest
expense included $0.5 million related to subordinated stockholder notes of which
$0.3 million was accrued and not paid in cash.
Other Income. Other income included a $4.1 million gain on the sale of
certain non-core private label brands in Illinois in 1998. Of the total sale
price, $3.0 million was paid in cash to NWS in 1998, with the balance of $2.2
million being due in monthly installments through 2004. Interest, rental and
other income primarily includes rental income on surplus property currently for
sale in Illinois and interest income from Mr. LaCrosse and Mrs. Johnston on
their notes payable to NWS, a portion of which was accrued and not received in
cash.
Net Income. Net income was $7.1 million in 1998, compared to $1.6 million
in 1997. Net income for 1998 without start-up expenses and the gain on sale of
assets would have been $6.4 million. As an S corporation, NWS does not pay
corporate level income tax.
Fiscal 1997 Compared with Fiscal 1996
Revenue. NWS' net product sales in 1997 increased to $488.1 million, an
increase of $44.8 million, or 10.1% from 1996 product sales of $443.3 million,
primarily as a result of (1) wine and spirits products sales which benefited
from price increases and the continued shift to higher priced brands by
consumers which resulted in an 11.3% increase in the average price per case
delivered; and (2) a significant increase in product sales in Illinois where
wine cases increased 6.9% over 1996, which more than offset a volume decline in
Indiana. NWS began its Michigan operations in 1997, which contributed $2.7
million of distribution fees during two months of sales. Primarily due to the
Michigan start-up and the Illinois operations, total case volume increased from
7.6 million to 8.2 million, or by 7.9%.
Gross Profit. Gross profit on product sales increased from $78.5 million in
1996 to $88.7 million in 1997, a $10.3 million or 13.1% increase. The increase
was primarily the result of management in Illinois focusing on reducing customer
discounting in the competitive Chicago market. Michigan distribution fees
contributed $2.7 million in gross profit from its first two months of operation
since these fees have no corresponding cost of goods sold. Cost of products sold
included a non-cash LIFO charge of $1.5 million in 1997 and $0.5 million in
1996.
Selling, General and Administrative Expenses. Between 1996 and 1997, total
selling, general and administrative expenses increased to $80.3 million, or
16.4% of total revenue from $68.9 million, or 15.6% of total revenue.
Warehouse and delivery expenses increased 18.8% to $23.5 million in 1997
from $19.8 million in 1996. This increase was primarily the result of the new
operations in Michigan which accounted for $2.1 million of the increase,
approximately $1.0 million of which was start-up expense.
<PAGE>
Selling expenses increased 17.9% to $30.9 million from 1996 to 1997. This
increase was driven primarily by expansion of the wine sales force in Illinois
to accommodate new suppliers and by additional expenses incurred as suppliers
continued to seek more distributor support for sales and service functions
previously performed by the suppliers.
Administrative expenses increased by 7.9%, or $1.8 million, primarily due
to commencement of operations in Michigan in 1997.
Income from Operations. Operating income decreased from $9.5 million in
1996 to $8.4 million in 1997 as the increase in gross profit was offset by the
increase in selling, general and administrative expenses, including start-up
expenses for Michigan. Without start-up expenses, NWS' 1997 operating income
would have been $9.6 million.
Interest Expense. Interest expense increased from $7.9 million in 1996 to
$8.5 million in 1997 as NWS had increased borrowings to support the additional
working capital requirements associated with the increase in product sales in
Indiana and Illinois and capital expenditures associated with NWS' Michigan
start-up.
Net Income. Net income decreased to $1.6 million in 1997 compared to $3.0
million in 1996 primarily due to the significant non-cash LIFO charge and
start-up costs associated with NWS' Michigan operations.
Quarterly Results of Operations; Seasonality
NWS' revenues are influenced by a number of factors, particularly the
Christmas holiday season, which tend to result in seasonally high levels of
volume and profitability in NWS' fiscal third quarter with seasonal losses in
NWS' fiscal fourth quarter.
The following table presents unaudited quarterly financial information for
each of the eleven quarters in the period ended December 31, 1998. In the
opinion of NWS' management, this information has been prepared on the same basis
as the consolidated historical financial statements appearing elsewhere in this
prospectus and includes all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial results set forth herein.
Results of operations for any quarter are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended March 31,
----------------------------------------------------------------------------------------------------------------
1997 1998 1999
---------------------------------------- --------------------------------------- ----------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Revenues........... $ 119,093 $ 111,164 $ 157,056 $ 103,487 $ 130,387 $ 115,493 $169,168 $ 106,363 $135,899 $ 122,005 $ 179,473
Operating income 1,892 950 6,544 (957) 2,714 1,008 6,716 121 3,908 503 7,760
(loss)..........
EBITDA (1)......... 3,293 2,350 7,944 599 4,273 2,567 8,650 2,184 5,912 2,544 9,789
Operating working
capital 74,435 74,602 88,247 75,579 76,594 78,717 100,243 74,326 76,963 78,491 91,381
(end of
period) (2)....
<FN>
- -----------
(1) See Note 1 to "Selected Consolidated Financial and Other Data" for a
definition of EBITDA and other information regarding EBITDA.
(2) Operating working capital is defined as the sum of accounts receivable and
inventory less accounts payable.
</FN>
</TABLE>
<PAGE>
Liquidity and Capital Resources
NWS' primary cash requirements have been to fund accounts receivable and
inventories in Indiana and Illinois and to fund capital expenditures and
acquisitions. NWS has historically satisfied its cash requirements principally
through cash flow from operations, trade terms and bank borrowings.
As indicated above, NWS' business is highly seasonal. NWS' operating
working capital fluctuates with seasonal trends as illustrated in the quarterly
table above. As a result, NWS' working capital requirements and borrowings under
NWS' credit facility have fluctuated significantly over the course of each year.
In 1998, the minimum and maximum amount of borrowings under the existing credit
facility at any one time were $66.7 million in March, 1998, and $94.4 million in
November, 1997. The average month-end borrowings in 1998 were $78.2 million.
Working capital also fluctuates with some suppliers' desired shipping patterns,
which tend to produce increased orders and inventory at the end of such
suppliers' fiscal periods.
Effective January 25, 1999, NWS completed an offering of $110.0 million of
senior notes due 2009. Concurrently with the offering of the senior notes, NWS
entered into a new $60.0 million credit facility secured by the accounts
receivable and inventory of the guarantors. With proceeds from the senior notes
offering and borrowings under the new credit facility, NWS retired substantially
all of its bank revolving and term indebtedness.
Consistent with historical seasonality, for the nine months ended December
31, 1998, NWS used $6.6 million in net cash from operating activities, primarily
to finance increased accounts receivable. Accounts receivables also increased
due to the product buy-in which occured in late December, 1998.
Net cash used for investing activities during the first nine months of 1999
was $15.0 million, primarily for NWS' Kentucky investment and for an upgrade and
expansion of the Chicago material handling system and for converting the Indiana
operation to a new corporate-wide management information system.
Total assets increased to $202.1 million at December 31, 1998, a $33.0
million increase from March 31, 1998 as a result of additional property and
equipment supporting the Michigan operation and the seasonal increase in
inventories as well as the equity investment in Kentucky. At the same time, debt
increased from $96.3 million at March 31, 1998 to $120.9 million at December 31,
primarily to help fund the Kentucky investment and growth in inventory and
capital expenditures for the first nine months of 1999.
Net cash provided by operating activities was $9.8 million for 1998 as
compared to $6.9 million for 1997. The 1998 increase was primarily the result of
significant improvement in net income, increased depreciation expense, an
increase in accounts payable and a decrease in accounts receivable.
Net cash used by investing activities was $9.9 million in both 1998 and
1997 primarily as a result of capital expenditures in Michigan. Total 1999
capital expenditures are expected to be approximately $7.5 million, including
approximately $4.0 million to upgrade and expand the material handling system in
the Chicago warehouse, $3.5 million of which is already committed. Consistent
with management's strategy of focusing on core logistics and value added
services, NWS sold non-core private label brands during 1998 for $4.1 million
after disposal costs, of which $3.0 million was cash.
At March 31, 1998, total assets were $169.1 million compared to $160.4
million, a $8.7 million increase from March 31, 1997, primarily due to increases
in inventories and additional property and equipment. NWS' debt also increased
from $94.1 million at March 31, 1997 to $96.3 million, a $2.2 million increase,
at March 31, 1998 as a result of increased investments in inventory, property
and equipment.
NWS believes that the net proceeds received from the offering of the senior
notes, together with cash flow from operations and existing capital resources,
including cash and borrowings available under NWS' new credit facility, will be
sufficient to satisfy NWS' anticipated working capital and debt service
requirements and expansion plans.
<PAGE>
Inflation
Inflation has not had a significant impact on NWS' operations but there can
be no assurance that inflation will not have a material adverse effect on NWS'
financial condition, results of operations or debt service capabilities in the
future.
Year 2000
NWS is currently assessing its exposure to potential Year 2000 issues
within its businesses. Phases within the process include assessment, remediation
and contingency planning. NWS has established its assessment phase to include
IT, non-IT, and -- to the extent reasonably practicable -- customer and supplier
readiness. NTS' IT systems include the following:
o Order entry;
o Inventory control;
o Order processing;
o Accounts receivable;
o Accounts payable;
o General ledger;
o Purchasing;
o Sales reporting;
o Electronic date interchange;
o Electronic mail;
o Manufacturing and bottling;
o Governmental reporting; and
o Operating systems.
NWS' non-IT systems include the following:
o Building security;
o HVAC/climate control;
o Office equipment;
o Material handling systems;
o Utilities; and
o Suppliers and customers.
NWS has completed 100% of the assessment work on its internal IT systems,
and approximately 98% on its non-IT systems. Through the assessment process, NWS
identified certain financial systems that were not Year 2000 ready. NWS replaced
these systems with new Year 2000 compliant systems which went into effect on
April 1, 1999. NWS plans to complete all of its assessment and remediation of
its IT and non-IT systems by October, 1999.
NWS' material systems, including its corporate wide area network (WAN),
reporting systems and databases, are Year 2000 compliant. However, the following
systems are not currently Year 2000 ready:
o Remote order entry units used by salespersons;
o MPE/iX operating system controls in the Detroit, Michigan warehouse;
and
o Material handling system controls in the Detroit, Michigan warehouse.
For the remote entry units, if necessary we will install a new receiver
unit which is Year 2000 ready as a temporary measure. Lead time for backup
equipment is approximately 20 days. For Michigan, Year 2000 certified software
patches have been ordered but have not been installed. Insallation will be
completed by July 1, 1999. If the system upgrade is not completed by December
31, 1999, and Year 2000 errors occur, the system would have to be operated
manually which could cause significant inefficiencies in the Michigan operation.
As a wholesale distributor of alcohol-based beverages, NWS is dependent on
its customers and suppliers. NWS has mailed surveys to its large customers and
all of its case goods suppliers, and has conducted follow-up phone interviews
with its key suppliers regarding their Year 2000 compliance. Although all
suppliers and material customers have been contacted regarding their Year 2000
assessment, NWS does not expect to receive information from many of them.
However, NWS' customer and supplier base is so broad that isolated Year 2000
problems should not have a material adverse effect on NWS' business. In
addition, NWS maintains internal inventory levels at approximately 30-60 days
which provides a cushion in the event a significant supplier experiences Year
2000 problems. At this stage of its inquiry, NWS currently is not aware of any
significant customer or supplier with a Year 2000 issue that would materially
impact NWS' operations or financial condition. However, NWS is necessarily
relying on the accuracy of information from customers and suppliers, does not
expect to receive information from many of them, and has no means of ensuring
that customers or suppliers will be Year 2000 ready. NWS has not conducted any
independent verification and validation process to assure the reliability of its
customers or suppliers regarding their Year 2000 readiness disclosure
statements. The inability of one or more of these entities to be prepared could
have a material adverse effect on NWS.
<PAGE>
At December, 1998, NWS has incurred less than $25,000 in costs directly
associated with the remediation of its systems, and an additional $70,000
remains in the fiscal 1999 budget for Year 2000 issues. NWS does not track
internal costs incurred by its IT group in connection with the Year 2000 project
because they are primarily payroll costs that are not allocated among Year 2000
and other projects. Management does not believe that future Year 2000 assessment
and remediation costs will be material, and intends to fund any necessary
assessment and remediation costs from its existing resources as budgeted. These
costs do not include the cost of upgrading or replacing systems for other
business reasons. Such actions usually provide the additional benefit of making
the system Year 2000 compliant.
In the event of a complete failure of its information technology systems
due to an extended power grid failure, NWS believes that there is a potential
loss of sales estimated to be $1.0 million. More likely, we could face minor
Year 2000 errors such as incorrect sorting of shipments or processing customer
orders. The primary costs of such an event would be increased time delays in
processing and shipping orders, and increased personnel to manually process the
information. NWS believes that the increased costs associated with such
personnel would not have a material adverse effect on its operations or
financial condition.
Management does not presently expect, based on the information now
available, that the direct impact of Year 2000 issues will have a material
adverse effect on NWS. Certain contingency plans are in place and others will be
developed if additional new systems are required following the identification of
any material Year 2000 risks or uncertainties. However, the failure of NWS to
properly assess, remediate and plan for potential Year 2000 problems could
result in disruptions of normal business operations.
Environmental Matters
NWS currently owns and leases a number of properties, and historically it
has owned and/or leased others. Under applicable environmental laws, NWS may be
responsible for remediation of environmental conditions relating to the presence
of certain hazardous substances on such properties. The liability imposed by
such laws is often joint and several without regard for whether the property
owner or operator knew of, or was responsible for, the presence of such
hazardous substances. In addition, the presence of such hazardous substances, or
the failure to properly remediate such substances, may adversely affect the
property owner's ability to borrow using the real estate as collateral and to
transfer its interest in the real estate. Although NWS is not aware of the
presence of hazardous substances requiring remediation, there can be no
assurance that releases unknown to NWS have not occurred. Except for blending
and bottling of a few of NWS' private label brands, NWS does not manufacture any
of the wine or spirit products it sells and believes that it has conducted its
business in substantial compliance with applicable environmental laws and
regulations.
BUSINESS
General
NWS is one of the largest distributors of wine and spirits in the United
States, and is the largest distributor of spirits in Indiana with 54% market
share and Michigan with 59% market share, and one of the largest in Illinois
with 32% market share. NWS' markets include Chicago and Detroit, which are the
largest and the sixth largest metropolitan markets for spirits in the United
States, respectively.
<PAGE>
NWS is the exclusive distributor in two or more of its markets for many of
the world's leading suppliers of brand name domestic and imported spirits,
including Diageo-UDV, formed through the merger of United Distillers (Guinness)
and International Distillers and Vintners (Grand Metropolitan), Fortune Brands
and Seagram. NWS' featured brands include:
o Absolut;
o Chivas Regal;
o Crown Royal;
o DeKuyper;
o Jim Beam;
o Jose Cuervo; and
o Smirnoff.
NWS also is the exclusive distributor in Indiana and Illinois for many of
the world's leading wineries, including:
o Banfi Vintners, featuring Riunite and other Italian and Chilean wines;
o Canandaigua, featuring Inglenook and Almaden wines;
o Seagram, featuring premium European and California wines; and
o Sebastiani.
NWS operates 12 strategically located distribution facilities and a fleet
of approximately 350 delivery vehicles to provide overnight or second-day
delivery to over 36,000 retail locations, including package liquor stores, drug
and grocery stores, mass merchandisers, hotels and restaurants and bars. NWS'
customers include both local and regional businesses as well as national chains
such as American Stores (Osco), Walgreens, CVS, Sam's Club, Meijer, Chili's,
Ruby Tuesday, T.G.I. Friday's and Hyatt. In select locations, NWS also
distributes premium domestic and imported beer and other products.
From 1994 to 1998, NWS' total revenue increased steadily from
$396.4 million to $521.4 million, representing a compound annual growth rate of
7.1%, while NWS' EBITDA increased from $6.6 million to $17.7 million,
representing a compound annual growth rate of 28.0%. NWS achieved this
performance by successfully integrating several strategic acquisitions since
1992, actively developing new geographic market areas, pursuing new supplier and
brand relationships, implementing advanced product handling technology and
proprietary information systems, and providing high levels of supplier and
customer service.
Under the three-tier regulatory framework established by federal and state
law, suppliers of alcohol-based beverages are generally prohibited from selling
their products directly to retail outlets or consumers, effectively requiring
suppliers to use distributors such as NWS. This regulatory framework effectively
insulates distributors from vertical competition from suppliers or retail
customers. In certain states, referred to as "control states", state law has
historically mandated the state to act as the exclusive wholesale distributor
and/or retailer of alcohol-based beverages. In 1996, Michigan became the first
control state to privatize certain aspects of the wholesale distribution of
spirits, and NWS has become the leading distributor of spirits in that state.
<PAGE>
Industry Overview
The United States alcohol-based beverage industry generated total annual
retail sales of more than $104.0 billion in 1997. Sales of wine and spirits, in
which NWS primarily competes, accounted for approximately 13% and 32%,
respectively, or an estimated $47.1 billion of total retail sales in 1997. In
the United States spirits market, total revenues on a per case basis have
increased since 1994, more than offsetting a general decline in the volume of
spirits sold. Over the past five years, the dollar amount reported from the sale
of spirits has increased from $29.9 billion to $33.6 billion. These increases
are attributable to brand name price increases which have generally been passed
on to retail consumers, and the general trend in consumer taste to higher
quality and higher priced products. Wine consumption has increased nationally
and in Indiana, Illinois and Michigan since 1993 and management believes the
demand for high quality wine will continue to grow. Similar to the trend in the
spirits industry, consumers have been purchasing higher quality and more
expensive wines.
Since the repeal of Prohibition in 1933, the sale of spirits, wine and beer
has been regulated by the federal and state governments. State regulatory
frameworks fall into three types: control, open and open-franchise. In nearly
all circumstances, suppliers may not legally sell directly to retailers. In the
18 control states, the state controls either the distribution, the retail sale
or both. Michigan remains a control state, but privatized certain aspects of its
wholesale distribution of spirits in 1996. In open states, including Indiana and
Illinois, the distributors and retailers are privately owned businesses. In the
open-franchise states, there are laws and regulations which restrict the
suppliers' ability to change distributors.
Given the three tier regulatory structure, the wine and spirits
distribution industry varies greatly from distribution businesses serving other
industries such as food, drugs, non-alcohol-based beverages and paper products.
Margins in these other industries are often much lower, as suppliers can compete
with or bypass distributors. Some distributors in other industries are also more
sensitive to economic cycles relative to NWS and its competitors.
Competitive Strengths
Market Leadership. NWS is the largest distributor of spirits in Indiana and
Michigan and one of the largest in Illinois. NWS' market leadership reflects its
strong relationships with both suppliers and customers and provides NWS with
numerous advantages over smaller distributors, including significant economies
of scale and increased purchasing power. NWS maintains and seeks to enhance its
market leadership by providing high levels of service to its suppliers and
customers and through its investments in technology and information systems.
<PAGE>
Strong Supplier Relationships. NWS' success is due in part to its
long-standing relationships with its major wine and spirits suppliers, many of
which extend back more than 20 years. The strength of these relationships was
recently demonstrated when each of NWS' three largest suppliers, Seagram,
Fortune Brands and Diageo-UDV, selected NWS over numerous competitors to be its
exclusive distributor of spirits in Michigan. In Indiana and Michigan, NWS is
the exclusive distributor of seven out of the top ten brands of spirits sold in
the United States, including Absolut, Jim Beam, Jose Cuervo, Popov, Seagram's
Gin, Seagram's 7 Crown and Smirnoff. In Illinois, NWS is the exclusive
distributor of four out of the top ten U.S. brands. NWS also represents a
significant share of each of its major suppliers' total United States business.
In calendar 1997, NWS distributed approximately 16% of all cases of spirits sold
in the United States by Seagram, and 11% of all cases of spirits sold by Fortune
Brands.
Stable Industry and Diversified Customer Base. Total wine and spirits
industry revenues have grown relatively steadily over the past 25 years, even
during periods of economic decline. NWS offers products to over 36,000 retail
locations and no single customer or chain represented more than 6.3% of NWS'
1998 total revenue. Moreover, the three-tier regulatory framework established by
federal and state law generally prohibits vertical integration by suppliers and
retailers and thereby enhances the stability of the wine and spirits
distribution industry. NWS believes that the nature of the wine and spirits
distribution industry and NWS' diverse customer base provide it with increased
stability and predictability of cash flow relative to distributors in many other
industries.
Customer Service Focus. NWS' commitment to highly effective customer
service has also been a major factor in its historical success. Management
emphasizes on-time delivery, product availability, the ability to accept
last-minute orders and special orders for low volume or unusual items, and
reliability on a long-term basis. NWS provides numerous value-added services to
its customers, including category management, customized advertising and
point-of-sale materials, customized packaging and on-line electronic ordering.
Management believes that highly effective customer service strengthens customer
relationships, thereby improving product positioning and sell-through to the
consumer.
Advanced Infrastructure, Distribution Network and Information Systems. NWS
maintains an extensive distribution network consisting of master warehouses,
hyper-terminals and cross-docking facilities strategically located across
Indiana, Illinois and Michigan and a fleet of approximately 350 delivery
vehicles. This distribution system generates significant operating leverage by
enabling NWS to deliver hundreds of suppliers' products from each master
warehouse and optimize delivery routes by maximizing the density of customer
locations served from each facility. In addition, NWS has made significant
investments over the past five years to improve its logistics, sales and
marketing operations, including approximately $32.1 million in material handling
systems and $7.9 million in information systems. NWS has also recently
implemented supplier and customer ordering via electronic data interchange and
on-line reporting systems used by certain suppliers to track sales. In addition
to enhancing supplier and customer relationships, the implementation of these
systems has improved NWS' efficiency and enabled NWS to remain a low cost
provider.
Experienced Management Team. The seven individuals who comprise NWS' senior
management team have an average of over 23 years of experience in the
alcohol-based beverage industry and 12 years of experience with NWS. In
addition, NWS' senior management team has successfully integrated six
acquisitions since 1992. Management's experience and expertise have enabled NWS
to establish and maintain long-term relationships with both suppliers and
customers and take advantage of consolidation and privatization opportunities.
<PAGE>
Operating Strategy
Continue to Maximize Operating Leverage. As the largest or one of the
largest wine and spirits distributors in each of its markets, NWS continuously
seeks to minimize its operating costs by leveraging its resources in the areas
of warehousing, transportation, general and administrative functions and
information systems to create economies of scale. The fixed nature of many of
these costs enables NWS to generate a higher level of profitability on
incremental increases in volume and price. In addition, NWS' facilities in
Illinois and Michigan have additional capacity, which positions NWS to take
advantage of future expansion opportunities in these markets with relatively low
capital expenditures.
Growth Through Addition of New Brands. Long-term relationships are critical
to maintaining supplier and brand continuity with distributors. Although brand
movements among distributors are relatively rare as the result of these
relationships, consolidation of distributors or suppliers can affect existing
relationships and present NWS with opportunities to add brands affected by the
consolidation. For example, NWS believes that Diageo-UDV may eventually
consolidate its brands with a single distributor in Illinois. If this was to
happen, management believes that NWS would have opportunities to acquire
additional brands from other suppliers adversely affected by the consolidation,
or otherwise gain increased market share. Management believes that if these or
similar opportunities arise, NWS' strong regional presence and established
supplier and customer relationships give it a competitive advantage in winning
additional brand representation.
We have recently obtained additional brands in Illinois and Michigan. In
March, 1998, Sebastiani named us as its exclusive distributor in Illinois. In
1997, Sebastiani reported total wine sales in Illinois of 250,000 cases. In
June, 1998, McCormick Distilling appointed us as its exclusive distributor for
Grand Macnish Scotch whiskey. In July, 1998, Austin Nichols Company appointed us
as its exclusive distributor in Michigan. Austin Nichols supplies Royal Canadian
and Jameson Irish whiskey, among other brands, in Michigan. Grand Macnish and
Austin Nichols had combined sales of approximately 130,000 cases of spirits in
1997 in Michigan. In December, 1998, we were also named the exclusive
distributor by Laird & Co. in Michigan. During 1997, Laird sold approximately
200,000 cases of spirits in Michigan.
As of November, 1998, we no longer distribute J&B Scotch in Michigan. The
brand realignment was the result of required divestitures by suppliers
related to the formation of Diageo.
Selectively Pursue Strategic Acquisitions and Joint Ventures. NWS plans to
continue to strengthen its competitive position by selectively acquiring other
distributors and entering into strategic joint ventures both in its current
markets and in contiguous markets. These strategic opportunities may arise for
several reasons. First, suppliers sometimes encourage the consolidation of
distributors in order to reduce costs and improve efficiency. Second, most
distributors are family businesses, and acquisition opportunities can develop as
owners approach retirement age without a definite succession plan. Third, many
distributors lack the resources and supplier support to meet the demands of
large suppliers, including expanding outside of their brand lines or geographic
markets. Management believes NWS' reputation with suppliers and customers, as
well as its financial position, market share and established infrastructure,
make NWS an attractive buyer of, or strategic partner for, other distributors.
As an example of this strategy, in December, 1998, we formed a new Kentucky
distributorship, Commonwealth Wine & Spirits, LLC, in partnership with two
existing Kentucky-based distributors, The Vertner Smith Company and Kentucky
Wine & Spirits. We will invest $7.5 million, consisting of $4.5 million in cash
and a $3.0 million cash franchise fee, in exchange for 25% of the new company.
Vertner and Kentucky W&S equally own the remaining 75%. At December 31, 1998, we
had invested $6.0 million in this new venture. We believe that Commonwealth Wine
& Spirits, Inc. is the largest distributor of wine and spirits in Kentucky.
Although we can give you no assurance, we do not presently anticipate any
further capital requirements related to this investment.
Continue to Invest in Logistics Technology and Information Systems. The
wine and spirits distribution industry is a relatively mature industry which is
not extensively automated. Many of NWS' competitors continue to rely primarily
on manual processes and limited technology. NWS plans to expand on its recent
investments in sales and logistics technology and sales and marketing
information systems to further reduce costs and improve service to its customers
and suppliers.
Capitalize on Further Privatizations. NWS' established reputation and
relationships with its major suppliers enabled it to become the leading spirits
distributor in Michigan, the first control state to privatize certain aspects of
its wholesale spirits distribution business. NWS believes that other control
states may choose to privatize all or part of their wholesale distribution
business, which may allow NWS to expand its geographic markets without acquiring
or merging with existing distributors. Should any such privatization
opportunities arise, particularly in the central United States, NWS plans to
selectively pursue such opportunities by leveraging its experience in Michigan,
its strong relationships with suppliers and its distribution expertise.
<PAGE>
Suppliers and Products
NWS represents many of the largest suppliers of wine and spirits in the
United States, and offers hundreds of brands and more than 12,000 individual
products. The breakdown of sales among wine, spirits and other products
distributed by NWS in 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wine Spirits Other
------------------------------ --------------------------------- ----------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
(Dollars in thousands)
Product sales...... $92,463 $117,014 $125,861 $322,535 $336,280 $342,594 $28,259 $34,777 $36,686
Distribution fees.. -- -- -- -- 2,729 16,270 -- -- --
Percentage of total
Company revenue.. 20.9% 23.8% 24.1% 72.7% 69.1% 68.8% 6.4% 7.1% 7.1%
</TABLE>
In Michigan, spirits distributors have exclusive relationships with
suppliers by law, and receive distribution fees from suppliers as set by the
state, rather than purchasing from the suppliers for resale to customers. This
arrangement has the effect of understating the importance of spirits in NWS'
overall product mix. For purposes of illustrating the scale of NWS' operations
in Michigan, the total wholesale prices of products delivered by NWS for
Michigan in 1997 and 1998 was $42.9 million and $280.5 million, respectively,
based on the fixed wholesale prices of the spirits delivered by NWS. If these
amounts would have been included in revenues, sales of spirits would have
represented 71.4% and 79.3% of NWS' total revenues in 1997 and 1998,
respectively. NWS' products include the following brands, among many others:
<TABLE>
<CAPTION>
<S> <C> <C>
Product Type Brand Names
Vodka: Absolut Popov
Cristall Smirnoff
Ketel One Stolichnaya
Bourbon and Blended Whiskey: Black Velvet Seven Crown
Crown Royal Wild Turkey
Jim Beam Windsor Canadian
Seagram's V.O.
Scotch and Single Malt Whiskey: Chivas Regal Glenlivet
Grant's Isle of Jura
Balvenie J&B Rare
Bowmore Springbank
Glenfiddich
Gin: Bombay Gilbey's
Boodles Seagram's
Rum: Captain Morgan Myers
Malibu Ronrico
Tequila: Herradura Patron
Jose Cuervo
Cognacs/Brandy: Christian Brothers Martell
Hine Remy Martin
<PAGE>
Specialty Spirits: Arrow Cordials DeKuyper Cordials
Bailey's Irish Cream Jagermeister
Campari TGI Friday's
Wine: Almaden Perrier Jouet
Banfi Robert Mondavi
Beringer Sebastiani
Caymus Stags Leap
Chateau Lafite Sterling
Rothschild Sutter Home
Gundlach Bundschu Veuve Clicquot
Inglenook
Opus One
Specialty Beer: Goose Island Rogue Ales
Grolsch Sierra Nevada
Petes Wicked Ale
Non-Alcohol: Cameron Springs Perrier
Evian Stewart's
</TABLE>
NWS has entered into written distribution agreements with several of its
principal suppliers which generally may be extended on an annual basis but are
terminable upon 30 days or 60 days written notice to NWS. In addition, NWS has
informal arrangements with many of its suppliers whereby NWS distributes the
suppliers' products pursuant to purchase orders without written distribution
agreements. Although the written agreements provide NWS with the non-exclusive
right to distribute the suppliers' products in a particular state, in practice
the suppliers have generally selected a distributor to be the exclusive
distributor of specified products in each state. In each of Indiana, Illinois
and Michigan, NWS is presently acting as the exclusive distributor with respect
to virtually all of the products it distributes in that state.
Set forth below is certain information about the leading spirits suppliers
in the United States, their rank in Indiana, Illinois and Michigan, the length
of NWS' relationship with those suppliers and their impact on 1998 revenues.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Length of
State Rank Company Percentage of
(calendar 1997) Relationship Company 1998
Supplier (by U.S. Rank)(1) IN IL MI (in years)(2) Total Revenues Representative Brands
- -------------------------- -- -- -- ------------- -------------- ---------------------
1. Diageo-UDV (3)......... 3 * 1 25 7.7% Smirnoff and Jose Cuervo
2. Seagram................ 2 2 3 25 32.6 Absolut and Crown Royal
3. Fortune Brands......... 1 6 2 23 17.7 Jim Beam
<FN>
- -----------
(1) Based on calendar 1997 industry sales information.
(2) All of the relationships expressed in this column represent the duration of
NWS' relationship with the suppliers or their predecessors in the Indiana
market.
(3) Diageo-UDV represents that portion of Diageo PLC formed by merger between
United Distillers and International Distillers & Vintners. NWS does not
represent Diageo's interest in the Schieffelin & Somerset joint venture
which remains a separate organization.
* Not represented by NWS in the referenced state.
</FN>
</TABLE>
<PAGE>
Top United States wine brands and wineries represented by NWS include
Beringer, Canandaigua, Inglenook, Robert Mondavi and Sebastiani. NWS currently
does not distribute wine in Michigan. Major wine producers served by NWS in
Indiana and Illinois include:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Length of
State Representation Company
-------------------- Relationship
Supplier/Winery U.S. Rank(1) IN IN(2) (in years)(3) Representative Brands
- ------------------------ ------------ -- ----- ------------- ---------------------
Canandaigua Brands...... 2 X X 25 Inglenook and Paul Masson
Sebastiani Vineyards.... 5 X X 15 Sebastiani and Vendange
Sutter Home Winery...... 6 X 5 Sutter Home
Robert Mondavi.......... 7 X 24 Robert Mondavi and Opus One
Banfi Vintners.......... 8 X 25 Riunite and Concha y Toro
Beringer Wine Estates... 10 X X 24 Beringer and Meridian
Seagram................. 11 X X 25 Sterling and Mumm
<FN>
- -----------
(1) Source: 1997 Wine Market Impact Databank Review and Forecast.
(2) NWS represents certain brands in Illinois but not the entire brand
portfolio.
(3) All of the relationships expressed in this column represent the duration of
NWS' relationship with the suppliers or their predecessors in the Indiana
market.
</FN>
</TABLE>
Related Operations
In addition to its core alcohol-based beverage distribution operations,
although not material to NWS' financial results, NWS conducts related beverage
operations through a division, Cameron Springs Water Company, and through NWS'
U.S. Beverage operations. Cameron Springs is a leading supplier of bottled water
in Indiana, serving over 9,000 residential and commercial customers. U.S.
Beverage commenced operations as a division of NWS in March, 1997 to market and
sell imported, specialty and microbrewed beers and specialty malt products
nationally. The brand distribution contracts related to the U.S. Beverage
operations are held by an entity which is 50% owned by NWS-Illinois. In select
markets, NWS sells and distributes premium cigars primarily as a complement to
NWS' distribution of fine wines and spirits.
In September, 1998, U.S. Beverage entered into a 15-year agreement with
Bass, PLC granting U.S. Beverage the exclusive U.S. distribution rights for
Hooper's Hooch flavored malt beverage. We believe that NWS has the potential for
a significant increase in case sales in 1999 over the sales levels achieved by
Bass and that the Hooper's Hooch business should provide U.S. Beverage with the
critical mass to support its nationwide sales and marketing force.
Customers
Most states, including Indiana, Illinois and Michigan, require wine and
spirits retailers to purchase alcohol-based beverages from licensed
distributors. Suppliers in these states may not legally sell directly to retail
customers. NWS' customers fall into two broad categories depending on where the
alcohol-based beverage ultimately will be consumed: on-premise and off-premise.
Off-premise customers include package liquor stores, grocery stores, drug stores
and mass merchandisers. On-premise customers include hotels, restaurants and
bars, and similar establishments. NWS currently serves over 36,000 retail
locations in Indiana, Illinois and Michigan. No single customer represented more
than 6.3% of NWS' 1998 net sales. As is customary in the industry, NWS' products
are generally purchased under standard purchase orders and not under long-term
supply contracts. As a result, backlog is not meaningful in the wholesale
distribution industry.
<PAGE>
<TABLE>
<CAPTION>
The table below summarizes NWS' customer base:
<S> <C> <C>
Percentage of Company 1998
Type of Customer Revenue Representative Customers
- ----------------------------------------- -------------------------------- --------------------------------------------------
Off-Premise
Package Stores.................... 42.6% Gold Standard and Cap'n Cork
Grocery stores, drug stores and mass 24.7 Kroger, Dominicks, Marsh, American Stores
merchandisers.................. (Osco), Walgreens, CVS, Sam's Club, Meijer
Other............................. 4.3 7-Eleven, White Hen, Village Pantry
-------------
Percent of total............... 71.6%
=============
On-Premise
Restaurants and Bars.............. 18.0% Charlie Trotter's, Hard Rock Cafe, House of
Blues, Morton's, Planet Hollywood, Ruth's Chris
Hotels............................ 1.7 Four Seasons, Hyatt, Hilton
Other............................. 8.7 Crooked Stick Golf Course, the United Center,
American Legion
-------------
Percent of total............... 28.4%
=============
</TABLE>
Management believes that the number and diversity of NWS' customers and the
nature of NWS' business strengthens NWS' liquidity. The prompt payment of NWS'
invoices is governed by law in all states in which NWS operates. Indiana has a
15 day credit law beyond which retail customers cannot buy alcohol-based
beverages from any distributor in the market. Illinois has a similar 30 day
credit law. Typically, NWS' bad debt expenses are incurred less than 30 days
after shipment since the credit laws prohibit extension of terms. Average bad
debt expense for the past five years has been less than 0.12% of revenue.
Marketing and Sales
Supplier and Customer Services. NWS' marketing and sales programs add value
for suppliers and customers beyond storage and distribution. Through its
approximately 600-person marketing and sales force, NWS acts as the field
marketing and merchandising arm of its suppliers by maintaining regular contact
with NWS' off-premise and on-premise customers. NWS customizes national
marketing programs developed by its suppliers for specific retail locations in
seeking to derive maximum benefit for the supplier and customer at each specific
retail location. NWS provides its customers with a wide variety of services,
including conducting promotional events, building product displays, designing
shelf sets, cross-marketing between off-premise and on-premise locations, and
(in Michigan) accounts receivable collection. Management believes that NWS is a
market leader in developing and implementing marketing programs to improve
alcohol-based beverage sales for both suppliers and customers.
Marketing and Sales Teams. NWS divides its marketing and sales forces by
product brands and geographic region. Field sales representatives provide the
primary source of contact with the customer's retail locations. Brand managers,
who concentrate on a small number of suppliers and brands, are responsible for
product pricing, promotion and all other marketing and sales activity related to
their brands. NWS recently formed a National Accounts Division which is
responsible for customers with a national profile. Sales and marketing personnel
are compensated under various compensation plans which typically combine base
pay with a productivity bonus. Members of senior management also are very active
in maintaining supplier and customer relationships with incentive compensation
based on subsidiary, division or Company-wide performance.
Sales and Marketing Information Systems. NWS' management information
systems are very important to NWS' sales and marketing efforts. Through its
proprietary information systems, NWS seeks to offer improved levels of service
to suppliers and customers through prompt and accurate product deliveries,
demographic information regarding the purchase and sale of alcohol-based
beverages and other important sales and consumption information. Retail
locations can utilize this information to make decisions regarding product
placement in the wine and spirits sections of their stores, while suppliers can
utilize this information to quickly analyze sell-through by product in a
particular customer location.
<PAGE>
Warehousing and Distribution
NWS utilizes a series of four master warehouses, three hyper-terminals and
five cross-docking facilities strategically located throughout Indiana, Illinois
and Michigan to store and ship its products pending sale to customers. NWS uses
common carriers to transport products from suppliers to its master warehouses.
Master warehouses located in Chicago, Indianapolis and Detroit (Brownstown)
serve as the primary storage facilities for NWS' inventory. A smaller master
warehouse is located in Champaign, Illinois. Upon receipt of the product at one
of the master warehouses, the products are inspected and stored on pallets or in
racks. Temperature-sensitive products, such as fine wines, are stored in
temperature-controlled areas of the warehouses. Hyper-terminals located in
Peoria, Illinois, South Bend, Indiana and Grand Rapids, Michigan stock only high
volume products and provide an extension of the master warehouses. NWS strives
to optimize inventory levels, taking into account minimum out-of-stock
percentages, projected sales, including seasonal demands, periodic supplier
shipments to meet supplier sales requirements and working capital requirements.
NWS' customers ordinarily receive either next day or second-day delivery.
In general, orders are collected during the day for batch routing and order
"picking" at night. The Chicago and Detroit master warehouses each use an
automated material handling system, including scanners, automated conveyors,
dispensers and sorters. Products from the master warehouses are then shuttled
nightly to either a hyper-terminal or a cross-docking facility where the orders
are consolidated and loaded onto delivery trucks. Cross-docking facilities
located in Belleville, Illinois, Evansville, Indiana, and Traverse City, Saginaw
and Escanaba, Michigan further extend the service areas of the master
warehouses. Orders for delivery out of the various cross-docking facilities are
picked in the master warehouses, shipped in during the night, and then
transferred onto local delivery trucks for final delivery. NWS owns or leases a
total fleet of approximately 350 delivery trucks, consisting of 280 delivery
trucks, 18 tractors, 33 trailers, 31 vans and 5 pick-up trucks. To maximize
prompt and efficient product delivery, NWS' fleet is allocated among NWS' master
warehouses, hyper-terminals and cross-docking facilities located throughout
Indiana, Illinois and Michigan.
As a result of a number of factors including state laws and regulations,
NWS maintains independent distribution networks in Indiana, Illinois and
Michigan. The Indiana distribution network operates with the Indianapolis master
warehouse feeding the South Bend hyper-terminal and the Evansville cross-docking
facility. The Michigan distribution network operates with the Detroit master
warehouse feeding the Grand Rapids hyper-terminal and the cross-docking
facilities located in Escanaba, Saginaw and Traverse City. The Illinois
distribution network is separated into the metropolitan Chicago area, and all
other service areas. The Chicago area is serviced out of the Chicago master
warehouse, while the downstate areas are serviced by the smaller Champaign
master warehouse, the Peoria hyper-terminal and the Belleville cross-docking
facility.
Management Information Systems
NWS employs customized management information systems that have enabled it
to more efficiently utilize its material handling and distribution system. NWS'
information systems help streamline its distribution network from receipt of
order through final delivery by calculating and implementing efficient product
selection, optimizing delivery routes to meet specific delivery times, and
allocating the proper types and volume of products on specific delivery trucks.
These information systems, when used in connection with NWS' material handling
systems, have allowed NWS to more efficiently manage its inventory and minimize
its handling costs per case primarily by reducing labor costs.
NWS' commitment to technology has also advanced its sales and marketing
initiatives. NWS' sales force is equipped with laptop computers which allow NWS
to expedite order entry and provide instant feedback to customers regarding
order activity. NWS provides its customers and suppliers with the ability to
directly enter and track orders via electronic data interchange. In addition,
NWS' proprietary information systems provide its sales and marketing personnel,
customers and suppliers with access to a database of information regarding the
purchase and sale of alcohol-based beverages in specific geographic markets.
NWS' suppliers have immediate access to information regarding product and
demographic trends within specific geographic markets and NWS' customers have
access to information regarding popular products or other trends from similarly
situated retail locations. Management believes that its management information
systems enhance its operating performance and improve its relationships with
customers and suppliers.
<PAGE>
Facilities
NWS' distribution facilities consist of four master warehouses, three
hyper-terminals and five cross-docking facilities. NWS' corporate headquarters
are located in Indianapolis, Indiana.
The master warehouses, located in Indianapolis, Chicago, Detroit and
Champaign, serve as the primary storage facilities and regional offices for NWS.
The Chicago warehouse contains approximately 650,000 square feet of warehousing
space, including a designated temperature controlled area for
temperature-sensitive products. The Indianapolis warehouse contains
approximately 265,000 square feet of warehousing space, including a designated
temperature controlled area for temperature-sensitive products. In calendar
1997, NWS completed its new Detroit warehouse consisting of approximately
230,000 square feet of warehousing space, including a recently installed
material handling system and eight shipping docks. The Champaign warehouse
contains 50,000 square feet of warehousing space and is designed to hold more
high volume products for delivery to customers in central and southern Illinois.
<TABLE>
<CAPTION>
The following is a listing of NWS' warehouses and delivery, production and
office facilities:
<S> <C> <C> <C> <C>
Total
Owned/ Square
Location Leased Feet Principal Function
Indiana Indianapolis Owned 265,000 Master Warehouse/Office
South Bend Owned 76,800 Hyper-Terminal/Office
Evansville Owned 5,800 Cross-Docking Facility
Evansville Owned 2,400 Office
Ft. Wayne Leased 5,500 Office
Merrillville Leased 2,600 Office
Indianapolis Owned 3,500 Office (Cameron Springs)
Indianapolis Owned 15,000 Production Plant (Cameron Springs)
Illinois Chicago (1) Owned 650,000 Master Warehouse/Office
Champaign Leased 50,000 Master Warehouse/Office
Peoria Leased 35,000 Hyper-Terminal/Office
Belleville Leased 16,000 Cross-Docking Facility/Office
Rockford Leased 5,000 Office
Springfield Leased 1,000 Office
Michigan Detroit (Brownstown) Leased 230,000 Master Warehouse/Office
Grand Rapids Leased 100,000 Hyper-Terminal/Office
Escanaba Leased 7,500 Cross-Docking Facility/Office
Saginaw Leased 1,000 Cross-Docking Facility
Traverse City Leased 5,000 Cross-Docking Facility
<FN>
- -----------
(1) Excludes one of NWS' Chicago properties which consists of approximately
240,000 square feet and which is in the process of being sold by NWS.
The property presently is leased to an unrelated third party.
</FN>
</TABLE>
NWS' lease agreements for the Detroit master warehouse and the Grand Rapids
hyper-terminal each have a ten-year term, expiring April 20, 2007 and January
31, 2007, respectively, and provide NWS with an option to purchase.
Competition
The wine and spirits wholesale distribution business is highly competitive.
The principal competitive factors in NWS' business include service, breadth and
availability of product brands offered and, to a lesser extent, price.
Distributors compete for new suppliers or brands based on reputation, market
share, access to customers and ability to satisfy supplier demands. Given its
size, supplier relationships, distribution networks and low operating costs, NWS
is well positioned to compete in Indiana, Illinois and Michigan. NWS' primary
competition in Illinois includes Romano Brothers and Judge & Dolph. Romano
Brothers has recently joined with Glazer's Wholesale Distributing of Dallas,
Texas to enter the Indiana market through the acquisition of a controlling
interest in Olinger Distributing, the second largest Indiana distributor and the
only meaningful Indiana competitor. None of the ten largest United States
distributors competes with NWS in Michigan.
<PAGE>
There are significant barriers to entry into the wholesale wine and spirits
distribution business. These barriers include established supplier-distributor
relationships, specialized distribution equipment such as material handling
systems and delivery vehicles, and important industry knowledge regarding
pricing, inventory management and distribution logistics. Historically, entry by
organizations not already engaged as wine and spirits distributors in other
markets has been extremely rare. The entrance of new distributors into existing
markets typically takes place through acquisition.
Employees
As of December 31, 1998, NWS had 1,517 employees. Approximately
135 employees in Michigan and 400 employees in Illinois are represented by labor
unions. In Illinois, NWS has relationships with three unions:
(1) Teamsters Union Local 744, expiring March 2, 2002;
(2) Liquor and Allied Workers Union Local 3, annual agreements; and
(3) Teamsters, Chauffeurs & Helpers Union Local 50, expiring August 31,
2001.
In Michigan, NWS has relationships with three unions:
(1) Teamsters Union Local 337, expiring March 2, 2001;
(2) Teamsters Union Local 299, expiring March 2, 2001; and
(3) Teamsters Union Local 486, expiring March 2, 2001.
Employees of NWS in Indiana are not represented by any labor unions.
NWS has not experienced any work stoppages in more than 15 years as a
result of labor disputes and considers its employee relations to be good.
Regulatory Considerations
The manufacturing, importation, distribution and sale of alcohol-based
beverages is subject to regulation by the federal government through the
Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, as well as
by state and local regulatory agencies. Suppliers, distributors and customers
must be properly licensed in order to sell alcohol-based beverages.
In most states, the alcohol-based beverage industry operates within what is
commonly referred to as a three-tier system of distribution. The three tiers are
identified as follows:
(1) Tier One is comprised of suppliers which produce alcohol-based
beverages and/or importers of alcohol-based beverages;
(2) Tier Two is comprised of distributors, such as NWS; and
(3) Tier Three is comprised of retail licensees.
Under this system, suppliers sell to distributors, distributors sell to
retailers, and retailers sell to consumers. Suppliers may not sell to retailers
or consumers and distributors may not sell directly to consumers. Most states
prohibit suppliers or distributors from having an interest in retail licensees.
NWS directly and through its affiliates holds federal basic permits and state
permits/licenses as a distributor and importer. Also, NWS-Illinois holds
out-of-state shipper permits that allow it to ship certain products from one
state to a licensed distributor in any one of the other states.
NWS is required to have each of its officers, directors and principal
stockholders who owns 5% or more of the issued and outstanding stock qualified
by federal and state governmental agencies to have an interest in a licensed
company. NWS' officers, directors and principal stockholders have been, or are
in the process of being, deemed to be qualified parties by ATF and state
regulatory agencies.
<PAGE>
Suppliers and retail licensees selling directly to consumers are more
heavily regulated than distributors by governmental authorities. Distributors
like NWS face scrutiny in a number of important areas, including initial
licensing or permitting and sales and marketing activities with or on behalf of
retail customers. The distributors may not give or transfer anything of value to
their customers in exchange for business or other consideration. The definition
of "value" differs from state to state. NWS participates in significant
promotional activities for suppliers and customers. Suppliers also are
increasingly asking distributors to be responsible for activities and related
costs formerly undertaken by suppliers as suppliers pursue ways to reduce their
operating costs. These increased demands will likely challenge distributors,
including NWS, which desire to meet the wishes of their suppliers and customers.
As a result, NWS regularly provides training and education programming for its
sales and marketing personnel.
NWS believes that it is in compliance with applicable regulations in all
material respects. Consistent with industry practice, the sales and marketing
activities permitted by distributors for the benefit of Tier One suppliers are
generally regulated by state licensing authorities, many of which regularly
advise distributor representatives of activities that would not be the subject
of enforcement action for failure to comply with all regulations they
administer. NWS relies on such enforcement guidance, which is subject to change
at the discretion of the regulatory authorities, in determining the scope of its
permitted sales and marketing activities.
As part of its regulatory compliance program, NWS is in frequent contact
with regulatory agencies so that NWS can:
(1) be kept current on regulatory developments affecting NWS;
(2) obtain answers from the agencies to questions from company personnel
regarding compliance issues; and
(3) encourage enforcement of applicable laws and regulations on a
consistent basis throughout its markets.
NWS believes that prompt and consistent enforcement by the regulatory
agencies is important and benefits NWS.
Certain Legal Matters
NWS is involved in litigation from time to time in the ordinary course of
its business. NWS is a party to a lawsuit brought by several drivers of
NWS-Illinois who allege age discrimination and workers' compensation retaliation
and claim back pay and front pay damages of $1.9 million and $1.0 million,
respectively, and the costs of the action. In April, 1999, NWS settled this
lawsuit for approximately $475,000, inclusive of all costs including attorney
fees, payable over five years. Documentation of this settlement has not been
completed or approved. NWS does not believe that an adverse judgment in any
other matter to which NWS is a party would have a material adverse effect on
NWS' results of operation, financial condition or debt service capabilities.
Environmental Matters
NWS currently owns and/or leases a number of properties, and historically
it has owned and/or leased others. Under applicable environmental laws, NWS may
be responsible for remediation of environmental conditions relating to the
presence of certain hazardous substances on such properties. The liability
imposed by such laws is often joint and several without regard for whether the
property owner or operator knew of, or was responsible for, the presence of such
hazardous substances. In addition, the presence of such hazardous substances, or
the failure to properly remediate such substances, may adversely affect the
property owner's ability to borrow using the real estate as collateral and to
transfer its interest in the real estate. Although NWS is not aware of the
presence of hazardous substances requiring remediation, there can be no
assurance that releases unknown to NWS have not occurred. Except for blending
and bottling of a few of NWS' private label brands, NWS does not manufacture any
of the wine or spirit products it sells and believes that it has conducted its
business in substantial compliance with applicable environmental laws and
regulations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the directors
and executive officers of NWS who have agreed to serve, subject to the
completion of regulatory filings:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
James E. LaCrosse............. 66 Chairman, President, Chief Executive Officer and Director
Martin H. Bart................ 66 Sr. Vice President and Director
J. Smoke Wallin............... 32 Executive Vice President, Chief Financial Officer, Secretary
and Director
James Beck.................... 54 President, NWS-Indiana and Director
Mitchell Stoltz............... 45 President, NWS-Illinois and Director
Richard P. Paladino........... 53 President, NWS-Michigan and Director
Richard Quinn................. 64 President, Cameron Springs Division and Director
Norma M. Johnston............. 70 Director
Patricia J. LaCrosse.......... 62 Director
Catherine LaCrosse Wallentine. 31 Director
</TABLE>
James E. LaCrosse has served as Chairman, President, Chief Executive
Officer and a Director of NWS since December, 1998. Previously, Mr. LaCrosse
served as Chairman and Director of NWS since its formation in 1973, and prior to
1973 was employed by various companies in a financial capacity. Mr. LaCrosse
received an M.B.A. from Harvard University in 1961 and a B.A. in economics from
Wesleyan University in 1957.
Martin H. Bart has served as Senior Vice President and a Director of NWS
since December, 1998. Previously Mr. Bart served as Vice Chairman of NWS from
1995 to 1998. Prior to joining NWS, Mr. Bart served in various positions with
the Joseph E. Seagram & Son Company from 1956 to 1993, and retired as Executive
Vice President of Sales and Marketing. Mr. Bart received a B.A. in economics
from Long Island University in 1955.
J. Smoke Wallin has served as Executive Vice President, Chief Financial
Officer, Secretary and a Director of NWS since December, 1998. Previously, Mr.
Wallin was Executive Vice President, Corporate Group of NWS from 1993 to 1998.
Mr. Wallin began his career at NWS in 1988 and has served in various positions
including Chief Information Officer and Brand Manager. Mr. Wallin received an
M.B.A. in Finance from Vanderbilt University-Owen School of Management in 1993
and a B.S. in economics from Cornell University in 1989. Mr. Wallin is Mr.
LaCrosse's son-in-law.
James Beck has served as President of NWS-Indiana since 1992. Mr. Beck
joined NWS in 1972, and has served in various positions, including Executive
Vice President of Sales for 14 years prior to being named President of
NWS-Indiana. Mr. Beck has been a Director of NWS since December, 1998. Mr. Beck
received a B.S. in Business from Ball State University in 1968.
Mitchell Stoltz has served as President of NWS-Illinois since 1995. Prior
to becoming President, Mr. Stoltz served as Executive Vice President of Sales
and Marketing for NWS-Illinois. Prior to joining NWS in 1992, Mr. Stoltz served
as Vice President and General Manager for Magnolia Marketing Company and as
President for Admiral Wine Company. Mr. Stoltz has been a Director of NWS since
December, 1998. Mr. Stoltz received an M.M. from Northwestern University Kellogg
Graduate School of Management in 1985 and a B.A. in Business from Notre Dame
University in 1976.
Richard P. Paladino has served as President of NWS-Michigan since 1997, and
a Director of NWS since December, 1998. Prior to joining NWS, Mr. Paladino
served as Vice President, Finance and Operations of United Beverage Company from
1984 to 1994. Mr. Paladino received a B.S. in Accounting from Notre Dame
University in 1967.
Richard Quinn has served as President of Cameron Springs Company since
1990. Mr. Quinn has been a Director of NWS since December, 1998. Mr. Quinn
received his A.B. in English Literature from Brown University in 1959.
Norma M. Johnston has been a Director of NWS since 1976, and a Director of
NWS since December, 1998. Mrs. Johnston served as Secretary of NWS from 1976 to
1998.
<PAGE>
Patricia J. LaCrosse has been a Director of NWS since its formation in
1973. Mrs. LaCrosse received a B.A. from the University of Michigan in 1957.
Mrs. LaCrosse is Mr. LaCrosse's spouse.
Catherine LaCrosse Wallentine has served as District Sales Manager of
NWS-Illinois since January, 1997, and Director of NWS since December, 1998. Ms.
LaCrosse-Wallentine joined NWS in 1994 and has served in various sales and
marketing positions. Ms. LaCrosse-Wallentine received a B.A. in history from
Indiana University in 1990. Ms. LaCrosse-Wallentine is Mr. LaCrosse's daughter.
Compensation of Directors
Directors of NWS have in the past received $3,000 per year for serving as
directors. After the exchange offer, employees of NWS who are also directors of
NWS will not receive any fees or compensation for their services as directors.
NWS will reimburse directors for their expenses incurred in connection with
their activities as directors. Not later than July 31, 1999, NWS intends to
elect up to four independent directors to its Board of Directors and will, at
that time, modify its director compensation policy.
Executive Compensation
The following table sets forth the compensation paid by NWS to James E.
LaCrosse, Chief Executive Officer, and to each of the four most highly
compensated executive officers of NWS for 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Annual Compensation
-----------------------------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation(1)
James E. LaCrosse 1998 $407,000 $ -- $40,442(2) $238,000(3)
Chairman, President and CEO
J. Smoke Wallin 1998 113,423 26,000 1,620(4) 5,671
Executive Vice President, Chief Financial
Officer and Secretary
James Beck 1998 135,063 150,000 971(4) 6,753
President, NWS-Indiana
Mitchell Stoltz 1998 164,135 30,000 3,600(5) 8,225
President, NWS-Illinois
Richard Paladino 1998 125,000 -- -- 1,442
President, NWS-Michigan
<FN>
- -----------
(1) Includes employer 401(k) Plan contributions in the following amounts: Mr.
LaCrosse, $8,000; Mr. Wallin, $5,671; Mr. Beck, $6,753; Mr. Stoltz, $8,225;
and Mr. Paladino, $1,442.
(2) Consists of $4,123 representing personal use of a company supplied
automobile, $5,873 representing payments by NWS for medical insurance
premiums, and $30,446 representing payment by NWS for medical expenses
incurred by one of Mr. LaCrosse's family members.
(3) Includes $230,000 of life insurance premiums paid by NWS on behalf of Mr.
LaCrosse and for the benefit of the LaCrosse family trust for estate
planning purposes. NWS expects the premiums paid on behalf of Mr. LaCrosse
in the future will remain at their current annual rate. Upon the death of
Mr. LaCrosse or termination of the life insurance policies, NWS is entitled
to repayment out of the proceeds of the policies of all premiums paid on
behalf of Mr. LaCrosse for the benefit of the LaCrosse family trust since
the inception of the policy in 1994.
(4) Represents personal use of a company supplied automobile.
(5) Represents payments by NWS of country club dues.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
From time to time, NWS-Indiana has loaned money to its principal
shareholders, James E. LaCrosse and Norma M. Johnston, the primary purpose of
which was to provide the necessary funds to finance start-up expenses and
working capital needs of NWS-Illinois, an affiliated company owned prior to the
reorganization by Mr. LaCrosse, Mrs. Johnston and Martin H. Bart. As of December
31, 1998, total indebtedness of Mr. LaCrosse and Mrs. Johnston to NWS-Indiana
was $10.1 million. The indebtedness, which is presently due upon demand, bears
interest at the prime lending rate of NWS' principal lending institution (7.75%
at December 31, 1998). The proceeds of the loans were provided by Mr. LaCrosse
and Mrs. Johnston to NWS-Illinois in the form of loans or additional capital
contributions. As of December 31, 1998, NWS-Illinois was indebted to Mr.
LaCrosse and Mrs. Johnston in the amount of $4.4 million. This indebtedness to
Mr. LaCrosse and Mrs. Johnston, which matures in 2009, is subordinated to the
notes and the new credit facility, and bears interest at 7.75% (prime rate at
December 31, 1998). The obligations of NWS-Illinois under the subordinated
shareholder notes are expressly subject to timely payment by Mr. LaCrosse and
Mrs. Johnston of their obligations under their notes to NWS-Indiana.
<PAGE>
On July 27, 1998, Mr. LaCrosse transferred substantially all of his
non-voting stock to a family trust for estate-planning purposes. As a part of
this transfer and in addition to normal distributions for tax purposes, NWS
expects that Mr. LaCrosse will cause NWS to make special distributions to Mr.
LaCrosse, the trust and Mrs. Johnston, subject to the terms and conditions
contained in the indenture including the limitation on restricted payments and
the new credit facility. The special distributions will be subject to, among
other conditions, payments to NWS-Indiana by Mr. LaCrosse and Mrs. Johnston of
amounts not less than the special distributions under the terms of the notes of
Mr. LaCrosse and Mrs. Johnston to NWS-Illinois. The terms of the new credit
facility allows, subject to certain conditions and limitations, the special
distributions.
NWS-Indiana and NWS-Illinois have operated as S corporations under the
Code, and their respective subsidiaries have all operated as qualified
subchapter S subsidiaries under the Code or other similarly taxed pass-through
entities (the "S Corp. Businesses"). NWS has elected or will elect to be treated
as an S corporation under the Code and for each of its subsidiaries to be
qualified subchapter S subsidiaries under the Code or similar pass-through
entities for tax purposes. The S Corp. Businesses have not been subject to tax
on their respective net taxable incomes, and the shareholders of the S Corp.
Businesses have been directly subject to tax on their respective proportionate
shares of such net taxable income. NWS-Indiana and NWS-Illinois have
historically made cash distributions to Mr. LaCrosse, Mrs. Johnston and Mr. Bart
in amounts equal to or greater than their respective tax obligations related to
the S Corp. Businesses. The aggregate amount of these distributions during 1996,
1997 and 1998 were $7.8 million, $6.1 million and $2.8 million, respectively.
The terms of the indenture and the new credit facility permit NWS to make
distributions to shareholders with respect to their tax liabilities subject to
certain conditions and limitations.
NWS-Illinois also paid a company owned by Mr. Bart $0.2 million during 1998
for certain consulting services provided by Mr. Bart to NWS-Illinois. During
1998, NWS-Indiana entered into a five year non-compete agreement with James
Beck, president of NWS-Indiana and a Director of NWS, under which Mr. Beck was
paid $0.3 million by NWS. NWS-Indiana obtained certain inventory and other
property related to the wholesale cigar distribution business previously
operated by Mr. Beck.
NWS pays "split-dollar" insurance premiums on seven insurance policies with
a fair value of $14.0 million on the lives of Mr. LaCrosse and Ms. Johnston. NWS
is entitled to receive reimbursement for all premiums paid out of the proceeds
of these policies upon the death of Mr. LaCrosse and Mrs. Johnson. Premiums paid
by NWS were $264,000 for the years ended March 31, 1998 and 1997 and $357,000
for the year ended March 31, 1996. The LaCrosse Family Trust is the beneficiary
of those policies.
PRINCIPAL STOCKHOLDERS
NWS has two authorized classes of capital stock, voting common stock and
non-voting common stock. The following table sets forth the beneficial ownership
following the reorganization of NWS' voting common stock by each person known by
NWS to (1) beneficially own 5% or more of NWS' voting common stock, and (2) by
all executive officers and directors of NWS as a group. Except for Mr. LaCrosse
and Mrs. Johnston, who have sole voting and investment power with respect to
their voting common stock, no other executive officer or director owns any
shares of NWS' voting common stock.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Number of
Shares Percent
James E. LaCrosse
700 West Morris Street
Indianapolis, Indiana 46225.................... 86,520 83%
Norma M. Johnston
700 West Morris Street
Indianapolis, Indiana 46225.................... 18,000 17
All executive officers and directors as a group
(9 persons).................................... 104,520 100
</TABLE>
The stockholders of NWS have entered into stockholder agreements with each
other and NWS. Such agreements contain certain restrictions relating to
transfers of stock and provide for certain rights to purchase and sell stock of
each corporation, among other matters. In particular, the stockholder agreement
with NWS governs the transferability of Mrs. Johnston's stock in NWS. The
LaCrosse family is obligated to purchase Mrs. Johnston's stock at her death or
during her lifetime should she decide to sell. NWS becomes obligated to purchase
only if the LaCrosse family refuses or fails to purchase. The LaCrosse family
and NWS also have the right to purchase Mrs. Johnston's stock at the death of
Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Mrs. Johnston
is subject to the terms of the indenture governing the notes and the new credit
facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the
benefit of his family exists in favor of Mrs. Johnston.
The stockholders have also agreed not to take any action or effect any
transfer that would cause NWS or any of its subsidiaries to fail to qualify as
an S corporation or other pass-through entity for federal income tax purposes.
In addition, the stockholders have entered into a Tax Indemnification Agreement
whereby they have agreed to indemnify NWS and its subsidiaries for any loss that
may arise in the event NWS or any of its subsidiaries should fail to maintain
its Pass-Through Status.
The LaCrosse family and NWS own life insurance policies on behalf of Mrs.
Johnston in face amount of $4.0 million and $0.5 million, respectively.
DESCRIPTION OF CREDIT FACILITY AND OTHER INDEBTEDNESS
The following sets forth information concerning NWS' new credit facility
and indebtedness expected to be outstanding immediately following the exchange
offer. For purposes of this section, the term "Closing Date" refers to January
25, 1999.
New Credit Facility
General. In January, 1999, NWS entered into a new credit facility with NBD
Bank, on behalf of itself and as agent for a syndicate of other lenders. The new
credit facility provides for revolving loans to NWS and the issuance of letters
of credit for the account of NWS in an aggregate principal and stated amount at
any time not to exceed $60 million, of which not more than $5 million may be
represented by letters of credit.
Loans under the new credit facility are available at any time within five
years after the Closing Date. Letters of credit under the new credit facility
will be available at any time on and after the Closing Date. The obligations of
NWS under the new credit facility will be guaranteed by the guarantors.
<PAGE>
Interest Rates and Commitment Fees. At NWS' option, the interest rates per
annum applicable to the new revolving credit facility are either the Base Rate
or the Eurodollar Rate plus margins ranging from 0% to 1.25% for Base Rate
revolving loans and 1.0% to 3.0% for Eurodollar Rate revolving loans. The Base
Rate is the highest of (1) NBD's prime rate and (2) the Federal Funds Effective
Rate plus 0.50%. The applicable margins depend upon two factors. First, NWS may
elect advance rates on accounts receivable and inventory of (A) 80% accounts
receivable and 60% inventory; (B) 75% accounts receivable and 55% inventory; and
(C) 70% accounts receivable and 50% inventory. Second, NWS' ratio of EBITDA as
defined in the new credit facility to net interest expense is determined to
complete the pricing matrix. The pricing under the new credit facility improves
as NWS' advance rates decline and its interest coverage improves. The margin in
respect of the new credit facility is the Base Rate plus .50% and Eurodollar
Rate plus 2.25% and is subject to adjustment after three months following the
Closing Date based on the ratio of NWS' EBITDA to net interest expense.
NWS pays a commission on the face amount of all outstanding letters of
credit at a per annum rate equal to the applicable margin then in effect with
respect to the Eurodollar Rate loans under the new credit facility. A fronting
fee equal to 0.25% per annum on the face amount of each letter of credit is also
payable annually in advance to NBD Bank for its own account. NWS pays a per
annum commitment fee ranging from 0.25% to 0.50% on the undrawn portion of the
commitments in respect of the new revolving credit facility. This commitment fee
which initially is 0.50% on the undrawn portion is subject to adjustment after
three months following the Closing Date based on the ratio of NWS' EBITDA to net
interest expense.
Collateral. The new credit facility is secured by first priority security
interests in all the accounts receivable and inventories of NWS, NWS-Indiana,
NWS-Illinois, NWS-Michigan and NWS-LLC, as well as a pledge of intercompany
notes evidencing loans from NWS to its subsidiaries. These intercompany notes
are also secured by a second priority security interest in the accounts
receivable and inventories of the subsidiaries and are limited in aggregate
amount to the balance at any time outstanding under the new credit facility. The
terms of the pledge agreement and other related security documents in favor of
the banks under the new credit facility related to the intercompany indebtedness
expressly limit the collateral to the underlying accounts receivable and
inventory.
Covenants. The new credit facility contains a number of significant
covenants that, among other things, restricts the ability of NWS and the
guarantors to do the following:
o dispose of assets;
o incur additional indebtedness;
o pay dividends;
o create liens on assets;
o make investments or acquisitions;
o engage in mergers or consolidations;
o make capital expenditures;
o or engage in certain transactions with affiliates and
otherwise restrict corporate activities.
The new credit facility also limits NWS' ability to repurchase the exchange
notes in the event of a change of control. In addition, under the new credit
facility NWS is required to comply with a minimum EBITDA interest coverage ratio
of not less than 1.5 to 1.0 increasing on March 31, 2000 to 1.75 to 1.0 and a
funded debt maximum of 7.5 to 1.0 decreasing on September 30, 1999 to 6.5 to
1.0.
<PAGE>
Events of Default. Events of default under the new credit facility include
the following:
o nonpayment of principal when due;
o nonpayment of interest, fees or other amounts after a
grace period of five days;
o material inaccuracy of representations and warranties;
o violation of covenants, subject to customary grace
periods;
o cross-default;
o bankruptcy events;
o certain ERISA events;
o material judgments;
o actual or asserted invalidity of any material provision
of any guarantee or security document, or any security
interest; and
o a change of control.
Upon the occurrence of an event of default, NBD Bank may, in its capacity as
administrative agent, accelerate payments due under the new credit facility.
Other Indebtedness
NWS is obligated under certain loans from third parties and shareholders of
NWS. NWS' master warehouse in Indianapolis, Indiana has been financed with
proceeds from industrial revenue bonds with favorable rates. The bonds had a
principal balance of $0.3 million at December 31, 1998, mature in 2003 and are
secured by the Indianapolis master warehouse. NWS is also obligated to a former
employee in the principal amount of $0.4 million which matures on June 30, 1999
and under an unsecured non-compete agreement with a former stockholder which had
a principal balance of $0.6 million at December 31, 1998 and matures on April 1,
2000. NWS-Illinois has unsecured notes payable to James E. LaCrosse and Norma
Johnston in the amount of $4.4 million at December 31, 1998. See "Certain
Transactions." All of these notes are subordinated to the exchange notes and the
new credit facility. The notes due Mr. LaCrosse and Mrs. Johnston will accrue
interest at NBD's prime rate, will mature in 2009 and may be prepaid at any time
by NWS-Illinois, subject to the limitations contained in the indenture and the
new credit facility.
DESCRIPTION OF THE EXCHANGE NOTES
General
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions". In this description, "NWS" refers
only to National Wine & Spirits, Inc.
<PAGE>
NWS will issue the exchange notes under the indenture dated January 25,
1999 among itself, the Guarantors and Norwest Bank Minnesota, N.A., as Trustee.
The terms of the exchange notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act of 1939. As
of December 31, 1998, on a pro forma basis after giving effect to the January,
1999 offering and the New Credit Facility and the application of the net
proceeds therefrom, NWS and its Subsidiaries would have had approximately $122.4
million of outstanding unsubordinated Indebtedness excluding the Guarantees, of
which $12.4 million would have been secured Indebtedness.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed copies of the indenture as an exhibit to
the Registration Statement which includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These Notes:
o are general unsecured Obligations of NWS;
o are subordinated in right of payment to all existing and future
secured debt of the NWS;
o are senior in right of payment to any existing and future
subordinate debt of NWS; and
o are unconditionally guaranteed by the Guaranators.
Because the operations of NWS are conducted through its Subsidiaries it is
dependent upon the cash flow of its Subsidiaries to meet its Obligations,
including its Obligations under the exchange notes. As of the date of the
Indenture, all of NWS' Subsidiaries will be Restricted Subsidiaries. However,
under certain circumstances, NWS will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants contained in the Indenture.
The Guarantees
These notes are guaranteed by the following Subsidiaries of NWS:
NWS - Indiana
NWS - Illinois
NWS - Michigan
NWS - LLC
The guarantees of these notes:
o are general unsecured Obligations of each Guarantor;
o are subordinated to all existing and future secured Indebtedness
of each Guarantor, including Guarantees under the New Credit
Facility, which will be secured by the Guarantors' inventory and
accounts receivable and the pledge of certain intercompany notes
evidencing Credit Facility Intercompany Indebtedness, which notes
are also secured by a second priority security interest in all
the accounts receivable and inventories of the Guarantors and
which are at all times limited in aggregate amount to the balance
at any time outstanding under the New Credit Facility; and
<PAGE>
o are senior in right of payment to any existing and future
subordinate Indebtedness of each Guarantor.
As of December 31, 1998, assuming NWS had completed the offering and the
New Credit Facility and applied the proceeds as intended, the Guarantors would
have had approximately $0.3 million of outstanding unsubordinated Indebtedness
in addition to their Guarantees of the exchange notes and the guarantees of the
New Credit Facility.
Principal, Maturity and Interest
NWS will issue notes with a maximum aggregate principal amount of $110.0
million and will mature on January 15, 2009. NWS will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on January 15, 2009.
Interest on the notes will accrue at the rate of 10.125% per annum and will
be payable semi-annually in arrears on January 15 and July 15, commencing on
July 15, 1999, NWS will make each interest payment to the holders of record
immediately preceding December 31 and June 30.
Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to NWS, NWS will make all
principal, premium and interest payments on those notes in accordance with
instructions. All other payments on these notes will be made at the office or
agency of NWS within the City and State of New York unless NWS elects to make
interest payments by check mailed to the holders at their address set forth in
the register of holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. Until
otherwise designated by NWS, its office or agency in New York will be the office
of the Trustee maintained for such purpose.
As of the date of the Indenture, all of our Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
Subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants in the indenture. Unrestricted
Subsidiaries will not guarantee these notes.
Optional Redemption
NWS may redeem the notes, in whole or in part, at any time and from times
to time after January 15, 2004 and prior to maturity. The notes may be redeemed
at the following redemption prices, expressed as percentages of principal amount
plus accrued and unpaid interest, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on January 15 of the years
indicated below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Year Percentage
2004......................................... 105.0625%
2005......................................... 103.3750%
2006......................................... 101.6875%
2007 and thereafter.......................... 100.0000%
</TABLE>
In addition, prior to January 20, 2002, NWS may redeem up to 33.33% of the
aggregate principal amount of the notes with the proceeds of one or more equity
offerings by NWS at a redemption price of 110.125% of the principal amount, plus
accrued and unpaid interest, if any, to the redemption date. However, at least
66.67% of the original amount of the notes must remain outstanding after each
such redemption. In addition such redemption must occur within 45 days of the
date of the closing of each such public offering.
Selection and Notice of Redemption
In the event that less than all of the notes are redeemed pursuant to any
optional redemption, selection of the notes for redemption, will be made by the
Trustee on a pro rata basis, by lot or by such method as the Trustee shall
deemed fair and appropriate. No notes of $1,000 or less may be redeemed in part.
Notices of redemption must be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at the holder's registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note must state the portion of the principal amount or principal
amount at maturity, as the case may be, to be redeemed. A note in a principal
amount equal to the unredeemed portion will be issued in the name of the holder
upon cancellation of the original note. On and after the redemption date,
interest will cease to accrue on notes or portions thereof called for redemption
as long as NWS has deposited with the Paying Agent for the notes funds in
satisfaction of the applicable redemption price pursuant to the indenture.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," NWS
is not required to make mandatory redemption or sinking fund payments with
respect to the exchange notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require NWS to repurchase all or any part, equal to $1,000 or an integral
multiple thereof, of such holder's notes at a price in cash equal to 101% of the
principal amount plus accrued and unpaid interest, if any, to the date of
purchase. Within ten days following any Change of Control, NWS will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase the notes on a specified date ,
which shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed, pursuant to the procedures required by the indenture and
described in such notice. NWS will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control.
<PAGE>
On the Change of Control Payment Date, NWS will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly
tendered pursuant to the Change of Control offer,
(2) deposit with the Trustee an amount equal to the Change of
Control Payment in respect of all notes or portions thereof
so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of the notes or portions thereof
being purchased by NWS.
The Trustee will promptly mail to each holder of the notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof. NWS will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that NWS repurchase
or redeem the notes in the event of a takeover, recapitalization or similar
transaction.
The New Credit Facility contains prohibitions of certain events that would
constitute a Change of Control and limits NWS' ability to repurchase notes in
the event of a Change of Control. In addition, the exercise by the holders of
notes of their right to require NWS to repurchase the notes could cause a
default under such Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchases on NWS. Finally, NWS' ability to
pay cash to the holders of exchange notes upon a repurchase may be limited by
NWS' then existing financial resources.
NWS will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by NWS and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer.
Asset Sales
NWS will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) NWS or the Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or
sold or otherwise disposed of;
(2) such fair market value is determined by NWS' Board of
Directors and evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to
the Trustee; and
(3) at least 75% of the consideration received by NWS or such
Restricted Subsidiary is in the form of cash.
<PAGE>
For the purposes of this provision, the following shall be deemed to be cash:
o any liabilities, as shown on NWS or such Restricted
Subsidiary's most recent balance sheet, of NWS or any
Restricted Subsidiary, other than contingent liabilities and
liabilities that are by their terms subordinated to the
notes or Guarantee, that are assumed by the transferee of
any such assets pursuant to a customary novation agreement
that releases NWS or such Restricted Subsidiary from further
liability; and
o any securities, notes or other Obligations received by NWS
or any such Restricted Subsidiary from such transferee that
are converted by NWS or such Restricted Subsidiary into cash
to the extent of the cash received within 10 business days.
However, NWS may:
(1) sell its Cameron Springs bottled water business for fair
market value without complying with clause (3) above
provided that the non-cash consideration received is in the
form of securities registered under the Securities Act or
subject to a Registration Rights Agreement providing for
registration under the Securities Act within 90 days after
the sale; and
(2) sell beer franchises, brand labels and distribution rights
of NWS-Illinois or sell all or part of its U.S. Beverage
operations for fair market value, including cash royalty
payments or cash payments over time, without complying with
clause (3) above.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
NWS may apply such Net Proceeds at its option:
(1) to repay Indebtedness under a Credit Facility and to reduce
commitments with respect to revolving borrowings so long as
the repayment does not affect NWS' Borrowing Base;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in
a Permitted Business.
Pending the final application of any such Net Proceeds, NWS may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10 million, NWS will be required to
make an Asset Sale Offer to all holders of notes to purchase the maximum
principal amount of notes and any other equally ranking Indebtedness, including
a comparable asset sale covenant that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be in cash in an amount
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of purchase. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, NWS may use such Excess Proceeds for general corporate
purposes. If the aggregate principal amount of notes and such other equally
ranking Indebtedness surrendered by holders exceeds the amount of Excess
Proceeds, the notes and such other equally ranking Indebtedness shall be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
<PAGE>
Certain Covenants
Restricted Payments
NWS will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of its or any of its Restricted
Subsidiaries' Equity Interests, including payments in connection
with any merger or consolidation involving NWS, or to the direct
or indirect holders of NWS' or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such other
than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of NWS or to NWS or any of its
Restricted Subsidiaries of NWS;
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of NWS or any direct or indirect parent of NWS
or other Affiliate of NWS, other than any such Equity Interests
owned by NWS or any Restricted Subsidiary of NWS, that is not a
Permitted Investment;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the notes, except a payment of interest
or principal at stated maturity;
(4) make any payment of salary, bonus, and any other cash
compensation, including split-dollar insurance premiums, that is
characterized as income on Form W-2 to or for the benefit of any
Person who is a beneficial owner of more than 10% of the
outstanding Voting Stock of NWS, or to or for the benefit of any
Immediate Family member of such Person, in excess of $950,000
annually for any individual or in excess of $2.5 million annually
in the aggregate for all such individuals;
(5) make any cash payment including any repurchase or redemption
after the date of the indenture on any Indebtedness owing to any
shareholder on any NWS-Illinois Shareholder Subordinated Exchange
Note; or
(6) make any Restricted Investment; all such payments and other
actions set forth in clauses (1) through (5) above being
collectively referred to as "Restricted Payments",
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) NWS would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
<PAGE>
(3) such Restricted Payment, together with the aggregate amount of
all other restricted payments made by NWS and its Restricted
Subsidiaries after the date of the indenture, excluding
Restricted Payments permitted by clauses (2), (3), (4) and (5) of
the next succeeding paragraph, is less than the sum of:
(a) 50% of the Consolidated Net Income of NWS for the period,
taken as one accounting period from the beginning of the
first fiscal quarter commencing after the date of the
indenture to the end of NWS' most recently ended fiscal
quarter for which internal financial statements are
available at the time of such Restricted Payment, or, if
such Consolidated Net Income for such period is a deficit,
less 100% of such deficit, plus
(b) 100% of the aggregate net cash proceeds received by NWS from
the issue or sale since the date of the indenture of Equity
Interests of NWS, other than Disqualified Stock, or of
Disqualified Stock or debt securities of NWS that have been
converted into such Equity Interests, other than Equity
Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of NWS and other than
Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock, and 100% of the
capital contributions received by NWS after the date of the
indenture in cash, plus
(c) one year and one day after the date of such receipt, 100% of
the cash payments received by NWS or a Restricted Subsidiary
of NWS after the date of the indenture on a Company
Shareholder Exchange Note Receivable, plus
(d) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of; (i)
the cash return of capital with respect to such Restricted
Investment, less the cost of disposition, if any, and (ii)
the initial amount of such Restricted Investment, plus
(e) 50% of any dividends received by NWS or a Controlled
Subsidiary after the date of the indenture from an
Unrestricted Subsidiary of NWS, to the extent that such
dividends were not otherwise included in Consolidated Net
Income of NWS for such period.
So long as the Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) The payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the indenture;
(2) The redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinate Indebtedness or
Equity Interests of NWS in exchange for, or out of the net cash
proceeds of the substantially concurrent sale, other than
Disqualified Stock; provided that the amount of any such Net
Proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded
from clause (3)(b) of the proceeding paragraph;
<PAGE>
(3) The defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) The payment of any dividend by a Restricted Subsidiary to the
holders of its common Equity Interests on a pro rata basis;
(5) The payment of the Permitted Quarterly Tax Distributions to the
holders of Capital Stock of any of the S-Corp. Businesses as
described below; and
(6) The payment of any Restricted Payments not otherwise permitted in
an aggregate amount not exceeding $2.5 million.
For so long as each S-Corp. Business qualifies as a pass-through entity for
federal income tax purposes, such S-Corp. Business may make cash distributions
to its shareholders or members, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following NWS' filing of Internal Revenue Service Form 1120S
for the immediately preceding taxable year, the Tax Amounts CPA shall file with
the Trustee a written statement indicating in reasonable detail the calculation
of the True-up Amount. In the case of a True-up Amount due to the shareholders
or members, the Permitted Quarterly Tax Distribution payable during the
following Quarterly Payment Periods shall be increased by such True-up Amount.
In the case of a True-up Amount due to NWS, the Permitted Quarterly Tax
Distribution payable during the following Quarterly Payment Periods shall be
reduced by such True-up Amount and the excess, if any, of the True-up Amount
over such Permitted Quarterly Tax Distribution shall be applied to reduce the
following Permitted Quarterly Tax Distributions until such True-up Amount is
entirely offset.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by NWS-Indiana,
NWS-Illinois, other than its U.S. Beverage craft beer business, NWS-LLC or
NWS-Michigan be transferred to or held by an Unrestricted Subsidiary. In the
event of any such designation, all outstanding Investments owned by NWS and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant or
Permitted Investments, as applicable. All such outstanding Investments will be
deemed to constitute Restricted Investments in an amount equal to the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation
would not cause a Default.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by NWS or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any non-cash Restricted Payment shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5.0 million. Not later than the date of making any Restricted
Payment, NWS shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
indenture.
<PAGE>
Incurrence of Indebtedness and Issuance of Preferred Stock
NWS will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness, including Acquired Debt, and NWS will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock. However, NWS and any Guarantor may incur
Indebtedness, including Acquired Debt, or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio would be greater than:
o 2.0 to 1.0 if such incurrence or issuance occurs on or before the
second anniversary of the date of the indenture, and
o 2.25 to 1.0 if such incurrence or issuance occurs at any time
thereafter,
In each case, determined on a pro forma basis, including a pro forma application
of the Net Proceeds therefrom, as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period;
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt")
(1) the incurrence by NWS or any Guarantor of Indebtedness and
letters of credit under Credit Facilities; provided, that the
aggregate principal amount will not exceed an amount equal to the
greater of:
o $60.0 million, provided that such amount shall be
reduced to the extent of any reduction or elimination
of any commitment under any Credit Facility resulting
from or relating to the formation of any Receivables
Subsidiary or the consummation of any Qualified
Receivables Transaction, less the aggregate amount of
all Net Proceeds of Asset Sales that have been applied
by NWS or any of its Restricted Subsidiaries since the
date of the indenture to repay Indebtedness under a
Credit Facility pursuant to the covenant described
above under the caption "--Asset Sales," and
o the amount of the Borrowing Base as of the date of such
incurrence;
Provided further, that, after giving effect to such incurrence
and the application of proceeds thereof, the aggregate principal
amount of all term Indebtedness and letters of credit, with
letters of credit being deemed to have a principal amount equal
to the maximum potential liability of NWS and its Restricted
Subsidiaries thereunder, at any time outstanding under all Credit
Facilities after giving effect to such incurrence, does not
exceed an amount equal to the greater of (a) $30.0 million or (b)
50% of the amount of the Borrowing Base as of the date of such
incurrence;
(2) the incurrence by NWS or any of its Restricted Subsidiaries of
the Existing Indebtedness;
<PAGE>
(3) the incurrence of Indebtedness represented by the notes;
(4) the incurrence by NWS or any of its Restricted Subsidiaries of
Indebtedness in the form of Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant
or equipment used in the business of NWS and its Restricted
Subsidiaries, including industrial revenue bonds, tax increment
financing and related reimbursement obligations, in an aggregate
principal amount, including any related Permitted Refinancing,
not to exceed $5 million at any time outstanding;
(5) the incurrence by NWS or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted by the indenture to be incurred
pursuant to clause (2) or (3) of this paragraph or pursuant to
the immediately preceding paragraph;
(6) the incurrence by NWS or any of its Restricted Subsidiaries of
intercompany Indebtedness, including Credit Facility Intercompany
Indebtedness, between or among NWS and any Restricted Subsidiary
that is a Guarantor; provided, however, that (i) except for
Credit Facility Intercompany Indebtedness, (A) if NWS is the
obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all
Obligations with respect to the notes, or (B) if a Guarantor is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to all Obligations with respect to such Guarantor's
Subsidiary Guarantee and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than NWS or a
Restricted Subsidiary that is a Guarantor and (B) any sale or
other transfer of any such Indebtedness to a Person that is not
either NWS or a Restricted Subsidiary that is a Guarantor shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by NWS or such Restricted Subsidiary, as the case
may be;
(7) the incurrence by NWS or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this indenture to
be outstanding;
(8) the Guarantee by NWS or any of the Guarantors of Indebtedness of
NWS or a Restricted Subsidiary of NWS that was permitted to be
incurred by another provision of this covenant, except clause (9)
of this paragraph;
(9) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to NWS
or to any other Subsidiary of NWS or their assets other than such
Receivables Subsidiary and its assets and, as to NWS or any
Subsidiary of NWS, other than pursuant to representations,
warranties, covenants and indemnities customary for such
transactions and is not guaranteed by any such Person;
(10) the incurrence by NWS' Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt, such event shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary that was
not permitted by this clause (10); and
<PAGE>
(11) the incurrence by NWS or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount or
accreted value, as applicable, at any time outstanding which may,
but need not, be borrowed under Credit Facilities, including all
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any other Indebtedness incurred pursuant to this
clause (11), not to exceed $10 million.
At December 31, 1998, the Borrowing Base was approximately $ 89.8 million.
NWS will not incur any Indebtedness that is contractually subordinated in
right of payment to any other Indebtedness of NWS unless such Indebtedness is
also contractually subordinated in right of payment to the notes on
substantially identical terms; provided, however, that no Indebtedness of NWS
shall be deemed to be contractually subordinated in right of payment to any
other Indebtedness of NWS solely by virtue of being unsecured.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (11) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, NWS
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of NWS as accrued to the extent contemplated by the definition of such
term.
Sale and Leaseback Transactions
Neither NWS nor any Restricted Subsidiary shall enter into any
Sale/Leaseback Transaction for any property unless:
(1) NWS or such Restricted Subsidiary would be entitled to:
o incur Indebtedness in an amount equal to the Attributable
Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "Incurrence of
Indebtedness and Issuance of Preferred Stock", and
o incur a Lien to secure such Indebtedness pursuant to the
covenant described under "Liens";
(2) the gross cash proceeds received in connection with such
Sale/Leaseback Transaction are at least equal to the fair value,
as determined in good faith by the Board of Directors, or such
property; and
(3) the transfer of such property is permitted by the covenant
described under "Asset Sales," and NWS or such Restricted
Subsidiaries applies the proceeds of such transaction in
compliance with the covenant described under "Asset Sales".
Liens
Neither NWS nor any of its Subsidiaries will, directly or indirectly,
create, incur, assume or suffer to exist any Lien securing Indebtedness or trade
payables on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
<PAGE>
Dividend and Other Payment Restrictions Affecting Subsidiaries
Neither NWS nor any Restricted Subsidiary will create or otherwise cause or
permit to exist any consensual restriction on the ability of any Restricted
Subsidiary to take the following actions:
(1) pay dividends or make any other distributions on its Capital
Stock or its profits, other than Permitted Quarterly Tax
Distributions;
(2) pay any Indebtedness owned to NWS or any Restricted Subsidiary;
(3) make any loans or advances to NWS or any Restricted Subsidiary;
or
(4) transfer any of its property or assets to NWS or a Restricted
Subsidiary.
However, this prohibition does not apply to:
(1) any restriction pursuant to the Existing Indebtedness;
(2) any restrictions pursuant to the New Credit Facility, and any
amendments, restatements or refinancings thereof, provided that
such amendments, restatements or refinancings are no more
restrictive with respect to dividend or payment restrictions than
the New Credit Facility on the date of the indenture;
(3) any restrictions pursuant to the indenture or the notes;
(4) applicable law;
(5) any restrictions pursuant to any instrument governing
Indebtedness or Capital Stock of a Person acquired by NWS or a
Restricted Subsidiary that is not created in contemplation of
such acquisition;
(6) any customary restriction on assignment of property or asset
subject to a lease or similar contract;
(7) any restrictions related to purchase money obligations for
property acquired in the ordinary course of business;
(8) any restrictions pursuant to any agreement for the sale or other
disposition of a Restricted Subsidiary pending the sale or other
disposition;
(9) any restrictions in connection with Permitted Refinancing
Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are
no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(10) any restrictions in connection with Liens securing Indebtedness
otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that
limit the right of NWS or any of its Restricted Subsidiaries to
dispose of the assets subject to such Lien;
<PAGE>
(11) any restrictions with respect to the sale or other disposition of
assets or property pursuant to Asset Sales, or transactions
which, but for their size, would be Asset Sales, with respect to
assets to be sold, or in joint venture agreements and other
similar agreements entered into in the ordinary course of
business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(13) any restrictions related to Indebtedness or other contractual
requirements of a Receivables Subsidiary in connection with a
Qualified Receivables Transaction. However, such restrictions may
apply only to such Receivables Subsidiary and the contractual
requirements of NWS and its Restricted Subsidiaries to transfer
assets to such Receivables Subsidiary in Qualified Receivables
Transactions.
Additional Subsidiary Guarantees
If NWS or any of its Restricted Subsidiaries acquires or creates another
Subsidiary after the date of the indenture, then, except for Subsidiaries that
have been properly designated as Unrestricted Subsidiaries and Receivables
Subsidiaries, that newly acquired or created Subsidiary must become a Guarantor
and execute a supplemental indenture and deliver an Opinion of Counsel, in
accordance with the terms of the indenture. In addition, if any Unrestricted
Subsidiary is redesignated, or becomes, a Restricted Subsidiary, then that
Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture and deliver an Opinion of Counsel, in accordance with the terms of the
indenture. However, the requirements of this section will not apply to any
Restricted Subsidiary that is not incorporated under the laws of the United
States unless such Restricted Subsidiary guarantees other Indebtedness or
another Subsidiary.
Merger, Consolidation or Sale of Assets
NWS may not: (A) consolidate or merge with or into another person whether
or not NWS is the surviving corporation; or (B) sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person; unless
(1) NWS is the surviving corporation, or the Person formed by or
surviving any such consolidation or merger, if other than NWS, or
to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger, if other than NWS, or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of NWS under the
Registration Rights Agreement, the notes and the indenture
pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of NWS with or into a Controlled
Subsidiary, NWS or the Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made will, immediately after such transaction after giving pro
forma effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock."
<PAGE>
Transactions with Affiliates
NWS will not, and will not permit any of its Restricted Subsidiaries to,
enter into any transaction or series of transactions, including the purchase,
sale, lease or exchange or the rendering any service with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(1) such Affiliate Transaction is on terms that are no less favorable
to NWS or the relevant Restricted Subsidiary than the terms that
would have been obtained in a comparable transaction with an
unrelated Person; and
(2) NWS delivers to the Trustee:
o with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $1 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies this
covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the
Board of Directors; and
o with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $5 million, an opinion as to the
fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal
or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions, and
therefore, will not be prohibited by this covenant:
(1) any employment agreement entered into by NWS or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of NWS or such Restricted
Subsidiary;
(2) transactions between or among NWS and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of NWS;
(4) any sale or other issuance of Equity Interests, other than
Disqualified Stock, of NWS;
(5) salaries, bonuses and employee benefits paid to the officers of
NWS and its Subsidiaries in the ordinary course of business
consistent with past practice;
(6) transactions in the ordinary course of business between NWS or
any Restricted Subsidiary and
o any Person that is not a Restricted Subsidiary (A) that is
engaged in a Permitted Business and (B) in which NWS has an
Investment on the date of the indenture or makes an
Investment permitted by the Indenture, and (C) in which
neither the Principal, any Related Party or any officer,
director or equity owner of NWS or any of its Subsidiaries
has any beneficial ownership interest, other than indirectly
through NWS or a Restricted Subsidiary, or
<PAGE>
o Consolidated Rectifying, Inc. for the bottling, blending
and/or manufacture of distilled spirits in the ordinary
course of business and consistent with past practice;
(7) transactions between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an Investment in connection
with any Qualified Receivables Transaction; and
(8) Permitted Investments and Restricted Payments that are permitted
by the provisions of the indenture described above under the
caption "--Restricted Payments."
Limitation on Issuances and Sales of Capital Stock of Controlled
Subsidiaries
NWS will not, and will not permit any Subsidiary to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Controlled
Subsidiary of NWS to any Person, other than NWS or a Controlled Subsidiary of
NWS, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Capital Stock of such Controlled Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant
described above under the caption "--Asset Sales"; and
(3) after giving effect to such disposition, such Controlled
Subsidiary remains a Controlled Subsidiary.
In addition, NWS will not permit any Controlled Subsidiary of NWS to issue
any of its Equity Interests, other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares, to any Person other than to NWS
or a Controlled Subsidiary of NWS if, after giving effect thereto, such
Controlled Subsidiary would cease to be a Controlled Subsidiary. However, the
limitations contained in this covenant will not prevent any increase in the
ownership or profits interest of Martin H. Bart or his successors in NWS-LLC or
any successor entity thereto in accordance with the terms of the NWS-LLC limited
liability company agreement, and as amended or replaced thereafter in a manner
not adverse to the holders of the notes.
Business Activities
NWS will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses.
Payments for Consent
Neither NWS nor any of its Subsidiaries will, directly or indirectly, pay
or cause to be paid any consideration to any holder of any notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid or
is paid to all holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
<PAGE>
Reports
Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, NWS will furnish to the holders of notes within the
time periods specified in the SEC's rules and regulations:
o beginning with the quarterly period ending December 31, 1998, all
quarterly and annual financial information that would be required to
be contained in a filing with the SEC on Forms 10-Q and 10-K if NWS
were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of NWS and
its Consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by NWS' certified independent
accountants; and
o all current reports that would be required to be filed with the SEC on
Form 8-K if NWS were required to file such reports.
In addition, beginning with the first quarterly period commencing after the
consummation of the exchange offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the SEC, NWS
will file a copy of all such information and reports with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations and make such information available to securities analysts and
prospective investors upon request. In addition, NWS and any Guarantors have
agreed that, for so long as any notes remain outstanding, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions
of the indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes whether or not prohibited by the subordination
provisions of the indenture;
(3) failure by NWS or any Subsidiary to comply with the provisions
described under the captions "--Change of Control," "--Merger,
Consolidation or Sale of Assets," "--Restricted Payments" or
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(4) failure by NWS for 60 days after notice to comply with any of its
other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by NWS or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
NWS or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the indenture, if that default
(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness
on the date of such default (a "Payment Default") or
<PAGE>
(b) results in the acceleration of such Indebtedness prior to
its express maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more;
(6) failure by NWS or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(7) the termination of any Subsidiary Guarantee for any reason not
permitted by the Indenture, or the denial of any Guarantor or any
Person acting on behalf of any Guarantor of such Guarantor's
obligations under its respective Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to NWS or
any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. However, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to NWS, any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
notes will become due and payable without further action or notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default, except a Default or
Event of Default relating to the payment of principal or interest, if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction, taken or not taken, by or on behalf of NWS with the
intention of avoiding payment of the premium that NWS would have had to pay if
NWS then had elected to redeem the notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the notes. If an Event of Default occurs prior to January 15, 2004 by reason
of any willful action or inaction, taken or not taken, by or on behalf of NWS
with the intention of avoiding the prohibition on redemption of the notes prior
to January 15, 2004, then the premium specified in the indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
NWS is required to deliver to the Trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default or Event of
Default, NWS is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
<PAGE>
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, or stockholder, partner or
member of NWS or any Guarantor, as such, shall have any liability for any
obligations of NWS or any Guarantor under the notes, the indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
NWS may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on
such notes when such payments are due from the trust referred to
below;
(2) NWS' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency
for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and NWS' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, NWS may, at its option and at any time, elect to have the
obligations of NWS released with respect to certain covenants that are described
in the indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) NWS must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and NWS must specify whether
the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, NWS shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that NWS has received from, or there has been
published by, the Internal Revenue Service a ruling or since the
date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
<PAGE>
(3) in the case of Covenant Defeasance, NWS shall have delivered to
the Trustee an opinion of reasonably acceptable to the Trustee
confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit, other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit, or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any
material agreement or instrument, other than the indenture, to
which NWS or any of its Subsidiaries is a party or by which NWS
or any of its Subsidiaries is bound;
(6) NWS must have delivered to the Trustee an opinion of counsel to
the effect that, assuming no intervening bankruptcy of NWS
between the date of deposit and the 91st day following the
deposit and assuming no holder of notes is an insider of NWS,
after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) NWS must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by NWS with the intent of
preferring the holders of notes over the other creditors of NWS
with the intent of defeating, hindering, delaying or defrauding
creditors of NWS or others; and
(8) NWS must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and NWS may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
NWS is not required to transfer or exchange any note selected for redemption.
Also, NWS is not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in this section, the indenture or the notes may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the exchange notes then outstanding, including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, exchange notes, and any existing default or compliance
with any provision of the indenture or the exchange notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
exchange notes including consents obtained in connection with a tender offer or
exchange offer for exchange notes.
<PAGE>
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the
notes, other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the notes except a
rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such
acceleration;
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of or premium, if any, or interest
on the notes;
(7) waive a redemption payment with respect to any note other than a
payment required by one of the covenants described above under
the caption "--Repurchase at the Option of Holders"; or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding , without the consent of any holder of notes,
NWS and the Trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes,
(3) to provide for the assumption of NWS' obligations to holders of
notes in the case of a merger or consolidation,
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely
affect the legal rights under the indenture of any such holder,
or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
indenture Act.
<PAGE>
Concerning the Trustee
If the Trustee becomes a creditor of NWS, the indenture limits its rights
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur which shall not be cured, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Refer to
the indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, whether or not the Indebtedness incurred in
connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and, in the case of a natural Person, any
immediate family member of such Person. For purposes of this definition,
"control", as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the voting securities of a Person shall be deemed to be control. No
Person, other than NWS or any Subsidiary of NWS, in whom a Receivables
Subsidiary makes an Investment in connection with a Qualified Receivables
Transaction will be deemed to be an Affiliate of NWS or any of its Subsidiaries
solely by reason of such Investment. For purposes of this definition, the terms
"controlling," "controlled by," and "under common control with" shall have
correlative meanings.
"Asset Sale" means, whether in a single transaction or a series of related
transactions which have either a fair market value or net proceeds of more than
$1 million:
(1) the sale, lease, conveyance or other disposition of any assets or
rights including, without limitation, by way of a sale and
leaseback, other than sales of inventory in the ordinary course
of business consistent with past practices; provided that the
sale, lease, conveyance or other disposition of all or
substantially all of the assets of NWS and its Restricted
Subsidiaries taken as a whole will be governed by the provisions
of the indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption
"--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
<PAGE>
(2) the issue or sale by NWS or any of its Restricted Subsidiaries of
Equity Interests.
Notwithstanding the foregoing, the following items will not be deemed asset
sales:
(1) a transfer of assets between or among NWS and its Restricted
Subsidiaries that are Guarantors;
(2) an issuance of equity interests by a Controlled Subsidiary to NWS
or to another Controlled Subsidiary;
(3) a Permitted Investment or a Restricted Payment that is permitted
by the covenant described above under the caption "--Restricted
Payments";
(4) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction" to a Receivables Subsidiary for fair market value,
including cash at least equal to 75% of the book value as
determined in accordance with GAAP. For the purposes of this
clause (4), notes received in exchange for the transfer of
accounts receivable and related assets will be deemed cash if the
notes are required to be repaid from available cash collections
less amounts required to be established as reserves pursuant to
contracts with entities are not Affiliates of NWS entered into as
part of a Qualified Receivables Transaction;
(5) transfers of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction", or a fractional undivided interest therein, by a
Receivables Subsidiary in a Qualified Receivables Transaction;
and
(6) transfers from NWS-Illinois and NWS-LLC to U.S. Beverage of
assets directly related to, and primarily used in, the operations
of U.S. Beverage.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be
extended.
"Borrowing Base" means, as of any date, an amount equal to the sum of :
(1) 80% of the face amount of all accounts receivable owned by NWS
and its Restricted Subsidiaries on that date that are not more
than 45 days past due; provided, however, that any accounts
receivable owned by a Receivables Subsidiary, or which NWS or any
of its Subsidiaries has agreed to transfer to a Receivables
Subsidiary, shall be excluded for purposes of determining such
amount; and
<PAGE>
(2) 65% of the book value of all inventory owned by NWS and its
Restricted Subsidiaries on that date, all calculated on a
consolidated basis in accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory or trade payables as of a specific date, NWS may utilize
the most recent available information for purposes of calculating the Borrowing
Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents,
however designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership, whether general or limited, or membership interests;
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) 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 six months from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to
the New Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2)
and (3) above entered into with any financial institution meeting
the qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of
acquisition; and
(6) money market funds at least 95% of the assets of which constitute
cash equivalents of the kinds described in clauses (1)-(5) of
this definition.
<PAGE>
"Change of Control" means the occurrence of any of the following:
(1) 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 NWS and its Restricted Subsidiaries taken as a whole to any
"Person", as such term is used in Section 13(d)(3) of the
Exchange Act, other than the Principal or his Related Parties (as
defined below);
(2) the adoption of a plan relating to the liquidation or dissolution
of NWS;
(3) the consummation of any transaction including, without
limitation, any merger or consolidation, the result of which is
that any "Person" (as defined above), other than the Principal
and his Related Parties, becomes the "beneficial owner", as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to
acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition,
directly or indirectly, of more than 40% of the Voting Stock of
NWS, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of NWS are not Continuing Directors; or
(5) NWS consolidates with, or merges with or into, any Person or
sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any
Person consolidates with, or merges with or into, NWS, in any
such event pursuant to a transaction in which any of the
outstanding Voting Stock of NWS is converted into or exchanged
for cash, securities or other property, other than any such
transaction where the Voting Stock of NWS outstanding immediately
prior to such transaction is converted into or exchanged for
Voting Stock, other than Disqualified Stock, of the surviving or
transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee
Person immediately after giving effect to such issuance.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of NWS and its Subsidiaries taken as a whole. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of exchange notes to require NWS to
repurchase such exchange notes as a result of a sale, lease, transfer,
conveyance, or other disposition of less than all of the assets of NWS and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Shareholder Exchange Note Receivable" means any promissory note
receivable by NWS or a Subsidiary of NWS on the date of the indenture from any
shareholder of NWS.
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period; plus
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale to the extent such
losses were deducted in computing such Consolidated Net Income;
plus
(2) (a) if such Person is an S-Corporation or substantially similar
pass-through entity for federal income tax purposes, the amount
of all Permitted Quarterly Tax Distributions of such Person and,
without duplication, its Consolidated Subsidiaries for such
period, as adjusted for any True-up Amount then determined for
such period; or
(b) if such Person is not an S-Corporation or substantially
similar pass-through entity for federal income tax purposes, any
provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated
Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued and whether or not
capitalized including, without limitation, original issue
discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligation, imputed
interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations but excluding
amortization of debt issuance costs and non-cash interest accrued
or accruing on any NWS-Illinois shareholder subordinated exchange
note, to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(4) depreciation, amortization including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period and other non-cash
expenses, excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was
paid in a prior period, of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such
Consolidated Net Income; plus
(5) LIFO expense; plus
(6) start-up expenses reported on the consolidated financial
statements of NWS, NWS-Indiana and NWS-Illinois for any quarterly
period ending on or prior to March 31, 1998 that is included in
the period for which the calculation is being made; plus
(7) prepayment penalties associated with the prepayment of
Indebtedness on the date of the indenture to the extent any such
expense was deducted in computing such Consolidated Net Income;
minus
<PAGE>
(8) non-cash items increasing such Consolidated Net Income for such
period including, without limitation, LIFO income and non-cash
interest income, in each case, on a consolidated basis and
determined in accordance with GAAP.
Notwithstanding the foregoing, the Permitted Quarterly Tax Distributions,
adjusted as provided above, of the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of NWS shall be added to Consolidated Net Income to compute
Consolidated Cash Flow 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 NWS and only if a corresponding amount would be permitted at the date
of determination to be dividended to NWS by such Subsidiary without prior
approval that has not been obtained, pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
reduced by the amount of Permitted Quarterly Tax Distributions of such Person
and, without duplication, its Consolidated Subsidiaries for such period, as
adjusted for any True-up Amount then determined for such period, if such Person
is an S-Corporation or substantially similar pass-through entity for federal
income tax purposes; provided that:
(1) the Net Income, but not loss, of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the
specified Person or a Controlled Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any
prior governmental approval that has not been obtained or,
directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded;
(5) the Net Income, but not loss, of any Unrestricted Subsidiary
shall be excluded, whether or not distributed to NWS or one of
its Restricted Subsidiaries;
(6) interest received or accrued on a Company Shareholder Exchange
Note Receivable shall be excluded when determining NWS' ability
to make Restricted Payments under the Indenture; and
(7) the cumulative effect of a change in accounting principals shall
be excluded.
"Consolidated Tangible Assets" means with respect to any Person as of any
date, the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" or any like caption on a consolidated balance sheet of
such Person and its Restricted Subsidiaries, less all intangible assets,
including, without limitation, goodwill, organization costs, patents,
trademarks, copyrights, franchises and research and development costs.
<PAGE>
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of NWS who:
(1) was a member of such Board of Directors on the date of the
Indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who
were members of such board at the time of such nomination or
election.
"Controlled Subsidiary" of NWS means a Restricted Subsidiary of NWS:
(1) 90% or more of the economic interest in the total equity
interests or other ownership interests of which and 90% or more
of the voting rights represented by the Voting Stock of which is
owned by NWS, either directly or through one or more Controlled
Subsidiaries; and
(2) over which NWS possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies.
"Credit Facilities" means, with respect to NWS, one or more debt facilities
including, without limitation, the New Credit Facility, or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Credit Facility Intercompany Indebtedness" means intercompany Indebtedness
of NWS' Subsidiaries.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms or by the
terms of any security into which it is convertible or for which it is
exchangeable, or upon the happening of any event:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise; or
(2) is redeemable at the option of the holder, in whole or in part,
on or prior to the date that is 91 days after the date on which
the exchange notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
NWS to repurchase such Capital Stock upon the occurrence of a Change of Control
or an Asset Sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that NWS may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Estimation Period" means the period for which a shareholder who is an
individual is required to estimate for federal income tax purposes his
allocation of taxable income from a calendar year in connection with determining
his estimated federal income tax liability for such period.
<PAGE>
"Existing Indebtedness" means Indebtedness of NWS and its Subsidiaries,
other than Indebtedness under the New Credit Facility, in existence on the date
of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding amortization of debt issuance costs and
excluding non-cash interest accrued or accruing for such period on any
NWS-Illinois Shareholder Subordinated Exchange Note; plus
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries whether or not such Guarantee or Lien is called upon;
plus
(4) the product of :
(a) all cash dividend payments or other distributions and non-cash
dividend payments in the case of a Person that is a Restricted
Subsidiary on any series of preferred equity of such Person;
times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person, or in the case of a
Person that is an "S-Corporation" or other pass-through entity
for federal income tax purposes, the combined federal, state and
local income tax rate that was or would have been utilized to
calculate the Tax Amount of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that NWS or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness,
other than revolving credit borrowings, or issues preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the fixed charge coverage ratio is made (the "Calculation Date"),
then the fixed charge coverage ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by NWS or any of its Restricted
Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash
Flow for such reference period shall be calculated without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
<PAGE>
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the calculation date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the calculation date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the Specified Person or any of its
Restricted Subsidiaries following the calculation date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a Guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Guarantors" means each of:
(1) NWS-Indiana, NWS-Illinois, NWS-LLC and NWS-Michigan; and
(2) any other Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"immediate family" has the meaning assigned to such term in Rule 16a1-(e)
under the Exchange Act.
"Indebtedness" means, with respect to any Person, any Indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit or reimbursement agreements in respect thereof;
(3) banker's acceptances;
<PAGE>
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property
except any such balance that constitutes an accrued expense or trade
payable; and
(6) representing any Hedging Obligations.
If and to the extent any of the foregoing Indebtedness, other than letters
of credit and Hedging Obligations, would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such Person
and, to the extent not otherwise included, the Guarantee by such Person of any
Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all Investments by such
Person in other Persons including Affiliates in the forms of direct or indirect
loans including Guarantees of Indebtedness or other obligations, advances or
capital contributions excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business, purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
Investments on a balance sheet prepared in accordance with GAAP. If NWS or any
of its Subsidiaries sells or otherwise disposes of any equity interests of any
direct or indirect Subsidiary of NWS such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of NWS, NWS shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Restricted Payments."
"Issue Date" means the date on which the initial $110 million in exchange
notes was originally issued under the Indenture.
"Lien" means, with respect to any asset, any mortgage, Lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code or equivalent statutes of any jurisdiction.
"Net Income" means, with respect to any Person for any period, the Net
Income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred interests or dividends,
excluding, however:
(1) any gain, but not loss, together with any related provision for taxes
on such gain (but not loss), realized in connection with (A) any Asset
Sale including, without limitation, dispositions pursuant to sale and
leaseback transactions or (B) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries; and
<PAGE>
(2) any extraordinary or nonrecurring gain, but not loss, together with
any related provision for taxes or Permitted Quarterly Tax
Distributions on such extraordinary or nonrecurring gain, but not
loss.
"Net Proceeds" means the aggregate cash proceeds received by NWS or any of
its Restricted Subsidiaries in respect of any Asset Sale including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of the direct costs relating to
such Asset Sale including, without limitation, legal, accounting and investment
banking fees, and sales commissions and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof after taking into
account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement executed on the
date of the Indenture, by and among NWS and NBD Bank, as agent, providing for up
to $60.0 million of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments, letters of credit and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither NWS nor any of its Restricted Subsidiaries (A)
provides credit support of any kind including any undertaking,
agreement or instrument that would constitute Indebtedness, (B) is
directly or indirectly liable as a guarantor or otherwise, or (C)
constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary, would permit upon notice, lapse of time or
both any holder of any other Indebtedness other than the notes of NWS
or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of NWS or any of its
Restricted Subsidiaries.
"NWS-Indiana" means National Wine & Spirits Corporation, an Indiana
corporation, and its successors.
"NWS-Illinois" means NWS, Inc., an Illinois corporation, and its
successors.
"NWS-LLC" means NWS-Illinois, LLC, an Illinois limited liability company,
and its successors.
"NWS-Michigan" means NWS Michigan, Inc., a Michigan corporation, and its
successors.
"NWS-Illinois Shareholder Subordinated Exchange Note" means any note
payable to any shareholder of NWS by NWS-Illinois that is outstanding on the
date of the indenture and:
(1) matures on December 31, 2009;
(2) does not require redemption prior to maturity; and
(3) is subordinated in right of payment to the exchange notes.
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any of the businesses engaged in by NWS and its
Subsidiaries on the date of the indenture and any extensions thereof or other
businesses reasonably related thereto.
"Permitted Investments" means:
(1) any Investment in NWS or in a Controlled Subsidiary of NWS;
(2) any Investment in Cash Equivalents;
(3) any Investment by NWS or any Restricted Subsidiary of NWS in a Person,
if as a result of such Investment;
(a) such Person becomes a Controlled Subsidiary of NWS, or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, NWS or a Controlled Subsidiary of NWS;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of NWS;
(6) Investments made after the date of the indenture in wholesale
alcohol-based beverage distribution businesses, measured on the dates
such Investments were made and without giving effect to subsequent
changes in value, that are not, after giving effect to such
Investments, Controlled Subsidiaries, in an aggregate amount
outstanding after giving effect to any such Investment not exceeding
10% of Consolidated Tangible Assets;
(7) redemptions of the interests in NWS-LLC that are held by Martin H.
Bart on the date of the Indenture, and his successors and assigns;
(8) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction, and any other Investment by NWS or
a Subsidiary of NWS in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person in connection with a
Qualified Receivables Transaction provided, that such other Investment
is in the form of a note or other instrument that the Receivables
Subsidiary or other Person is required to repay as soon as practicable
from available cash collections less amounts required to be
established as reserves pursuant to contractual agreements with
entities that are not Affiliates of NWS entered into as part of a
Qualified Receivables Transaction;
(9) transfers from NWS-Illinois and NWS-LLC to U.S. Beverage of assets
directly related to, and primarily used in, the operations of U.S.
Beverage; and
(10) other Investments in any Person having an aggregate fair market value,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (10) that are at the
time outstanding, not to exceed $7.0 million.
<PAGE>
"Permitted Liens" means
(1) Liens securing Indebtedness and Guarantees permitted by the terms of
the indenture to be incurred under any Credit Facilities, including
the New Credit Facility; on
(a) accounts receivable and the related assets of the type specified
in the definition of "Qualified Receivables Transaction" and
inventory and proceeds thereof, and
(b) Credit Facility Intercompany Indebtedness and any documents or
instruments evidencing such Indebtedness;
(2) any such Liens on assets of the type described in clause (1)(a)
securing Credit Facility Intercompany Indebtedness, provided, however,
that any Liens permitted by clause (1)(b) and this clause (2) shall
only constitute Permitted Liens for so long as:
(a) the Credit Facility pursuant to which such Liens were granted
contains a provision stating in substance that in the event of
any bankruptcy, insolvency or similar proceeding involving any
Guarantor, the claims of the lenders under such Credit Facility
with respect to the Guarantee of such Guarantor shall be reduced
by the amount of claims, if any, which are made by such lenders
and allowed in such proceeding with respect to the Credit
Facility Intercompany Indebtedness pledged to secure such
Indebtedness under the Credit Facility, net of any offsets
against such Credit Facility Intercompany Indebtedness relating
to Indebtedness or other obligations owed by NWS to such
Guarantor, and provided further:
that such reduction shall be rescinded in the event of equitable
subordination of the claims with respect to the Credit Facility
Intercompany Indebtedness unless such equitable subordination
arose out of or resulted from the acts or omissions of any
lenders under the Credit Facility; and
(b) any intercompany notes representing any Credit Facility
Intercompany Indebtedness that are pledged to secure Indebtedness
under such Credit Facility are at all times limited in aggregate
amount to the balance at any time outstanding under such Credit
Facility;
(3) Liens in favor of NWS or any Restricted Subsidiary;
(4) Liens on property of a Person existing at the time such Person is
merged into or consolidated with NWS or any Restricted Subsidiary of
NWS; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
NWS;
(5) Liens on property existing at the time of acquisition thereof by NWS
or any Subsidiary of NWS, provided that such Liens were in existence
prior to the contemplation of such acquisition;
(6) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
<PAGE>
(7) Liens to secure Indebtedness including Capital Lease Obligations,
permitted by clause (5) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness;
(8) Liens existing on the date of the indenture;
(9) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10) Liens incurred in the ordinary course of business of NWS or any
Subsidiary of NWS with respect to obligations that do not exceed $5.0
million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit other than trade credit in the
ordinary course of business, and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by NWS or such Subsidiary;
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries; and
(12) Liens on assets of a Receivables Subsidiary incurred in connection
with a Qualified Receivables Transaction.
"Permitted Quarterly Tax Distribution" means quarterly distributions of Tax
Amounts determined on the basis of the estimated taxable income of NWS, for the
related Estimation Period, provided, however, that:
(1) prior to any distributions of Tax Amounts, NWS shall deliver an
officers' certificate certifying that the Tax Amounts to be
distributed were determined pursuant to the terms of the indenture and
stating to the effect that NWS qualifies as an S-Corporation or
substantially similar pass-through entity for federal income tax
purposes; and
(2) at the time of such distributions, the most recent audited financial
statements of NWS reflect that NWS was treated as an S-Corporation or
substantially similar pass-through entity for federal income tax
purposes for the period covered by such financial statements.
"Permitted Refinancing Indebtedness" means any Indebtedness of NWS or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of NWS or any of its Restricted Subsidiaries; provided that:
(1) the principal amount or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of or accreted value, if applicable, plus accrued interest on,
the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded plus the amount of reasonable expenses incurred in
connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
<PAGE>
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
exchange notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is
subordinated in right of payment to, the exchange notes on terms at
least as favorable to the holders of exchange notes as those contained
in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by NWS or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principal" means James E. LaCrosse.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by NWS or any of its Subsidiaries pursuant to which
NWS or any of its Subsidiaries sells, conveys or otherwise transfers to
(1) a Receivables Subsidiary, in the case of a transfer by NWS or any of
its Subsidiaries, and
(2) any other Person, in the case of a transfer by a Receivables
Subsidiary,
or grants a security interest in, any accounts receivable whether now existing
or arising in the future of NWS or any of its Subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Quarterly Payment Period" means the period commencing on the tenth day and
ending on and including the twentieth date of each month in which federal
individual estimated tax payments are due (provided that payments in respect of
estimated state income taxes due in January may instead, at the option of NWS,
be paid during the last five days of the immediately preceding December.
"Receivables Subsidiary" means a Subsidiary of NWS which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by the Board of Directors of NWS (as provided below) as
a Receivables Subsidiary,
(1) no portion of the Indebtedness or any other Obligations, contingent or
otherwise, of which:
(a) is guaranteed by NWS or any Subsidiary of NWS, excluding
Guarantees of Obligations, other than the principal of, and
interest on, Indebtedness pursuant to representations,
warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified
Receivables Transaction,
(b) is recourse to or obligates NWS or any Subsidiary of NWS in any
way other than pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, or
<PAGE>
(c) subjects any property or asset of NWS or any Subsidiary of NWS
other than accounts receivable and related assets as provided in
the definition of "Qualified Receivables Transaction", directly
or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction,
(2) with which neither NWS nor any Subsidiary of NWS has any material
contract, agreement, arrangement or understanding other than on terms
no less favorable to NWS or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of NWS, other
than fees payable in the ordinary course of business in connection
with servicing accounts receivable; and
(3) with which neither NWS nor any Subsidiary of NWS has any obligation to
maintain or preserve such Subsidiary's financial condition or cause
such Subsidiary to achieve certain levels of operating results. Any
such designation by the Board of Directors of NWS will be evidenced to
the Trustee by filing with the Trustee a certified copy of the
resolutions of the Board of Directors of NWS giving effect to such
designation and an officers' certificate certifying that such
designation complied with the foregoing conditions.
"Related Party" means
(1) any immediate family member of the Principal; and
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in this definition.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S-Corp. Businesses" means NWS and any Subsidiary of NWS that qualifies as
a qualified subchapter S Subsidiary or is classified as a partnership or other
pass-through entity for federal income tax purposes.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person,
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled, without regard to the occurrence of any contingency, to vote
in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person, or a combination
thereof; and
<PAGE>
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person or any combination thereof.
"Tax Amounts" with respect to any taxable period shall not exceed an amount
equal to:
(1) the product of:
(a) the taxable income of NWS for such period as determined by the
Tax Amounts CPA, and
(b) the Tax Percentage reduced by:
(2) to the extent not previously taken into account, any income tax
benefit attributable to NWS which could be realized, without regard to
the actual realization, by its shareholders in the current or any
prior taxable year, or portion thereof, commencing on or after the
Issue Date including any tax losses or tax credits, computed at the
applicable Tax Percentage for the year that such benefit is taken into
account for purposes of this computation.
"Tax Amounts CPA" means Katz, Sapper & Miller or a nationally recognized
certified public accounting firm.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of federal and state income tax, imposed on an
individual taxpayer, as certified by the Tax Amounts CPA in a certificate filed
with the Trustee. The rate of "state income tax" to be taken into account for
purposes of determining the Tax Percentage for a particular taxable year shall
be deemed to be the highest state marginal tax rate applicable to any
stockholder.
"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between
(1) the aggregate Permitted Quarterly Tax Distributions actually
distributed in respect of such taxable year, and
(2) the actual Tax Amounts for such year.
For purposes of this Agreement, the amount equal to the excess, if any, of
the amount described in clause (1) over the amount described in clause (2) above
shall be referred to as the "True-up Amount due to NWS" and the excess, if any,
of the amount described in clause (2) over the amount described in clause (1)
above shall be referred to as the "True-up Amount due to the shareholders."
"True-up Determination Date" means the date on which the Tax Amounts CPA
delivers a statement to the Trustee indicating the True-up Amount.
"Unrestricted Subsidiary" means any Subsidiary of NWS that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution; but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with NWS or any of its Restricted Subsidiaries unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to NWS or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of NWS;
<PAGE>
(3) is a Person with respect to which neither NWS nor any of its
Restricted Subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional Equity Interests, or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of NWS or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of NWS or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of NWS or any of its Restricted
Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the board resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of NWS as of such date and, if such Indebtedness is not permitted to
be incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," NWS shall be in
default of such covenant.
The Board of Directors of NWS may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of NWS
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period; and
(2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
<PAGE>
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years calculated to the nearest one-twelfth, that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
NWS nor the initial purchasers takes any responsibility for these operations or
procedures, and investors are urged to contact the relevant systems or its
participants directly to discuss these matter.
Book-Entry, Delivery and Form
Except as set forth below, the notes will be in the form of one or more
registered global notes without interest coupons. The global notes will be
deposited with the trustee, as custodian for DTC, and registered in the name of
DTC or its nominee for credit to the accounts of DTC's Direct and Indirect
Participants (as defined below). Transfer of beneficial interests in global
notes will be subject to the applicable rules and procedures of DTC and its
Direct and Indirect Participants, which may change from time to time.
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be exchanged
for notes in certificated form in certain limited circumstances.
Initially, the trustee will act as paying agent and registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
Depositary Procedures
DTC has advised NWS that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the initial purchasers), banks, trust company,
clearing corporations and certain other organizations, including Euroclear and
Cedel. Access to DTC's system is also available to other entities that clear
through, or maintain a direct or indirect custodial relationship with, a Direct
Participant (collectively, the "Indirect Participants").
DTC has advised NWS that, pursuant to DTC's procedures, (1) upon deposit of
the global notes, DTC will credit the accounts of the Direct Participants
designated by the initial purchasers with an interest in the global notes, and
(2) DTC will maintain records of the ownership interests of Direct Participants
in the global notes and the transfer of ownership interests by and between
Direct Participants. However, DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, Indirect
Participants or other owners of beneficial interests in the global notes. Direct
Participants and Indirect Participants must maintain their own records of the
ownership interests of, and the transfer of ownership interests by and between,
Indirect Participants and other owners of beneficial interests in the global
notes.
<PAGE>
Investors in the global notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Morgan Guaranty Trust Company
of New York, Brussels office is the operator and depository of Euroclear, and
Citibank, N.A. is the operator and depository of CEDEL (each a "nominee" of
Euroclear and CEDEL, respectively). Therefore, they will each be recorded on
DTC's records as the holders of all ownership interests held by them on behalf
of Euroclear and CEDEL, respectively. Euroclear and CEDEL must maintain on their
own records the ownership interests, and transfers of ownership interests by and
between, their own customers' securities accounts. DTC will not maintain such
records. All ownership interests in any global notes, including those of
customers' securities accounts held through Euroclear or CEDEL, may be subject
to the procedures and requirements of DTC.
The laws of some states' jurisdictions may require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
global note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a global note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests.
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes", owners of beneficial interests in the global notes will
not:
o have notes registered in their names;
o receive physical delivery of notes in certificated form; or
o be considered the registered owners or holders thereof under the indenture
for any purpose.
Under the terms of the indenture, NWS, the guarantors and the trustee will
treat the persons in whose names the notes are registered including notes
represented by global notes, as the owners thereof for the purpose of receiving
payments and for any and all other purposes. Payments in respect of the
principal, premium, liquidated damages, if any, and interest on global notes
registered in the name of DTC or its nominee will be payable by the trustee to
DTC or its nominee as the registered holder under the indenture. Consequently,
neither NWS, the trustee nor any agent of NWS or the trustee has or will have
any responsibility or liability for (1) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the global notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any global note or (2) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised NWS that its current payment practice for payments of
principal, interest and the like, with respect to securities such as the notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the global notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the trustee,
NWS or the guarantors. Neither NWS, the guarantors nor the trustee will be
liable for any delay by DTC or its Direct Participants or Indirect Participants
in identifying the beneficial owners of the notes, and NWS and the trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
<PAGE>
Transfers between Direct Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
Indirect Participants in Euroclear or Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between Direct Participants in DTC, on the one hand,
and Indirect Participants who hold interests in the notes through Euroclear or
CEDEL, on the other hand, will be effected by Euroclear's or CEDEL's respective
nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
CEDEL; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants who hold interest in the notes through
Euroclear and CEDEL may not deliver instructions directly to Euroclear's or
CEDEL's nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
global note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant purchasing an interest in a global note from a Direct Participant in
DTC will be credited, and any such crediting will be reported to Euroclear or
CEDEL during the European business day immediately following the settlement date
of DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in a global note to a DTC Participant until the European business day
for Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised NWS that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Direct Participants to
whose account interests in the global notes are credited and only in respect of
such portion of the aggregate principal amount of the notes to which such Direct
Participant or Direct Participants has or have given direction. However, if
there is an event of default under the notes, DTC reserves the right to exchange
global notes, without the direction of one or more of its Direct Participants,
for legended notes in certificated form, and to distribute such certificated
forms of notes to its Direct Participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the global notes among Direct
Participants, including Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. None of NWS, the guarantors, the initial purchasers or
the trustee shall have any responsibility for the performance by DTC, Euroclear
or CEDEL or their respective Direct and Indirect Participants of their
respective obligations under the rules and procedures governing any of their
operations.
Transfers of Interests in Global Notes for Certificated Notes
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons if
(1) DTC (a) notifies NWS that it is unwilling or unable to continue as
depositary for the global notes and NWS thereupon fails to appoint a
successor Depositary within 90 days or (b) has ceased to be a clearing
agency registered under the Exchange Act,
(2) NWS, at its option, notifies the trustee in writing that it elects to
cause the issuance of certificated notes, or
(3) there shall have occurred and be continuing a default or an event of
default with respect to the notes.
In any such case, NWS will notify the trustee in writing that, upon
surrender by the Direct and Indirect Participants of their interest in such
global note, certificated notes will be issued to each person that such Direct
and Indirect Participants and the DTC identify as being the beneficial owner of
the related notes.
<PAGE>
Beneficial interests in global notes held by any Direct or Indirect
Participant may be exchanged for certificated notes upon request to DTC, by such
Direct Participant for itself or on behalf of an Indirect Participant, to the
trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any global note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants, in accordance with DTC's
customary procedures.
Neither NWS, the guarantors nor the trustee will be liable for any delay by
the holder of any global note or DTC in identifying the beneficial owners of
notes, and NWS and the trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the global note or DTC for all
purposes.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes including principal, premium, if any, interest and liquidated
damages, if any, be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such global note.
With respect to certificated notes, NWS will make all payments of principal,
premium, if any, interest and liquidated damages, if any, by wire transfer of
immediately available same day funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. NWS expects that secondary trading in the
certificated notes will also be settled in immediately available funds.
Registration Rights; Liquidated Damages
NWS, the guarantors and the initial purchasers entered into the
Registration Rights Agreement on January 25, 1999. Pursuant to this agreement,
NWS and the guarantors agreed to a registration statement relating to the
exchange offer for the old notes under the Securities Act with the SEC within 60
days of the issue date, and to use their respective best efforts to have it
declared effective at the earliest possible time. NWS and the guarantors also
agreed to use their best efforts to cause the exchange offer registration
statement to be effective continuously, to keep the exchange offer open for a
period of not less than 20 business days, and to cause the exchange offer to be
consummated no later than the 30th business day after it is declared effective
by the SEC.
If (a) the exchange offer is not permitted by applicable law or SEC policy
or (b) any holder of old notes which are transfer restricted securities notifies
NWS prior to the 20th business day following the consummation of the exchange
offer that:
(1) it is prohibited by law or SEC policy from participating in the
exchange offer;
(2) it may not resell the notes acquired by it in the exchange offer to
the public without delivering a prospectus, and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales by it; or
(3) it is a broker-dealer and holds old notes acquired directly from NWS
or any affiliates of NWS then,
NWS and the guarantors will file with the SEC a shelf registration statement to
register for public resale the transfer restricted securities held by any such
holder who provides NWS with certain information for inclusion in the shelf
registration statement.
<PAGE>
For the purposes of the Registration Rights Agreement, "transfer restricted
securities" means each old note until the earliest of the date of which:
(1) such old note is exchanged in the exchange offer and entitled to be
resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act;
(2) such old note has been disposed of in accordance with the shelf
registration statement; or
(3) such old note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that NWS and the guarantors
agree to pay to each holder of transfer restricted securities liquidated damages
if any of the following registration defaults occur:
(1) NWS fails to file an exchange offer registration statement with the
SEC on or prior to the 60th day after the issue date;
(2) the exchange offer registration statement is not declared effective by
the SEC on or prior to the 150th day after the issue date;
(3) the exchange offer is not consummated on or before the 30th business
day after the exchange offer registration statement is declared
effective;
(4) NWS is obligated to file the shelf registration statement and fails to
file the shelf registration statement with the SEC on or prior to the
30th day after such filing obligation arises;
(5) NWS is obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or prior to the
90th day after the obligation to file a shelf registration statement
arises; or
(6) the exchange offer registration statement or the shelf registration
statement, as the case may be, is declared effective but thereafter
ceases to be effective or useable in connection with resales of the
transfer restricted securities, for such time of non-effectiveness or
non-usability.
Such liquidated damages shall be paid in an amount equal to $0.05 per week
per $1,000 in principal amount of transfer restricted securities held by such
holder for each week or portion thereof that the registration default continues
for the first 90 day period immediately following the occurrence of such
registration default. The amount of the liquidated damages shall increase by an
additional $0.05 per week per $1,000 in principal amount of transfer restricted
securities with respect to each subsequent 90 day period until all registration
defaults have been cured, up to a maximum amount of $0.50 per week per $1,000 in
principal amount of transfer restricted securities. NWS and the guarantors shall
not be required to pay liquidated damages for more than one registration default
at any given time. Following the cure of all registration defaults, the accrual
of liquidated damages will cease.
All accrued liquidated damages shall be paid by NWS or the guarantors to
holders entitled thereto by wire transfer to the accounts specified by them or
by mailing checks to their registered address if no such accounts have been
specified.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of United States federal income tax consequences
associated with the exchange of the old notes for the exchange notes pursuant to
the exchange offer and the ownership and disposition of the exchange notes that
are applicable to those holders of exchange notes who purchased the old notes
upon original issuance and who acquires an exchange note pursuant to the
exchange offer. The summary is based upon current laws, regulations, rulings and
judicial decisions, all of which are subject to change, possibly with
retroactive effect, and to differing interpretations. The discussion below does
not address all aspects of U.S. federal income taxation that may be relevant to
particular holders in the context of their specific investment circumstances or
certain types of holders subject to special treatment under such laws, such as
financial institutions, tax-exempt organizations, insurance company or dealers
in securities or currencies, persons that will hold notes as a position in a
"straddle" or conversion transaction, or as part of a "synthetic security" or
other integrated financial transaction, or persons that have a "functional
currency" other than the U.S. dollar. In addition, the discussion does not
address any aspect of state, local or foreign taxation and assumes that
purchasers of the notes will hold them as "capital assets", generally, property
held for investment, within the meaning of Section 1221 of the Code.
<PAGE>
For purposes of the discussion, a "U.S. Holder" is:
o a beneficial holder of a note that is an individual who is a citizen
or resident of the U.S.;
o a corporation, partnership or other entity created under the laws of
the U.S. or any political subdivision thereof; or
o an estate that is subject to U.S. federal income taxation without
regard to the source of income or a trust whose administration is
subject to the primary supervision of a U.S. court and which has one
or more U.S. persons who have authority to control substantial
decisions of the trust.
A "Non-U.S. Holder" is any holder who is not a U.S. Holder.
Prospective holders of the notes are urged to consult their tax advisors
concerning the U.S. federal income tax consequences of acquiring, owning and
disposing of the notes as well as the application of state, local and foreign
income and other tax laws.
S Corporation Status
NWS has elected to be treated as an S corporation under the Code and for
each of its subsidiaries to be qualified subchapter S subsidiaries under the
Code or other similarly taxed pass-through entities. Accordingly, the
shareholders of NWS are directly subject to tax on their respective
proportionate shares of the taxable income of NWS and its subsidiaries for
federal and certain state income tax purposes.
While NWS believes that it qualifies and will continue to qualify as an S
corporation and that its subsidiaries have qualified and will continue to
qualify as S corporations, qualified subchapter S subsidiaries or other
pass-through entities for federal and state income tax purposes ("Pass-Through
Status"), if the Pass-Through Status of NWS or any of its subsidiaries were
successfully challenged, such entity could be required to pay federal and
certain state income taxes, plus interest and possibly penalties, on its past
and future taxable income. While the shareholders have agreed to indemnify NWS
if the Pass-Through Status of NWS or any of its subsidiaries is successfully
challenged, there can be no assurance that the resultant payment of taxes,
interest and penalties will not have a material adverse effect on NWS' financial
condition, results of operations or debt service capabilities.
Continuation of NWS' Status as an S Corporation
The consummation of the initial offering was conditioned, among other
things, upon the receipt by NWS of an opinion of Ice Miller Donadio & Ryan,
counsel to NWS in connection with the initial offering, that the issuance of the
old notes would not cause the termination of the Pass-Through Status of NWS or
any of its subsidiaries. Investors should be aware, however, that opinions of
counsel are not binding upon the Internal Revenue Service or any court, and
there can be no assurance that the Internal Revenue Service or a court will
agree with the conclusion expressed in the opinion referred to above. The
following discussion assumes that the notes will be treated as indebtedness for
all federal income tax purposes.
<PAGE>
U.S. Holders
Exchange Offer
The exchange of an old note for an exchange note pursuant to the exchange
offer will not constitute a "significant modification" of the old note for
United States federal income tax purposes and, accordingly, the exchange note
received will be treated as a continuation of the old note in the hand of such
holder. As a result, there will be no United States federal income tax
consequences to a United States Holder who exchanges an old note for an exchange
note pursuant to the exchange offer, and any such holder will have the same
adjusted tax basis and holding period in the exchange note as it had in the old
note immediately before the exchange.
Payments of Interest
Payments of interest on a note will be taxable to a U.S. Holder as ordinary
interest income at the time that such payments are accrued or are received, in
accordance with the U.S. Holder's method of tax accounting.
If NWS is required to pay liquidated damages, as defined herein under
"Description of the Exchange Notes--Registration Rights; Liquidated Damages",
such payment will be taxable to a U.S. Holder as ordinary income in accordance
with such U.S. Holder's method of accounting for tax purposes. NWS believes that
the likelihood that it would be required to pay liquidated damages is remote.
Accordingly, NWS does not intend to treat the possibility of paying liquidated
damages as affecting the yield to maturity of the notes.
Redemption, Sale or Other Disposition of Exchange Notes
If a note is redeemed, sold or otherwise disposed of, a U.S. Holder
generally will recognize gain or loss equal to the excess of the amount realized
on the sale or other disposition of such note, to the extent such amount does
not represent accrued but unpaid interest, over such U.S. Holder's tax basis in
the note. Such gain or loss will be capital gain or loss, assuming that the U.S.
Holder has held the note as a capital asset and none of the gain is market
discount. Capital gain or loss will be long-term capital gain if the U.S. Holder
has held the note for more than 12 months at the time of disposition.
A "market discount note" is a note that is acquired other than at the
original issuance, where the tax basis of the note to the holder is less than
the stated redemption price of the note at maturity. The excess of such
redemption price over the tax basis is the "market discount." In general, upon
the disposition of a market discount note, gain shall be treated as ordinary
income up to the amount of market discount attributable to the holder of the
note. Holders who acquire a note after original issuance at a discount should
consult their tax advisors concerning the recognition of the market discount.
Information Reporting and Backup Withholding
A noncorporate U.S. Holder may be subject to information reporting and to
backup withholding at a rate of 31% with respect to payments of principal and
interest made on a note, or on proceeds of disposition of a note before
maturity, unless such U.S. Holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the information reporting and backup withholding rules.
<PAGE>
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against the U.S. Holder's U.S. federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
Non-U.S. Holders
Payments of Interest
No withholding of U.S. federal income tax will be required with respect to
payments by NWS of interest on a note to a Non-U.S. Holder of such note,
provided that:
o the Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of NWS entitled to
vote, is not a controlled foreign corporation that is related to NWS
through stock ownership, a foreign tax-exempt organization or foreign
private foundation for U.S. federal income tax purposes, and
o the requirements of Sections 871(h) or 881(c) of the Code, as set
forth below, are satisfied.
Notwithstanding the above, a Non-U.S. Holder that is engaged in the conduct
of a U.S. trade or business will be subject to:
(1) U.S. federal income tax on interest that is effectively connected
with such trade or business and
(2) if the Non-U.S. Holder is a corporation, a U.S. branch profits
tax equal to 30% of its "effectively connected earnings and
profits" (as adjusted) for the taxable year, unless it qualifies
for an exemption from such tax or a lower tax rate under an
applicable treaty.
Redemption, Sale or Other Disposition of Exchange Notes
A Non-U.S. Holder generally will not be subject to tax on any capital gains
recognized upon the redemption, sale, or other disposition of a note unless
(1) such gain is effectively connected with the conduct of a U.S. trade or
business by the Non-U.S. Holder, or
(2) in the case of a Non-U.S. Holder who is a nonresident alien individual,
such holder is present in the U.S. for 183 or more days in the taxable year and
certain other requirements are met.
In the case of (1) above, the Non-U.S. Holder will be subject to tax on its
Net Income at graduated rates. In the case of (2) above, the non-U.S. Holder
will be subject to tax at a rate of 30% on any such capital gains to the extent
that such capital gains exceed his U.S. source capital losses.
Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the U.S. will not be subject to U.S. federal estate tax as a result
of such individual's death, provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of NWS entitled to vote and that the interest accrued on such notes was
not effectively connected with a U.S. trade or business.
<PAGE>
Owner Statement Requirement
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business and that holds a note on behalf of such owner file a statement with
NWS or its agent to the effect that the beneficial owner is not a U.S. Person in
order to avoid withholding of U.S. federal income tax. Under current
regulations, this requirement will be satisfied if NWS or its agent receives
(1) a statement (an "Owner's Statement") from the beneficial owner of a
note in which such owner certifies, under penalties of perjury, that such owner
is not a U.S. Person and provides such owner's name and address, or
(2) a statement from the financial institution holding the note on behalf
of the beneficial owner in which such financial institution certifies, under
penalties of perjury, that it has received the Owner's Statement together with a
copy of the Owner's Statement.
The beneficial owner must inform NWS or its agent or, in the case of
a statement described in clause (2) of the immediately preceding sentence, the
financial institution, within 30 days of any change in information on the
Owner's Statement.
Backup Withholding and Information Reporting
Under current U.S. federal income tax law, a 31% backup withholding tax is
applied to certain payments made to, and to the proceeds of sales before
maturity by, certain U.S. Persons if such Persons
(1) fail to furnish their taxpayer identification numbers which, for an
individual, would be his or her social security number, or
(2) in certain circumstances, fail to certify, under penalties of perjury,
that they have both furnished a correct taxpayer identification number and not
been notified by the Internal Revenue Service that they are subject to backup
withholding for failure to report interest payments.
Under current regulations, this backup withholding will not apply to payments
made by NWS or a paying agent on a note if the Owner's Statement is received;
provided in each case that NWS or the paying agent, as the case may be, does not
have actual knowledge that the payee is a U.S. Person.
Under current regulations, payments of the proceeds of the sale of a note
to or through a foreign office of a "broker" will not be subject to backup
withholding but will be subject to information reporting if the broker is a U.S.
Person, a controlled foreign corporation for U.S. federal income tax purposes,
or a foreign Person 50% or more of whose gross income is from a U.S. trade or
business for a specified three-year period unless the broker has in its records
documentary evidence that the holder of a note is not a U.S. Person and certain
conditions are met or the holder of a note otherwise establishes an exemption.
Payment of the proceeds of a sale to or through the U.S. office or a broker is
subject to backup withholding and information reporting unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
On October 7, 1997, the Treasury Department released new Treasury
Regulations governing the backup withholding and information reporting
requirements described above. The new regulations would not generally alter the
treatment of Non-U.S. Holders who furnish an Owner's Statement to the payor. The
new regulations may change certain procedures applicable to the foreign office
of a U.S. broker or foreign brokers with certain types of relationships to the
U.S. Based on a recent Internal Revenue Service notice, the new regulations
generally are effective for payments made after December 31, 1999. Prospective
investors should consult their tax advisors regarding the effect, if any, of
such new Treasury Regulations on an investment in the notes.
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties in similar transactions, NWS believes that the exchange notes
issued in the exchange offer in exchange for the old notes may be offered for
resale, resold and otherwise transferred by holders without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the exchange notes are acquired in the ordinary course of such holders'
business and the holders are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to participate in, a
distribution of exchange notes. This position does not apply to any holder that
is
(1) an "affiliate" of NWS within the meaning of Rule 406 under the
Securities Act,
(2) a broker-dealer who acquired old notes directly from NWS, or
(3) broker-dealers who acquired old notes as a result of market-making or
other trading activities.
Any broker-dealer ("Participating Broker-Dealers") receiving exchange notes
in the exchange offer are subject to a prospectus delivery requirement with
respect to resales of the exchange notes. To date, the SEC has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the exchange offer, other than a resale of an
unsold allotment from the sale of the old notes to the initial purchasers, with
this prospectus.
Each broker-dealer receiving exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in any resale
of the exchange notes. Participating Broker-Dealers may use this prospectus in
reselling exchange notes, if the old notes were acquired for their own accounts
as a result of market-making activities or other trading activities. NWS has
agreed that a Participating Broker-Dealer may use this prospectus in reselling
exchange notes for a period ending one year after the expiration date or, if
earlier, when a Participating Broker-Dealer has disposed of all exchange notes.
A Participating Broker-Dealer intending to use this prospectus in the resale of
exchange notes must notify NWS on or before the expiration date that it is a
Participating Broker-Dealer. This notice may be given in the space provided for
in the letter of transmittal or may be delivered to the exchange agent. NWS has
agreed that, for a period of one year after the expiration date, it will make
this prospectus, and any amendment or supplement to this prospectus, available
to any broker-dealer that requests these documents in the letter of transmittal.
NWS will not receive any cash proceeds from the exchange notes.
Broker-dealers acquiring exchange notes for their own accounts may sell the
notes in one or more transactions in the over-the-counter market, in negotiated
transactions, through writing options on the exchange notes or a combination of
such methods. Any 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 broker-dealer and/or the purchasers of exchange notes.
Any broker-dealer reselling exchange notes that it received in the exchange
offer and any broker or dealer that participates in a distribution of exchange
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of exchange notes and any commissions or
concessions received by any 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 admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
NWS by Ice Miller Donadio & Ryan, Indianapolis, Indiana.
<PAGE>
CHANGE IN INDEPENDENT AUDITORS
In 1998, NWS reassessed its requirements for auditing services. NWS advised
Katz, Sapper & Miller, its independent auditors at that time, that it would
interview national accounting firms prior to retaining an auditor for its March
31, 1998 audit. Following such interviews, in March, 1998 NWS retained Ernst &
Young LLP as its independent auditors. Katz, Sapper & Miller audited the
consolidated financial statements of NWS for the years ended March 31, 1994
through March 31, 1997. During such years, the auditors' reports on such
financial statements contained no adverse opinions or disclaimers of opinion and
there were no qualifications or modifications of the opinions due to
uncertainty, audit scope, or accounting principles. During such period, there
were no disagreements with NWS' independent auditors on any matters of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure.
EXPERTS
The consolidated financial statements of National Wine & Spirits, Inc. at
March 31, 1998, and for the year then ended, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, and at March 31, 1997, and for each of the two years in the period
ended March 31, 1997, by Katz, Sapper & Miller, LLP, independent auditors as set
forth in their respective reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
NWS has filed with the SEC a registration statement on Form S-4 for the
registration of the exchange notes (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement"). This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits to the registration statement.
NWS is not currently subject to the informational requirements of the
Exchange Act. Upon completion of the exchange offer, NWS will be subject to the
information requirements of the Exchange Act and will be required to file
periodic reports and other information with the SEC. The registration statement,
such reports and other information can be inspected and copied at the public
reference facilities of the SEC located in Washington D.C, Chicago, Illinois and
New York, New York. Copies of such material, including copies of all or any
portion of the registration statement, can be obtained from these public
reference facilities at prescribed rates. These materials may also be accessed
electronically by means of the SEC's website (http://www.sec.gov).
Pursuant to the Indenture, NWS has agreed that, beginning with the fiscal
period ending December 31, 1998 and for as long as any notes remain outstanding,
it will furnish to the holders of the notes quarterly and annual financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the SEC, if NWS were subject to Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only, a
report thereon by NWS' certified independent public accountants as such would be
required in such reports to the SEC, and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required. Such requirements may be satisfied
through the filing and provision of such documents and reports which would
otherwise be required pursuant to Section 13 in respect of NWS.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Page
National Wine & Spirits, Inc.
Reports of Independent Auditors..................................................................................... F-2
Consolidated Balance Sheets as of March 31, 1997 and 1998 and as of December 31, 1998 (unaudited)................... F-4
Consolidated Statements of Income for the years ended March 31, 1996, 1997 and 1998 and for the nine-month periods
ended December 31, 1997 and 1998 (unaudited)..................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1996, 1997 and 1998 and for the
nine-month period ended December 31, 1998 (unaudited)............................................................ F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1997 and 1998 and for the nine-month
periods ended December 31, 1997 and 1998 (unaudited)............................................................. F-7
Notes to Consolidated Financial Statements.......................................................................... F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated balance sheet of National Wine &
Spirits, Inc. as of March 31, 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of NWS' 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Wine &
Spirits, Inc. at March 31, 1998, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Indianapolis, Indiana
July 17, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated balance sheet of National Wine &
Spirits, Inc. as of March 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of NWS'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Wine &
Spirits, Inc. at March 31, 1997, and the consolidated results of its operations
and its cash flows for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
June 18, 1997 (except for
Note 4, as to which the
date is September 2, 1997)
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED BALANCE SHEETS
<S> <C> <C> <C>
March 31, December 31,
------------------------------- ---------------
1997 1998 1998
ASSETS (Unaudited)
Current assets:
Cash............................................................... $ 3,395,000 $ 1,370,000 $ 3,217,000
Accounts receivable, less allowance for doubtful accounts of
$926,000 in 1997, $900,000 in 1998 and $1,370,000 at 34,740,000 31,313,000 56,361,000
December 31, 1998...............................................
Inventories........................................................ 72,078,000 76,734,000 74,563,000
Prepaid expenses and other......................................... 4,123,000 4,933,000 3,759,000
------------- ------------ ------------
Total current assets.................................................. 114,336,000 114,350,000 137,900,000
Property and equipment, net........................................... 40,670,000 48,565,000 49,948,000
Other assets:
Notes receivable................................................... 55,000 1,772,000 1,653,000
Cash surrender value of life insurance, net of loans............... 904,000 1,396,000 1,631,000
Investment in Kentucky Distributor................................. -- -- 6,400,000
Intangible assets, net of amortization............................. 3,068,000 2,487,000 3,760,000
Deferred pension costs............................................. 489,000 362,000 451,000
Deposits and other................................................. 844,000 170,000 393,000
------------- ------------ ------------
Total other assets.................................................... 5,360,000 6,187,000 14,288,000
------------- ------------ ------------
Total assets.......................................................... $ 160,366,000 $169,102,000 $202,136,000
============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 31,239,000 $ 33,721,000 $ 39,543,000
Accrued payroll and payroll taxes.................................. 4,838,000 5,034,000 5,354,000
Excise taxes payable............................................... 7,981,000 5,883,000 4,872,000
Other accrued expenses and taxes................................... 5,366,000 7,086,000 5,824,000
Notes payable to stockholders...................................... 5,450,000 6,135,000 --
Current maturities of long-term debt............................... 5,163,000 6,200,000 100,224,000
Total current liabilities............................................. 60,037,000 64,059,000 155,817,000
Deferred pension liability............................................ 927,000 362,000 479,000
Long-term debt........................................................ 88,932,000 90,099,000 20,721,000
Total liabilities..................................................... 149,896,000 154,520,000 177,017,000
Stockholders' equity:
Voting common stock, $.01 par value................................ 1,000 1,000 1,000
Nonvoting common stock $.01 par value.............................. 53,000 53,000 53,000
Additional paid-in capital......................................... 23,202,000 23,202,000 25,009,000
Retained earnings (deficit)........................................ (2,357,000) 1,929,000 5,708,000
Unrecognized net pension loss...................................... (438,000) -- --
20,461,000 25,185,000 30,771,000
Notes receivable from stockholders................................. (9,991,000) (10,603,000) (5,652,000)
Total stockholders' equity............................................ 10,470,000 14,582,000 25,119,000
Total liabilities and stockholders' equity............................ $ 160,366,000 $169,102,000 $ 202,136,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<S> <C> <C> <C> <C> <C>
Nine months ended
Years Ended March 31, December 31,
1996 1997 1998 1997 1998
(Unaudited) (Unaudited)
Net product sales........................... $ 443,257,000 $ 488,071,000 $ 505,141,000 $ 401,927,000 $ 423,367,000
Distribution fees........................... -- 2,729,000 16,270,000 13,121,000 14,010,000
Total revenue............................ 443,257,000 490,800,000 521,411,000 415,048,000 437,377,000
Cost of products sold....................... 364,792,000 402,072,000 411,734,000 329,566,000 346,516,000
Gross profit............................. 78,465,000 88,728,000 109,677,000 85,482,000 90,861,000
Selling, general and administrative expenses:
Warehouse and delivery................ 19,777,000 23,489,000 33,428,000 25,864,000 27,178,000
Selling............................... 26,213,000 30,906,000 32,328,000 24,483,000 29,421,000
Administrative........................ 22,935,000 24,747,000 30,042,000 21,534,000 22,091,000
Start-up costs........................ -- 1,157,000 3,320,000 3,163,000 --
68,925,000 80,299,000 99,118,000 75,044,000 78,690,000
Income from operations...................... 9,540,000 8,429,000 10,559,000 10,438,000 12,171,000
Interest expense:
Related parties.......................... (123,000) (338,000) (507,000) (371,000) (363,000)
Third parties............................ (7,812,000) (8,148,000) (9,165,000) (6,954,000) (7,655,000)
(7,935,000) (8,486,000) (9,672,000) (7,325,000) (8,018,000)
Other income:
Equity earnings in Kentucky distributor.. -- -- -- -- 400,000
Gain on sale of assets................... 172,000 41,000 4,139,000 4,225,000 97,000
Interest income.......................... 999,000 1,003,000 1,246,000 746,000 749,000
Rental and other income.................. 248,000 616,000 839,000 192,000 187,000
Total other income.......................... 1,419,000 1,660,000 6,224,000 5,163,000 1,433,000
Net income.................................. $ 3,024,000 $ 1,603,000 $ $7,111,000 $ 8,276,000 $ 5,586,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
$0.01 Par Value Accumulated Notes
Common Stock Additional Retained Other Receivable
------------------- Paid-in Earnings Comprehensive from
Voting Nonvoting Capital (Deficit) Income (Loss) Stockholders
------------------- ----------- ---------- ------------- -------------
Balance at April 1, 1995............ $ 1,000 $ 4,000 $17,658,000 $ 6,973,000 $ (508,000) $ (8,766,000)
Comprehensive income:
Net income.................... -- -- -- 3,024,000 -- --
Decrease in unrecognized net
pension loss................ -- -- -- -- 292,000 --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (691,000)
Distributions to stockholders.... (7,835,000) -- --
Capital contributions............ -- -- 4,056,000 -- -- --
Issuance of 21,347 shares of NWS,
Inc. voting common stock...... -- -- -- -- -- --
NWS, Inc. nonvoting common stock
dividend declared............. -- 45,000 -- (45,000) -- --
Balance at March 31, 1996........... 1,000 49,000 21,714,000 2,117,000 (216,000) (9,457,000)
Comprehensive income:
Net income.................... -- -- -- 1,603,000 -- --
Increase in unrecognized net
pension loss................ -- -- -- -- (222,000) --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (534,000)
Distributions to stockholders.... -- -- -- (6,077,000) -- --
Capital contributions............ -- -- 1,488,000 -- -- --
Issuance of 408,554 shares of NWS,
Inc. nonvoting common stock... -- 4,000 -- -- -- --
Balance at March 31, 1997........... 1,000 53,000 23,202,000 (2,357,000) (438,000) (9,991,000)
Comprehensive income:
Net income.................... -- -- -- 7,111,000 -- --
Decrease in unrecognized net
pension loss................ -- -- -- -- 438,000 --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (612,000)
Distributions to stockholders.... -- -- -- (2,825,000) -- --
Balance at March 31, 1998........... 1,000 53,000 23,202,000 1,929,000 -- (10,603,000)
Unaudited:
Net income.................... -- -- -- 5,586,000 -- --
Decrease in notes receivable
from stockholders........... -- -- -- -- -- 4,951,000
Conversion of notes payable to
stockholders to equity...... -- -- 1,807,000 -- -- --
Distributions to stockholders. -- -- -- (1,807,000) -- --
Balance at December 31, 1998 $ 1,000 $ 53,000 $25,009,000 $ 5,708,000 $ -- $ (5,652,000)
(Unaudited)......................
<C>
Total
Stockholders'
Equity
$15,362,000
3,024,000
292,000
3,316,000
(691,000)
(7,835,000)
4,056,000
--
--
14,208,000
1,603,000
(222,000)
1,381,000
(534,000)
(6,077,000)
1,488,000
4,000
10,470,000
7,111,000
438,000
7,549,000
(612,000)
(2,825,000)
14,582,000
5,586,000
4,951,000
1,807,000
(1,807,000)
$25,119,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C> <C>
Nine months ended
Years Ended March 31, December 31,
1996 1997 1998 1997 1998
(Unaudited) (Unaudited)
Operating activities:
Net income................................... $ 3,024,000 $ 1,603,000 $ 7,111,000 $ 8,276,000 $ 5,586,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation of property and equipment.. 3,997,000 4,613,000 5,872,000 4,160,000 5,116,000
Gain on sale of assets.................. (172,000) (41,000) (4,139,000) (4,225,000) (97,000)
Amortization of intangible assets....... 905,000 1,144,000 1,243,000 892,000 958,000
Equity earnings in Kentucky distributor. - - - - (400,000)
Changes in operating assets and
liabilities:
Accounts receivable.................. (4,422,000) (568,000) 3,427,000 (20,707,000) (25,048,000)
Inventories.......................... (15,132,000) (1,191,000) (4,656,000) 2,038,000 2,171,000
Prepaid expenses and other........... (447,000) (1,692,000) (810,000) (8,000) 1,174,000
Accounts payable..................... 4,413,000 864,000 2,482,000 (4,888,000) 5,822,000
Accrued expenses and taxes........... 1,107,000 2,207,000 (747,000) (469,000) (1,925,000)
-------------- -------------- ------------- -------------- ------------
Net cash provided (used) by operating activities (6,727,000) 6,939,000 9,783,000 (14,931,000) (6,643,000)
Investing activities:
Purchase of property and equipment........... (3,609,000) (10,447,000) (13,952,000) (12,069,000) (6,518,000)
Proceeds from sales of property and equipment 128,000 88,000 253,000 74,000 116,000
Investment in Kentucky distributor........... - - - - (6,000,000)
Payment for supplier's net assets............ - (181,000) - - -
Intangible assets............................ (1,827,000) (947,000) (730,000) (254,000) (2,231,000)
Proceeds from sale of intangibles............ - - 3,000,000 3,000,000 -
Deposits and other........................... (52,000) (58,000) 1,766,000 (83,000) (223,000)
(Increase) decrease in cash surrender value of
insurance, net............................. (263,000) (16,000) (492,000) 27,000 (235,000)
Increase in receivable from affiliate........ (143,000) - - - -
Decrease (increase) in notes receivable 689,000 1,590,000 - (1,698,000) 119,000
from supplier................................
Collections on notes receivable.............. - 34,000 247,000 - -
-------------- -------------- ------------- -------------- ------------
Net cash used by investing activities........... (5,077,000) (9,937,000) (9,908,000) (11,003,000) (14,972,000)
Financing activities:
Net proceeds (borrowings) on line of credit.. 15,921,000 1,414,000 (3,078,000) 19,188,000 20,680,000
Proceeds of long-term debt................... 45,000 13,811,000 11,257,000 12,504,000 8,800,000
Principal payments on long-term debt......... (2,038,000) (7,302,000) (5,975,000) (4,983,000) (4,834,000)
Proceeds of borrowings from stockholder...... 2,463,000 2,919,000 685,000 250,000 -
Repayments of borrowings from stockholders... (657,000) - - - -
Issuance of NWS, Inc. common stock........... - 4,000 - - -
Additional paid-in capital................... 4,056,000 1,488,000 - - -
Notes receivable from stockholders and others (859,000) (646,000) (1,964,000) (376,000) 623,000
Distributions to stockholders................ (7,142,000) (6,770,000) (2,825,000) (1,120,000) (1,807,000)
-------------- -------------- ------------- -------------- ------------
Net cash provided (used) by financing activities 11,789,000 4,918,000 (1,900,000) 24,463,000 23,462,000
-------------- -------------- ------------- -------------- ------------
Net increase (decrease) in cash................. (15,000) 1,920,000 (2,025,000) (471,000) 1,847,000
Cash, beginning of period....................... 1,490,000 1,475,000 3,395,000 3,395,000 1,370,000
-------------- -------------- ------------- -------------- ------------
Cash, end of period............................. $ 1,475,000 $ 3,395,000 $ 1,370,000 $ 2,924,000 $ 3,217,000
============== ============== ============= ============== ============
See accompanying notes.
</TABLE>
<PAGE>
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business and Principles of Consolidation
In December 1998, a reorganization took place which created a new holding
company, National Wine & Spirits, Inc. (NWS), NWS. All of the shares of capital
stock in National Wine & Spirits Corporation (NWSC) and NWS, Inc. (NWSI) were
contributed in exchange for shares of NWS. In addition, NWSC subsequently
distributed all of its shares in NWS Michigan, Inc. (NWSM) to NWS. Finally, a
new limited liability company subsidiary of NWSI was created into which
substantially all of the Illinois operations were transferred (NWS-LLC). The
reorganization was accounted for as a combination of entities under common
control, similar to a pooling-of-interests. As such, the financial statements
have been presented to reflect this accounting treatment. The consolidated
financial statements include the accounts of NWS, NWSC, NWSI and NWSM. All
significant intercompany accounts and transactions have been eliminated from the
consolidated financial statements. Substantially all revenues result from the
sale of liquor, beer and wine.
Based in Indianapolis, NWSC is a wholesale distributor of liquor and wines
throughout Indiana. Based in Chicago, NWSI is a wholesale distributor of liquor
and wines throughout Illinois. NWSM was organized October 18, 1996, as a
wholesale distributor of liquor throughout Michigan, and commenced operations in
February 1997. NWSC also operates a bottled water division and a division for
distribution of cigars and accessories. NWS performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
Credit losses have been within management's expectations.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of NWS, all adjustments (consisting of only normal recurring
accruals) considered necessary to present fairly the financial position as of
December 31, 1998 and the statements of income, stockholders' equity and cash
flows for the nine-month periods ended December 31, 1997 and 1998 have been
included.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
NWS' cash, accounts receivable, short-term notes receivable, accounts
payable, short-term notes payable and certain other accrued liabilities are all
short-term in nature and the carrying amount approximates fair value. Long-term
notes receivable and payable have primarily variable interest rates, thus their
carrying amounts approximate fair value.
Inventories
Substantially all inventories are stated at the lower of cost, determined
by the last-in, first-out (LIFO) method, or market.
Bulk whiskey represents NWS' interest in certain whiskey inventories which
are being aged by the supplying distiller. This interest serves as collateral
for related notes payable to the distiller. In accordance with industry
practices, storage and handling costs incurred during the aging process are
included as a component of the cost of bulk whiskey. Bulk whiskey represented
approximately $6,200,000 and $4,200,000 of the total inventory balance at March
31, 1997 and 1998, respectively. The bulk whiskey was 100% financed through
notes payable and the Company's line of credit.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising
expense was $2,157,000, $2,712,000 and $2,087,000 for 1996, 1997 and 1998,
respectively.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated using
primarily the straight-line method over their expected useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Land improvements........................ 15 - 40 years
Buildings and improvements............... 10 - 40 years
Furniture and equipment.................. 5 - 7 years
Warehouse equipment...................... 7 years
Automobiles and trucks................... 5 years
</TABLE>
Intangible Assets
Intangible assets include the cost of certain assets obtained in the
acquisition of various distributors, costs incurred in obtaining financing and
amounts paid to acquire supplier distribution rights. These costs are being
amortized by the straight-line method over lives of the agreements or their
estimated useful lives which range from two to ten years. Accumulated
amortization related to these assets was $2,068,000 and $3,311,000 at March 31,
1997 and 1998, respectively. 1.
<PAGE>
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Long-lived Assets
The carrying value of the long-lived assets is periodically reviewed by
management. If this review indicates that the carrying value may be impaired
then the impaired amount will be written off.
Income Taxes
There is no provision for federal or state income taxes reflected in the
financial statements because the stockholders have consented to NWS' elections
to be taxed as S corporations under the applicable provisions of the Internal
Revenue Code. NWS' income is taxable directly to its stockholders.
Comprehensive Income
During the year ended March 31, 1998, NWS adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting of Comprehensive
Income, which requires entities to report comprehensive income in their basic
financial statements. Comprehensive income refers to the change in an entity's
equity during a period resulting from all transactions and events other than
capital contributed by and distributions to the entity's owners. For NWS,
comprehensive income is equal to net income plus the change in unrecognized net
pension gain or loss. The Company has elected to report comprehensive income in
the consolidated statements of stockholders' equity. NWS' prior years' financial
statements have been reclassified for comparative reporting purposes, however,
there was no change in the net income previously reported for the years ended
March 31, 1996 and 1997.
Revenue Recognition
NWSC and NWSI purchase inventory items for sale to customers and are liable
for payment to the suppliers, as well as collecting payment from customers. NWSM
receives a fixed fee per case of liquor distributed from the State of Michigan
(distribution fees) which is also responsible for payments to suppliers. All
Michigan shipments are cash on delivery and are deposited directly to the State
of Michigan.
Net sales and distribution fees are recognized at the time product is
shipped.
Start-up Costs
Start-up costs to commence operations and to reach normal capacity are
expensed as incurred, in accordance with Statement of Position 98-5, Reporting
on the Costs of Start-up Activities.
Recently Issued Accounting Pronouncements
In July 1997, the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information. Under SFAS 131, the Company will report financial and descriptive
information about its operating segments. SFAS 131 is effective for the Company
beginning with the March 31, 1999 annual financial statements. While the Company
has not yet finalized its evaluation of the impact of adoption of SFAS 131, it
presently believes that it will be reporting multiple operating segments.
<PAGE>
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Reclassification
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
2. Inventories
Inventories at March 31 are comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Inventories at FIFO (approximate replacement cost)..... $78,508,000 $83,734,000
Less: LIFO reserve..................................... 6,430,000 7,000,000
----------- -----------
$72,078,000 $76,734,000
=========== ===========
</TABLE>
If the Company had used the FIFO inventory method, net income would have
been $545,000, $1,455,000 and $570,000 greater for 1996, 1997 and 1998,
respectively.
3. Property and Equipment
Property and equipment at March 31 is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Land and improvements.................................. $ 1,348,000 $ 1,421,000
Buildings and improvements............................. 24,674,000 27,233,000
Furniture and equipment................................ 12,391,000 14,307,000
Warehouse equipment.................................... 12,768,000 23,580,000
Automobiles and trucks................................. 7,542,000 8,069,000
------------ ------------
58,723,000 74,610,000
Less: Accumulated depreciation......................... 21,484,000 26,045,000
------------ ------------
37,239,000 48,565,000
Property and equipment not yet placed in service....... 3,431,000 --
------------ ------------
$ 40,670,000 $ 48,565,000
============ ============
</TABLE>
<PAGE>
4. Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
---------------
Mortgage Notes Payable:
National Wine & Spirits Corporation
City of Indianapolis-First Mortgage Note, Series 1983-payable monthly,
with interest computed at 80% of the prime lending rate of NBD Bank,
N.A., through April 2003. Secured by certain property
in Indianapolis.................................................... $ 471,000 $ 372,000 $ 296,000
Bank-payable in monthly installments, plus interest at 1% above the
Bank's prime lending rate, through October 1, 2003. Secured by
certain property................................................... 183,000 162,000 145,000
NWS, Inc.
Bank loans secured by substantially all of the Company's assets:
Mortgage note payable in monthly installments of $63,000, plus
interest at the Bank's prime lending rate plus 2%, through July 1,
2000, when the unpaid principal balance is due..........
2,503,000 1,752,000 1,189,0000
Mortgage note payable in monthly installments of $14,000, plus interest
at the Bank's prime lending rate plus 1%, through March 31, 2002,
when the unpaid principal balance is due........
2,492,000 2,339,000 2,148,000
----------- ----------- ---------------
5,649,000 4,625,000 3,778,000
Notes Payable:
National Wine & Spirits Corporation
Bank revolving line of credit, which bears interest, as defined, to
maturity on September 30, 1999. Secured by substantially all
assets. (A)........................................................ 24,218,000 23,193,000 29,695,000
Term loan for Kentucky investment, repaid in January 1999........... - - 7,500,000
Heaven Hill Distillers, Inc. notes payable. Repaid in March 1998........ 348,000 - -
Term loans payable in monthly installments of $51,000, including
interest at 9.53%, through May 1999. The notes are secured by
certain assets and are guaranteed by NWSI.......................... 1,170,000 651,000 180,000
Term loan payable in monthly installments of $30,000, including
interest at 7.73%, through December 29, 2002. Secured by certain
assets............................................................. - 1,462,000 1,269,000
NWS Michigan, Inc.
Term loan payable in monthly installments of $67,000, plus interest at the
Bank's LIBOR rate plus 2.75%, through September 5, 2002.
Secured by certain assets.......................................... - 3,600,000 3,000,000
<PAGE>
4. Debt (continued)
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
---------------
Term loan payable in monthly installments of $62,000, plus interest at the
Bank's LIBOR rate plus 3.0%, through November 14, 2002.
Secured by certain assets.......................................... $ - $ 4,936,000 $ 4,381,000
NWS, Inc.
Bank revolving line of credit, which bears interest, as defined, to
maturity on September 30, 1999. Secured by substantially all
assets. (B)........................................................ 45,571,000 43,518,000 57,695,000
Term loan payable. Repaid July 1997. ............................... 83,000 - -
Term loan with interest only payable quarterly at the Bank's LIBOR rate
plus .25% until maturity on June 16, 2001. The note is
subordinate to the senior bank debt................................ 6,000,000 6,000,000 6,000,000
Subordinated promissory note payable to a former employee on
June 30, 1999. Interest only is payable quarterly at the prime
rate plus 1'2%. The note is subordinate to senior bank debt....... 750,000 350,000 350,000
Bank home equity line of credit with interest only payable monthly
at the Bank's prime lending rate plus 1%, through November 1, 1999, when
the unpaid principal balance is due The loan is secured by a condominium
and is guaranteed by the majority stockholder of
NWS, Inc........................................................... 500,000 500,000 500,000
Promissory note payable to the State of Illinois in monthly
installments of $9,000, including interest at 6.5%, through
February 14, 2000, when a balloon payment of $501,000 is due. The
note is secured by substantially all assets and is guaranteed by
the majority stockholder of NWS, Inc............................... 631,000 568,000 511,000
Term loan payable in monthly installments of $133,000, plus
interest at the one month LIBOR rate plus 3.25%, through
March 2001. The note is secured by certain assets and is
guaranteed by NWSC................................................. 6,533,000 4,933,000 3,733,000
Term loans payable in monthly installments of $60,000, including
interest at 9.43%, through April 1999. The notes are secured by
certain assets and are guaranteed by NWSC.......................... 1,354,000 737,000 234,000
Term loan payable in annual installments of $300,000 in 1999 and
$500,000 in 2000 and 2001, including interest...................... - - 1,300,000
Term loan payable in monthly installments of $12,000, including
interest at 9.51%, through July 2000. The note is secured by
certain assets and is guaranteed by NWSC........................... - 304,000 213,000
----------- ----------- ---------------
87,158,000 90,752,000 116,561,000
----------- ----------- ---------------
<PAGE>
4. Debt (continued)
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
Non-competition agreement payable to a former stockholder in annual
installments of $300,000, beginning April 1, 1995 through April 1, 2000.
The obligation is secured by proceeds of life insurance from
NWSC's majority stockholder........................................ $ 1,200,000 $ 900,000 $ 600,000
Other 88,000 22,000 6,000
----------- ----------- ---------------
94,095,000 96,299,000 120,945,000
Less: Current maturities 5,163,000 6,200,000 100,224,000
----------- ----------- ---------------
$88,932,000 $90,099,000 $20,721,000
=========== =========== ===============
<FN>
- -----------
(A) On September 2, 1997, NWSC entered into a credit agreement, which was
amended March 31, 1998, that provides a revolving line of credit for
borrowings of up to $35 million through September 30, 1999. The portion of
the line of credit available to fund advances to NWSI and NWSM is $10
million (see Note 8). Line of credit borrowings are limited to eligible
accounts receivable plus eligible inventories. The credit agreement permits
NWSC to elect an interest rate based upon either the prime lending rate or
LIBOR. At March 31, 1998, $19,000,000 of the credit line borrowings bear
interest at 3.00% above the LIBOR rate (8.70% at March 31, 1998). The
remaining $4,193,000 of credit line borrowings bear interest at the prime
lending rate plus .50% (9.00% at March 31, 1998). Credit line borrowings
are secured by substantially all of NWSC's assets (including life insurance
on NWSC's principal stockholders) and are guaranteed by NWSI and NWSM.
NWSC's bank credit agreement requires NWSC to maintain certain financial
ratios and earnings, and restricts the amount of capital expenditures and
distributions NWSC may make to its stockholders.
(B) On September 2, 1997, NWSI entered into a credit agreement, which was
amended March 31, 1998, that provides a revolving line of credit for
borrowings of up to $60 million through September 30, 1999. Line of credit
borrowings are limited to eligible accounts receivable plus eligible
inventories. The credit agreement permits NWSI to elect an interest rate
based upon either the prime lending rate or LIBOR. At March 31, 1998,
$35,000,000 of the credit line borrowings bear interest at 3.00% above the
LIBOR rate (8.68% at March 31, 1998). The remaining $8,518,000 of credit
line borrowings bear interest at the prime lending rate plus .50% (9.00% at
March 31, 1998). Through October 27, 1999, the LIBOR rate is capped at a
maximum of 8.0% related to $25,000,000 of the credit line borrowings
subject to the LIBOR rate. Credit line borrowings are secured by
substantially all of NWSI's assets (including life insurance on NWSI's
principal stockholders) and are guaranteed by NWSC and NWSM. Additionally,
NWSI had a supplier letter of credit of which $560,000 was outstanding at
March 31, 1998. NWSI's bank credit agreement includes certain restrictions
and requires NWSI to maintain certain financial ratios and earnings. In
addition, the agreement restricts the amount of capital expenditures and
distributions NWSI may make to its stockholders.
</FN>
</TABLE>
<PAGE>
4. Debt (continued)
At March 31, 1998, the Company was in violation of certain loan covenants
in its credit agreements. These violations were waived by the lenders at March
31, 1998. Subsequent to March 31, 1998, the Company has been in compliance with
their covenants.
At March 31, 1998, the aggregate principal maturities for long-term
obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999................................ $ 6,200,000
2000................................ 72,759,000
2001................................ 4,797,000
2002................................ 8,133,000
2003................................ 3,541,000
Thereafter.......................... 869,000
-----------
$96,299,000
===========
</TABLE>
NWSI had subordinated notes payable to its two principal stockholders
aggregating $5,450,000 and $6,135,000 at March 31, 1997 and 1998, respectively.
These notes earn interest at the effective borrowing rate on NWSI's revolving
line of credit. See Note 11.
NWSI has a commitment from a lender for $30,000,000 of debt financing. At
March 31, 1998, there were no amounts outstanding on this commitment.
Cash paid for interest was $8,049,000, $8,445,000 and $9,643,000 for 1996,
1997 and 1998, respectively.
5. Common Stock
The Company has two authorized classes of capital stock: voting $.01 par
value common shares and nonvoting $.01 par value common shares. Both classes of
stock have the same relative rights, performance limitations and restrictions,
except that nonvoting shares are not entitled to vote on any matters submitted
to a vote of the stockholders, except as provided by law.
<PAGE>
5. Common Stock (continued)
Following are the details of common stock at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Shares
---------------------------------------------------------
Authorized Issued Outstanding Amount
Voting..................... 200,000 104,520 104,520 $ 1,000
Nonvoting.................. 20,000,000 5,226,001 5,226,001 $ 53,000
</TABLE>
6. Commitments
The Company leases office and warehouse space under noncancellable
operating leases ranging from two to ten years, some of which included renewal
and purchase options and escalation clauses, expiring on various dates through
2007. The Company also leases certain trucks and equipment pursuant to
noncancellable operating leases with terms ranging from three to seven years.
Future minimum rent payments as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.......................... $ 2,715,000
2000.......................... 2,712,000
2001.......................... 2,391,000
2002.......................... 2,138,000
2003.......................... 2,083,000
Thereafter.................... 5,462,000
------------
$ 17,501,000
============
</TABLE>
Rent expense was $1,218,000, $2,114,000 and $3,732,000 for 1996, 1997 and
1998, respectively.
<PAGE>
6. Commitments (continued)
The Company has committed to purchase warehouse equipment of approximately
$3,500,000.
The Company is committed under a distribution agreement to pay $500,000
over the next four years.
7. Pension Plans
The Company sponsors a multiple-employer defined benefit pension plan
covering substantially all of their warehousemen and drivers. Under terms of the
Plan, the Company is liable for any unsatisfied liabilities of the other
affiliated entities. The Company makes contributions to the Plan based on
amounts permitted by law. Contributions to the Plan by the Company were
$179,000, $171,000 and $224,000 in the years ended March 31, 1996, 1997 and
1998, respectively.
For purposes of financial reporting, the Company uses the projected unit
credit actuarial cost method to determine the net periodic pension cost and
projected benefit obligations under Statement of Financial Accounting Standards
No. 87. Under this method, the service cost is computed as the actuarial present
value of the benefit accruing during the current year based on the assumption
that benefits accrue uniformly over each participant's working lifetime. The
projected benefit obligation is the actuarial present value of benefits accrued
in prior years based on the assumption that benefits accrue uniformly over each
participant's working lifetime.
The components of net periodic pension cost of the defined benefit plan are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1997 1998
Service cost-benefits earned during the year.............. $ 111,000 $ 146,000 $ 114,000
Interest on projected benefit obligation.................. 144,000 171,000 196,000
Actual return on plan assets.............................. (220,000) (121,000) (624,000)
Amortization of unrecognized net transition asset......... 20,000 19,000 19,000
Amortization of loss...................................... 16,000 15,000 8,000
Amortization of prior service cost........................ - 19,000 19,000
Difference between expected and actual return on plan assets
102,000 (20,000) 471,000
---------- ---------- ----------
Net periodic pension cost................................. $ 173,000 $ 229,000 $ 203,000
========== ========== ==========
</TABLE>
<PAGE>
7. Pension Plans (continued)
The funded status and amounts recognized in the accompanying consolidated
balance sheets at March 31, 1997 and 1998 for the defined benefit pension plan
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Actuarial present value of accumulated benefit obligations:
Vested........................................................ $2,717,000 $2,812,000
Nonvested..................................................... 264,000 294,000
---------- ----------
Accumulated benefit obligation................................... 2,981,000 3,106,000
Effect of anticipated future compensation levels (A)............. - -
---------- ----------
Projected benefit obligation..................................... 2,981,000 3,106,000
Less: Fair value of plan assets.................................. 1,877,000 2,662,000
---------- ----------
Minimum liability................................................ $1,104,000 $ 444,000
========== ==========
Balance Sheet Classification:
Current accrued liability..................................... $ 177,000 $ 82,000
Noncurrent deferred additional liability...................... 927,000 362,000
---------- ----------
Minimum liability................................................ $1,104,000 $ 444,000
========== ==========
Deferred pension costs (intangible asset)........................ $ 489,000 $ 362,000
Unrecognized net pension loss.................................... 438,000 -
---------- ----------
$ 927,000 $ 362,000
========== ==========
<FN>
(A) Plan benefits are based on years of service, rather than compensation
levels.
</FN>
</TABLE>
The deferred pension cost asset is being amortized on a straight-line basis
over a 17.5 year period. Plan assets are comprised primarily of common stocks
and bonds.
In determining the net periodic pension cost, the discount rate for the
benefit obligation was 6.75% in 1997 and 1998. The expected long-term rate of
return on assets was 8.00% for 1996, 1997 and 1998.
The Company also sponsors a defined contribution pension plan for
substantially all employees not covered by the defined benefit plan.
Contributions to the Plan are made at the discretion of the Company and may not
exceed 5% of a participant's compensation. The Company's pension expense for the
defined contribution plan was $631,000, $773,000 and $942,000 for 1996, 1997 and
1998, respectively.
NWSI contributes to union-sponsored multiemployer pension plans which
provide for contributions based on a specified rate per labor hour. Union
employees constitute approximately 56% of NWSI's workforce. Contributions
charged to expense were $443,000, $509,000 and $565,000 for 1996, 1997 and 1998,
respectively. Information as to NWSI's portion of accumulated plan benefits and
plan net assets is not currently available. Under the Employee Retirement Income
Security Act of 1974 as amended, an employer upon withdrawal from a
multiemployer plan is required to continue funding its proportionate share of
the plan's unfunded vested benefits. NWSI has no intention of withdrawing from
the plans.
<PAGE>
8. Related Party Transactions
NWSC had notes receivable from its two stockholders totaling $9,991,000 and
$10,603,000 at March 31, 1997 and 1998, respectively. The notes earn interest at
NWSC's effective borrowing rate on its revolving line of credit. Interest income
earned was $818,000, $870,000 and $893,000 during 1996, 1997 and 1998,
respectively. Proceeds of the notes were used by the stockholders to purchase
additional capital stock of NWSI and to make loans to NWSI. The notes, which are
due on demand, have been reflected as a reduction of stockholders' equity in the
consolidated balance sheets as it is the Company's present intent to satisfy
these receivables through future stockholder distributions. See Note 11. The
unaudited notes receivable balance at December 31, 1998 was approximately
$10,000,000.
In January 1998, the Company paid an employee $300,000 pursuant to a five
year non-compete agreement related to the start-up of NWSC's cigar division.
During fiscal 1998, the Company paid $170,000 for consulting fees to a
minority stockholder of NWSI.
<PAGE>
8. Related Party Transactions (continued)
Consolidated Rectifying, Inc. (CRI), a related party, is an Illinois liquor
bottler, blender and manufacturer which utilized brands, trademarks and
tradenames licensed to it from NWSI. On December 20, 1996, NWSI purchased
substantially all of the assets, and assumed certain liabilities, of CRI for
$181,000. Subsequent to that date there have been no material transactions
between the Company and CRI.
<TABLE>
<CAPTION>
<S> <C>
Assets acquired:
Accounts receivable........................ $ 1,951,000
Inventory.................................. 6,773,000
Property and equipment..................... 509,000
------------
9,233,000
Liabilities assumed:
Excise tax payable......................... (4,637,000)
Liabilities and debt....................... (2,482,000)
Receivable/payable from supplier........... (1,933,000)
------------
Net assets acquired........................... $ 181,000
============
</TABLE>
Effective June 25, 1997, NWSI sold certain of its licensed brands,
trademarks and tradenames for approximately $5,250,000. NWSI recognized a gain
of $4,071,000 which represents the $5,250,000 less $1,179,000 transaction costs
and the costs of assets related to the brands which were disposed. The purchase
price is receivable under a $2,250,000 seven-year promissory note, with the
remaining balance received in cash at the sale date. At March 31, 1998 the note
receivable balance was $2,045,000.
NWSI had a short-term note receivable from CRI with a balance of $613,000
at March 31, 1996. The note was repaid in December 1996. Interest accrued on the
note was $168,000 and $112,000 for the years ended March 31, 1996 and 1997,
respectively.
Transactions with CRI not disclosed elsewhere in the financial statements
for the years ended March 31, 1996 and 1997 were as follows (none in 1998):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1997
Sales................................................... $ 640,000 $ 715,000
Purchases of inventory.................................. 30,390,000 19,721,000
Purchase discounts...................................... 384,000 113,000
Administrative and data processing charged to CRI....... 225,000 169,000
Operational items paid by NWSI.......................... 28,555,000 17,326,000
Rent expense charged to CRI............................. 132,000 88,000
</TABLE>
9. Concentration of Risk
Purchases from four international suppliers accounted for approximately
65%, 62% and 65% of all revenues in 1996, 1997 and 1998, respectively.
<PAGE>
10. Litigation
The Company is a party to various lawsuits and claims arising in the normal
course of business. While the ultimate resolution of lawsuits or claims against
the Company cannot be predicted with certainty, management does not expect that
these matters will have a material adverse effect on the financial position or
results of operations of the Company.
11. Subsequent Events--Unaudited
Effective July 31, 1998, the Company and its stockholders executed new
notes payable to stockholders to provide for a legal right of offset against the
notes receivable from stockholders. Accordingly, as of December 31, 1998, the
notes payable to stockholders (principal plus accrued interest) have been offset
against the notes receivable from stockholders, with the resulting net amount
reflected as a reduction of stockholders' equity.
In September 1998, the Company guaranteed a $1.3 million obligation of a
related entity.
In December 1998, NWSC, a subsidiary of the Company, formed a new
distributorship in Kentucky (Commonwealth Wine & Spirits, LLC) in partnership
with two existing Kentucky-based distributors, The Vertner Smith Company
("Vertner") and Kentucky Wine & Spirits ("Kentucky W&S"). Under the terms, NWSC
will invest $7.5 million ($4.5 million in cash and a $3.0 million cash franchise
fee), in exchange for 25% of the new company, which management believes is the
largest distributor of wine and spirits in Kentucky. Vertner and Kentucky W&S
equally own the remaining 75%. At December 31, 1998, $6.0 million had been paid
and a $1.5 million commitment remained outstanding. NWSC has accounted for its
investment in Kentucky using the equity method.
In January 1999, the Company issued $110,000,000 of senior notes to
qualified institutional buyers. The net proceeds to the Company from the sales
of the notes were approximately $107,000,000. The notes are unsecured, bear
interest at 10.125% per annum and are due January 2009. These senior notes are
guaranteed by the Company's subsidiaries. The guarantors are all wholly-owned
and there are no non-guarantor subsidiaries. The guarantees are full,
unconditional and joint and several. Audited financial information of guarantor
subsidiaries has been omitted because management has determined that they would
not be material to investors.
Concurrently with the offering of the senior notes, the Company entered
into a new $60.0 million credit facility secured by the accounts receivable and
inventory of the Company. With proceeds from the senior notes offering and
borrowings under the new credit facility, the Company retired substantially all
of its bank revolving and term indebtedness.
On January 25, 1999, the Company paid a dividend of approximately $1.8
million.
The Company is party to a lawsuit brought by several drivers of
NWS-Illinois who allege age discrimination and workers' compensation retaliation
and claim back pay and front pay damages of $1.9 million and $1.0 million,
respectively, and the cost of action. In April 1999, the Company settled with
the Plaintiffs which released the Company from all claims, including legal fees,
in exchange for $475,000. Documentation of the settlement has not been completed
and approved.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offering covered by this prospectus. If given
or made, such information or representations must not be relied upon as having
been authorized by NWS. This prospectus does not constitute an offer to sell or
a solicitation to buy, the notes offered hereby in any jurisdiction where, or to
any person to whom, it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale hereunder shall, in any
circumstances, create an implication that there has not been any change in the
facts set forth in this prospectus or in the affairs of NWS since the date
hereof.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Prospectus Summary............................................................................. 3
Risk Factors................................................................................... 11
The Exchange Offer............................................................................. 18
Reorganization of the Company.................................................................. 25
Use of Proceeds................................................................................ 26
Capitalization................................................................................. 26
Selected Consolidated Financial and Other Data................................................. 27
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 29
Business....................................................................................... 39
Management..................................................................................... 52
Certain Transactions........................................................................... 54
Principal Stockholders......................................................................... 55
Description of New Credit Facility and Other Indebtedness...................................... 56
Description of the Exchange Notes.............................................................. 58
Certain Book-Entry Procedures for the Global Notes............................................. 96
Registration Rights; Liquidated Damages........................................................ 99
U.S. Federal Income Tax Considerations......................................................... 101
Plan of Distribution........................................................................... 106
Legal Matters.................................................................................. 107
Change in Independent Auditors................................................................. 107
Experts........................................................................................ 107
Where You Can Find More Information............................................................ 107
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>
Until _______, 1999 (forty days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligations to deliver a prospectus when acting as
underwriters
<PAGE>
NATIONAL WINE & SPIRITS, INC.
Exchange Offer for
$110,000,000 10.125% Senior Notes
Due 2009
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The following summary is qualified in its entirety be reference to the
complete text of the statute and the amended articles of incorporation referred
to below.
National Wine & Spirits, Inc. ("NWS") is empowered by Chapter 37 of the
Indiana Business Corporation Law (the "IBCL"), subject to the procedures and
limitations therein, to indemnify any person against expenses (including
attorneys' fees) and the obligation to pay a judgment, settlement, penalty, fine
or reasonable expenses incurred with respect to a threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which such person is made a
party by reason of such person's being or having been a director, officer,
employee or agent of NWS if his or her conduct was in good faith and he or she
reasonably believed that, if acting in the individual's official capacity, the
conduct was in the best interests of the corporation and in all other cases, the
conduct was not opposed to the corporation's best interests. In the case of any
criminal proceeding, NWS is empowered to indemnify a person if he or she had
reasonable cause to believe the conduct was lawful or had no reasonable cause to
believe the conduct was unlawful. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under a corporation's articles of
incorporation or bylaws, vote of directors or stockholders, or otherwise. In
addition, unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful in the defense of any proceeding to
which the person was a party because the person is or was a director, officer,
employee or agent against reasonable expenses incurred by him or her in
connection with the proceeding.
Article VIII of NWS' articles of incorporation, dated December 18, 1998,
obligates NWS to indemnify any person in connection with any liability arising
by reason of such person's status as a past or present director, officer,
employee or agent of NWS or of any other enterprise which he or she is serving
or served in any capacity at the request of NWS if such person acted in good
faith and in a manner he or she reasonably believed, in the case of conduct in
his or her official capacity, was in the best interest of NWS, and in all other
cases, was not opposed to the best interests of NWS, and, with respect to any
criminal action or proceeding, he or she either had reasonable cause to believe
his or her conduct was lawful or no reasonable cause to believe his or her
conduct was unlawful.
ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Description
3.1* Articles of Incorporation of National Wine & Spirits, Inc.
3.2* Bylaws of National Wine & Spirits, Inc.
3.3** Articles of Incorporation of National Wine & Spirits Corporation
3.4** Bylaws of National Wine & Spirits Corporation
3.5** Articles of Incorporation of NWS, Inc.
3.6** Bylaws of NWS, Inc.
3.7** Articles of Incorporation of NWS Michigan, Inc.
3.8** Bylaws of NWS Michigan, Inc.
3.9** Articles of Organization of NWS-Illinois, LLC
3.10** Operating Agreement of NWS-Illinois, LLC
4.1* Indenture relating to the Exchange Notes,
dated as of January 25, 1999 among National
Wine & Spirits, Inc., the Subsidiary
Guarantors and Norwest Bank Minnesota, N.A.,
as trustee (including cross-reference sheet
regarding sections 310 through 318(a) of the
Trust indenture Act)
4.2* A/B Exchange Registration Rights Agreement,
dated as of January 25, 1999, among National
Wine & Spirits, Inc., the Subsidiary
Guarantors and the Initial Purchasers
<PAGE>
4.3* Form of Exchange Notes (including related Subsidiary Guarantors)
4.4* Guaranty entered into as of January 25, 1999 by all Subsidiary Guarantors
5** Opinion and Consent of Ice Miller, Donadio & Ryan
8* Tax Opinion of Ice Miller Donadio & Ryan
10.1* Purchase Agreement, dated January 20, 1999, among National Wine & Spirits, Inc.,
the Subsidiary Guarantors and the Initial Purchasers
10.2* Credit Agreement, dated January 25, 1999, among National Wine & Spirits, Inc., the
Subsidiary Guarantors and NBD, as agent.
12* Statement regarding computation of ratios
16* Letter regarding change in certifying accountants
21* List of subsidiaries
23.1 ** Consent of Ernst & Young LLP
23.2** Consent of Katz, Sapper & Miller, LLP
23.3** Consent of Ice Miller Donadio & Ryan (contained in Exhibit 5)
24* Powers of Attorney (contained in signature pages of this Registration Statement)
25* Statement of eligibility of trustee
27* Financial Data Schedule
99.1* Form of Letter of Transmittal with respect to the Exchange Offer
99.2* Form of Notice of Guaranteed Delivery with respect to the Exchange Offer
* Previously filed
* * Filed herewith
</TABLE>
(b) Financial Statement Schedules
II. Valuation and qualifying accounts
ITEM 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
<PAGE>
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant 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 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
Items 4, 10(b), 11, or 13 of this Form, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 13, 1999.
NATIONAL WINE & SPIRITS, INC.
By: /s/ James E. LaCrosse
----------------------------------------
James E. LaCrosse,
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on the 13th day of May, 1999 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/s/ JAMES E. LACROSSE Chairman, President and Chief Executive Officer
James E. LaCrosse (Principal Executive Officer)
/s/ J. SMOKE WALLIN Executive Vice President, Chief Financial Officer and
J. Smoke Wallin Secretary (Principal Financial and Accounting Officer)
/s/ MARTIN H. BART* Director
Martin H. Bart
/s/ JAMES BECK* Director
James Beck
/s/ MITCHELL STOLTZ* Director
Mitchell Stoltz
/s/ RICHARD P. PALADINO* Director
Richard P. Paladino
/s/ RICHARD QUINN* Director
Richard Quinn
/s/ NORMA M. JOHNSTON* Director
Norma M. Johnston
/s/ PATRICIA J. LACROSSE* Director
Patricia J. LaCrosse
/s/ CATHERINE LACROSSE WALLENTINE* Director
Catherine LaCrosse Wallentine
*By: /s/ J. Smoke Wallin
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, National Wine & Spirits
Corporation, NWS, Inc., NWS-Illinois, LLC and NWS Michigan, Inc., each a
subsidiary guarantor and additional Registrant, have duly caused this
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, on May 13, 1999.
NATIONAL WINE & SPIRITS CORPORATION
NWS, INC.
NWS-ILLINOIS, LLC
NWS MICHIGAN, INC.
By: /s/ James E. LaCrosse
---------------------
James E. LaCrosse, Chairman
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on the 13th day of May, 1999 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/s/ JAMES E. LACROSSE Chairman (Principal Executive Officer)
James E. LaCrosse
/s/ J. SMOKE WALLIN Secretary and Treasurer (Principal Financial and
J. Smoke Wallin Accounting Officer)
/s/ NORMA M. JOHNSTON Director/Manager
Norma M. Johnston
/s/ PATRICIA J. LACROSSE Director/Manager
Patricia J. LaCrosse
</TABLE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NATIONAL WINE & SPIRITS CORPORATION
National Wine & Spirits Corporation (the "Corporation"), existing pursuant
to the provisions of the Indiana Business Corporation Law, as amended (the
"Act"), desiring to give notice of corporate action effectuating the amendment
and restatement of its Articles of Incorporation, sets forth the following
facts:
ARTICLE I
AMENDMENT AND RESTATEMENT
Section 1. Date of Incorporation. The date of incorporation of the
Corporation is April 9, 1935.
Section 2. Name. The name of the Corporation following this amendment and
restatement of the Articles of Incorporation is National Wine & Spirits
Corporation.
Section 3. Text of Amended and Restated Articles of Incorporation. The
Articles of Incorporation of the Corporation have been amended and restated in
their entirety by the adoption of Articles I through VIII of the Amended and
Restated Articles of Incorporation, the exact text of which is attached hereto
as Exhibit A and incorporated herein.
Section 4. Effective Date and Time. The Amended and Restated Articles of
Incorporation of the Corporation shall be effective as of the date and time of
the filing of the Amended and Restated Articles of Incorporation of the
Corporation with the Secretary of State of Indiana, as evidenced by the
Secretary of State's date and time endorsement thereon.
ARTICLE II
MANNER OF ADOPTION AND VOTE
Section 1. Action by Directors. The Board of Directors of the Corporation
duly adopted resolutions approving the Amended and Restated Articles of
Incorporation of the Corporation and proposing that such Amended and Restated
Articles be submitted to a vote of the shareholders of the Corporation at a
special meeting of the shareholders to be held on December 22, 1993. Such
resolutions approving the Amended and Restated Articles of Incorporation of the
Corporation were duly adopted by one or more written consents signed by all
members of the Board of Directors, effective as of December 15, 1993.
<PAGE>
Section 2. Action by Shareholders. The Amended and Restated Articles of
Incorporation of the Corporation contain certain amendments requiring approval
by the shareholders of the Corporation. The Amended and Restated Articles of
Incorporation of the Corporation were duly approved and adopted by the
shareholders of the Corporation by the unanimous written consent, effective as
of December 15, 1993, signed by the holders of one hundred four thousand five
hundred twenty-two (104,521) shares of $1.00 par value common stock of the
Corporation, being all of the issued and outstanding shares of stock of the
Corporation entitled to vote on the approval of the Amended and Restated
Articles of Incorporation of the Corporation. The designation, number of
outstanding shares, and number of votes entitled to be cast by each voting group
entitled to vote separately on the Amended and Restated Articles of
Incorporation, and the total number of votes cast for and against the Amended
and Restated Articles of Incorporation by each voting group entitled to vote
separately on the Amended and Restated Articles of Incorporation, are set forth
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Designation of Voting Group(s):
Total of
Common Stock All Classes
$1.00 Par Value of Shares
Number of Shares Outstanding 104,521 104,521
Number of Votes Entitled to be Cast 104,521 104,521
Number of Votes Represented at Meeting 104,521 104,521
Votes Cast For 104,521 104,521
Votes Cast Against 0 0
</TABLE>
The number of votes cast for the approval of Amended and Restated Articles of
Incorporation of the Corporation by each voting group was sufficient for
approval by such voting group.
Section 3. Compliance with the Legal Requirements. The manner of the
adoption of the Amended and Restated Articles of Incorporation of the
Corporation and the vote by which they were adopted constitute full legal
compliance with the provisions of the Act, the Articles of Incorporation, and
the By-Laws of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being a duly elected current officer
of the Corporation, hereby executes the foregoing Amended and Restated Articles
of Incorporation of the Corporation and verifies, subject to penalties of
perjury, that the statements contained herein are true, on this 16th day of
December, 1993.
/s/ James E. LaCrosse
Officer - Signature
James E. LaCrosse
--------------------------------------
Officer - Printed Name
President
--------------------------------------
Officer's Title
This instrument was prepared by Michael J. Schneider, Attorney at Law, Locke
Reynolds Boyd & Weisell, 1000 Capital Center South, 201 North Illinois Street,
Indianapolis, IN 46204.
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NATIONAL WINE & SPIRITS CORPORATION
The following Amended and Restated Articles of Incorporation of National
Wine & Spirits Corporation, an Indiana corporation originally incorporated on
April 9, 1935, as National Liquor Corporation (the "Corporation"), duly adopted
pursuant to the authority and provisions of the Indiana Business Corporation
Law, as amended (the "Act"), supersede and take the place of the existing
Articles of Incorporation of the Corporation, and all amendments thereto:
ARTICLE I
NAME
The name of the Corporation is National Wine & Spirits Corporation.
ARTICLE II
PURPOSES AND POWERS
Section 2.1. Purposes of the Corporation. The purposes for which the
Corporation is organized are: (i) to import and export, sell at wholesale and
retail, wine, whiskey, brandy, malt beverages, spirituous beverages, vinous
beverages, alcoholic and non-alcoholic beverages of all kinds, and to transport,
deliver and distribute the same, and (ii) to engage in the transaction of any
and all lawful business for which corporations may now or hereafter be
incorporated under the Act and the laws of any other state in which the
Corporation shall at any time be qualified to transact business.
Section 2.2. Powers of the Corporation. The Corporation shall have: (i) all
powers now or hereafter authorized by or vested in corporations pursuant to the
provisions of the Act, (ii) all powers now or hereafter vested in corporations
by common law or any other statute or act, and (iii) all powers authorized by or
vested in the Corporation by the provisions of these Articles of Incorporation
or the By-Laws of the Corporation as from time to time in effect.
<PAGE>
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
Section 4.1. Registered Office. The street address of the Corporation' s
registered office in Indiana is 700 West Morris Street, Indianapolis, Indiana
46206.
Section 4.2. Registered Agent. The name of the Corporation's registered
agent at such registered office is James E. LaCrosse.
ARTICLE V
AUTHORIZED SHARES
Section 5.1. Number of Shares. The total number of shares which the
Corporation is authorized to issue is Twenty Million Two Hundred Thousand
(20,200,000) shares divided into two classes, consisting of: (i) Two Hundred
Thousand (200,000) shares with a par value of One Cent ($.01) per share,
designated as "Voting Common Stock", and (ii) Twenty Million (20,000,000) shares
with a par value of One Cent ($.01) per share, designated as "Nonvoting Common
Stock."
Section 5.2. Terms of Shares. The outstanding shares of Voting Common Stock
and Nonvoting Common Stock shall together be entitled to receive the net assets
of the Corporation upon dissolution of the Corporation. The terms, preferences,
limitations and relative rights of shares of Voting Common Stock and shares of
Nonvoting Common Stock, including rights to distribution and liquidation
proceeds, shall be identical, as provided by the Act, except that: (i) the
holders of the outstanding shares of Voting Common Stock shall have exclusive
and unlimited voting rights and shall be entitled to one (1) vote per share on
each matter submitted, or required to be submitted, to a vote of the
shareholders of the Corporation, and (ii) the holders of the outstanding shares
of the Nonvoting Common Stock shall not be entitled to any voting rights and
shall not be entitled to any notice of any meetings of the shareholders or to
any notice of any other action requiring the vote, consent, approval or other
action of the shareholders of the Corporation, except as expressly required
otherwise by the Act.
<PAGE>
ARTICLE VI
DIRECTORS
The Board of Directors of the Corporation shall consist of three (3)
members, which number may be fixed or changed from time to time by amendment to
the By-Laws of the Corporation. The names and addresses of the members of the
present Board of Directors are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Number and Street City, State
Name or Building and Zip Code
James E. LaCrosse 7915 Morningside Drive Indianapolis, IN 46240
Norma M. Johnston 9295 Spring Forest Drive Indianapolis, IN 46260
R. Cameron Johnston 7919 Spring Mill Road Indianapolis, IN 46260
</TABLE>
ARTICLE VII
INCORPORATORS
The names and addresses of the initial incorporators of the Corporation
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Number and Street City, State
Name or Building and Zip Code
George F. Galm 642 Eastern Avenue Indianapolis, IN 46201
Jules J. Fansler 111 South Pennsylvania St. Indianapolis, IN 46204
Laura Galm 642 Eastern Avenue Indianapolis, IN 46201
</TABLE>
ARTICLE VIII
PROVISIONS FOR MANAGEMENT OF BUSINESS
AND REGULATION OF AFFAIRS OF CORPORATION
Section 8.1. By-Laws. The By-Laws of the Corporation may contain any
provision for managing the business and regulating the affairs of the
Corporation that is not inconsistent with the Act or these Articles of
Incorporation. Except as expressly provided otherwise in these Articles of
Incorporation, in the By-Laws of the Corporation, or by the Act, the Board of
Directors of the Corporation shall have the exclusive power to make, alter,
amend and repeal the By-Laws of the Corporation.
<PAGE>
Section 8.2. Indemnification of Directors, Officers, Employees, and Agents
of the Corporation.
(a) Indemnification. The Corporation shall indemnify any person who is or
was a Director, officer, employee or agent of the Corporation, or who is or was
serving, at the Corporation's request, as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, whether for
profit or not, against any liability and reasonable expense, including, without
limitation, any obligation to pay any judgment, settlement, penalty, fine, court
costs, and reasonable attorneys' fees, incurred by such person who was, is, or
is threatened to be made, a named defendant or respondent in any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, and whether formal or informal; provided,
however, that such person is determined, in accordance with the provisions of
Indiana Code Section 23-1-37-12, as amended from time to time, to have met the
standard of conduct specified in Indiana Code Section 23-1-37-8, as amended from
time to time. Upon the demand by such person for such indemnification, the
Corporation shall proceed as provided in Indiana Code Section 23-1-37-12, as
amended from time to time, to determine whether such person is entitled to
indemnification hereunder.
(b) Advances of Expense. The Corporation may pay for in advance or
reimburse the reasonable expenses, including reasonable attorneys' fees,
incurred by such person in any such proceeding specified in paragraph (a) of
this Section 8.2 in advance of the final disposition of such proceeding, or,
where appropriate, may assume the defense of any such person at the
Corporation's expense, if the requirements of Indiana Code Section 23-1-37-10,
as amended from time to time, are satisfied.
(c) Notice to Shareholders. If the Corporation indemnifies or advances
expenses to a Director under this Section 8.2 or under the Act in connection
with a proceeding by or in the right of the Corporation, then if and to the
extent required by the Act, the Corporation shall report the indemnification or
advance in writing to the shareholders of the Corporation with or before the
notice of the next shareholders' meeting.
(d) Indemnification Not Exclusive. The indemnification and advance for
expenses provided for in this Section 8.2, shall not exclude, limit or preclude
any other rights to which any such Director, officer, employee, agent or other
person seeking indemnification or advance of expenses may be entitled under the
Act, the By-Laws of the Corporation, any agreement or contract, any other
applicable law or otherwise, and shall continue as to a person who has ceased to
serve as a Director, officer, employee, agent, partner, trustee, or in any other
indemnified capacity, and shall inure to the benefit of the heirs, executors,
administrators of any such person.
<PAGE>
(e) Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, against any liability asserted against or incurred by such
person in any capacity or arising out of his or her status as such, whether or
not the Corporation has the obligation or power to indemnify such person against
such liability under the provisions of this Section 8.2, the Act, the Articles
of Incorporation, or otherwise.
(f) Effective Date: Continuation of Indemnity. The provisions of this
Section 8.2 shall be applicable to any proceeding specified in paragraph (a) of
this Section 8.2 which commenced after the adoption of this Section 8.2, whether
arising from acts or omissions to act occurring before or after the adoption of
this Section 8.2. The provisions of this Section 8.2 shall continue to apply to
any proceeding specified in paragraph (a) of this Section 8.2 made or commenced
against any person who has ceased to be a person entitled to indemnification
hereunder and shall inure to the benefit of the estate, heirs and personal
representatives of such person.
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, hereby executes these Articles of Incorporation and verifies,
subject to the penalties of perjury, that the statements contained herein are
true, on this 15th day of December, 1993.
/s/ James E. LaCrosse
James E. LaCrosse, President
This instrument was prepared by Michael J. Schneider, Attorney at Law, LOCKE
REYNOLDS BOYD & WEISELL, 1000 Capital Center South, 201 North Illinois Street,
Indianapolis, IN 46204.
AMENDED AND RESTATED BY-LAWS
OF
NATIONAL WINE & SPIRITS CORPORATION
(the "Corporation")
Adopted: November 26, 1991
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1. Annual Meeting. The annual meeting of the shareholders for the
election of Directors, and for the transaction of such other business as may
properly come before the meeting, shall be held each year at 10:00 A.M., on the
first Tuesday in March, if such day is not a legal holiday, and if such day is a
legal holiday, then on the next following business day that is not a legal
holiday, or at such time and on such date as shall otherwise be fixed by the
Board of Directors and specified in the notice of such meeting, or waiver of
notice thereof. The failure to hold the annual meeting of the shareholders at
the designated time shall not affect the validity of any corporate action.
Section 1.2. Special Meetings. Special meetings of the shareholders shall
be held if called by the Chairman of the Board of Directors (if any), the
President, a majority of the Board of Directors, or by the written demand(s),
describing the purpose or purposes of the meeting, signed, dated and delivered
to the Corporation's Secretary by the holders of at least twenty-five percent
(25%) of all of the votes entitled to be cast on any issue proposed to be
considered at the meeting.
Section 1.3. Place of Meetings. Meetings of shareholders of the Corporation
shall be held at the principal office of the Corporation or at such other place,
within or without the State of Indiana, as may be specified in the notice of the
meeting, or waiver of notice thereof.
Section 1.4. Notice of Meetings. Notice of the date, time and place of each
annual and special shareholders' meeting, and a description of the purpose or
purposes of such meeting if required by the Act or the Articles of
Incorporation, shall be given by the Secretary or an Assistant Secretary of the
Corporation, or by the officer or other persons who called the meeting, to each
shareholder of record entitled to vote at such meeting, and also to each
shareholder not entitled to vote at such meeting if required by the Act or the
Articles of Incorporation, no fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, in any of the following manners:
A. By written notice personally delivered to such shareholder, which notice
shall be effective when communicated;
<PAGE>
B. By written notice, addressed to such shareholder's address shown in the
Corporation's current record of shareholders, and mailed to such shareholder
either by first class, certified, or registered United States mail, postage
prepaid, or by private carrier service, fees prepaid or billed to the
Corporation, which notice shall be effective when mailed; or
C. By written notice in such other form and manner authorized by the Act.
Notice of any such meeting may be waived before or after the date and time
stated in the notice by delivering a written waiver of notice to the Corporation
for inclusion in the minutes or filing with the corporate records. A
shareholder's attendance at a meeting, either in person or by duly authorized
proxy: (i) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and (ii) waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
Section 1.5. Addresses of Shareholders. The address of any shareholder
appearing upon the records of the Corporation shall be deemed to be the same
address as the latest address of such shareholder appearing on the records
maintained by the transfer agent for the class of stock held by such
shareholder, or by the Corporation, if the Corporation has no transfer agent.
Section 1.6. Record Date. For the purpose of determining the shareholders
entitled to notice of a shareholders' meeting, to demand a special meeting, to
vote, or to take any other action, the Board of Directors of the Corporation may
fix a date as the record date for any such determination, which record date
shall not be more than seventy (70) days before the meeting or action requiring
a determination of the shareholders. If the Board of Directors fails to fix a
record date as provided herein, the record date for determining shareholders
entitled to notice of and to vote at an annual or special shareholders, meeting
shall be the close of business on the day before the first notice is delivered
to the shareholders.
Section 1.7. Voting at Meetings.
A. Voting Rights. Except as otherwise provided by the Act or the Articles
of Incorporation, each outstanding share shall be entitled to one (1) vote on
each matter voted on at a shareholders' meeting, and any outstanding fractional
share shall be entitled to such fraction of one (1) vote on each matter voted on
at a shareholders' meeting.
B. Voting of Shares Owned by Other Corporations. Except as otherwise
provided by the Act or the Articles of Incorporation, any shares of the
Corporation standing in the name of another corporation may be voted by such
officer, agent or proxy as the Board of Directors of such other corporation may
appoint, or as the By-Laws of such other corporation may prescribe, and in the
absence of such designation, by such person as may be nominated in a proxy duly
executed for the purpose by the President or a Vice President, and a Secretary
or an Assistant Secretary, of such other corporation.
<PAGE>
C. Voting of Shares Owned by Fiduciaries. Shares held by fiduciaries may be
voted by the fiduciaries in such manner as the instrument or order, appointing
such fiduciaries, may direct. In the absence of such direction, or the inability
of the fiduciaries to act in accordance therewith, the following provisions
shall apply:
(a) Where shares are held jointly by three or more fiduciaries, such shares
shall be voted in accordance with the will of the majority.
(b) Where the fiduciaries, or a majority of them, cannot agree, or where
they are equally divided, upon the question of voting such shares, any court of
general equity jurisdiction may, upon petition filed by any of such fiduciaries,
or by any party in interest, direct the voting of such shares as it may deem for
the best interests of the beneficiaries, and such shares shall be voted in
accordance with such direction.
(c) The general proxy of a fiduciary shall be given the same weight and
effect as the general proxy of an individual or corporation.
D. Voting of Pledged Shares. Shares that are pledged may, unless otherwise
provided in the agreement of pledge, be voted by the shareholder pledging the
same until the shares shall have been transferred to the pledgee on the books of
the Corporation, and thereafter they may be voted by the pledgee.
E. Proxies. A shareholder may vote such shareholder's shares in person or
by proxy appointed by a written appointment form signed by such shareholder or
by such shareholder's attorney-in-fact. An appointment of a proxy is effective
when received by the Secretary or other officer or agent authorized to tabulate
votes. An appointment of a proxy is valid for eleven (11) months unless a
shorter or longer period is expressly provided in the appointment form.
F. Quorum; Action by Shareholders. Any action on a matter at a meeting may
be taken only if a quorum exists with respect to that matter. Unless otherwise
provided in the Articles of Incorporation or the Act, a majority of the votes
entitled to be cast on the matter by the voting group (i.e., all shares of one
or more classes or series that under the Articles of Incorporation or the Act
are entitled to vote and be counted together collectively on a matter at a
meeting of the shareholders) shall constitute a quorum of that voting group for
action on the matter. Unless otherwise provided in the Articles of Incorporation
or the Act, at a meeting at which a quorum is present: (i) action on a matter,
other than the election of directors, by a voting group is approved if the votes
cast within the voting group favoring the action exceed the votes cast opposing
the action; and (ii) directors are elected by a plurality of the votes cast by
the shares entitled to vote in the election.
<PAGE>
G. Shareholders' List. The Corporation shall prepare and make available for
inspection by any shareholder entitled to vote at a meeting, beginning five (5)
business days before the date of the meeting and continuing through the meeting,
at the Corporation's principal office or at the meeting place identified in the
meeting notice, an alphabetical list of the names of all shareholders entitled
to notice of the meeting, arranged by voting group (and within each voting group
by class or series of shares) and specifying the address of and number of shares
held by each shareholder. Such list shall be available for inspection and
copying subject to and in accordance with the provisions of the Act. The refusal
or failure to prepare or make available the shareholders' list shall not affect
the validity of any action taken at the meeting.
Section 1.8. Conduct of Meetings. The President, or such other officer as
shall be appointed by the President, shall preside as chairman at all meetings
of the shareholders, except that the shareholders may elect from themselves a
person to preside as chairman at any special meeting of the shareholders called
by the shareholders. The order of business at each shareholders' meeting shall
be as determined by the chairman of the meeting, except that the order of
business at any meeting may be changed by the vote of a majority in voting power
of those shareholders present in person or by proxy and entitled to vote at such
meeting. Unless otherwise determined by the chairman of the meeting or by the
shareholders as provided above, the order of business at each annual meeting of
the shareholders, and so far as practical at all other meetings of the
shareholders, shall be as follows:
A. Proof of notice of meeting, or waiver thereof.
B. Call of roll.
C. Reading and disposition of unapproved minutes of prior meetings of the
shareholders, unless waived by the vote of a majority in voting power of those
shareholders present in person or by proxy entitled to vote thereat.
D. Report of Board of Directors, if any.
E. Reports of officers, if any.
F. Reports of committees, if any.
G. Election of Directors.
H. Disposition of unfinished business.
I. Presentation and disposition of new business.
J. Adjournment.
<PAGE>
Section 1.9. Action by Unanimous Written Consent. Any action required or
permitted by the Act to be taken at a shareholders' meeting may be taken without
a meeting if the action is taken by all of the shareholders entitled to vote on
the action, evidenced by one (1) or more written consents describing the action
taken, signed by all of the shareholders entitled to vote on the action, and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. Unless the record date has been determined pursuant to
Section 1.6, the record date for determining shareholders entitled to take
action without a meeting shall be the date the first shareholder signs a
consent. Such action by the shareholders by unanimous written consent shall be
effective when the last shareholder signs the consent, unless the consent
specifies a different prior or subsequent effective date.
Section 1.10. Participation in Meetings by Conference Telecommunication.
Any or all shareholders may participate in a shareholders' meeting by or through
the use of any means of communication by which all shareholders participating
may simultaneously hear each other during the meeting. A shareholder
participating in a meeting by this means shall be deemed to be present in person
at the meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. General Powers. Subject to any limitation set forth in the
Articles of Incorporation, all corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation managed under
the direction of, the Board of Directors.
Section 2.2. Number, Qualification, Election and Term of Office. The
initial Directors of the Corporation shall be named in the Articles of
Incorporation and shall hold office until the first shareholders' meeting at
which directors are elected. At the first annual meeting of the shareholders,
and at each annual meeting of the shareholders thereafter, the Directors shall
be elected by a plurality of the votes cast by the holders of the shares
entitled to vote in such election, and each Director so elected shall hold
office for a term expiring at the next annual shareholders' meeting following
his election, and until his successor is elected and qualified, or until there
is a decrease in the number of Directors after the expiration of his term. After
the first shareholders' meeting at which Directors are elected, the Board of
Directors shall consist of three (3) Directors. The number of Directors may be
fixed or changed from time to time by the Board of Directors; provided, however,
that any decrease in the number of Directors shall not shorten any incumbent
Director's term. Directors need not be residents of Indiana nor shareholders of
the Corporation unless the Articles of Incorporation so require; provided,
however, that at least a majority of the Directors shall be citizens of the
United States.
Section 2.3. Annual and Regular Meetings. The Board of Directors shall meet
each year immediately following, and at the same place as, the annual meeting of
the shareholders, either within or without the State of Indiana, for the purpose
of the election of officers and consideration of any other business that may
properly be brought before the meeting. In addition, regular meetings of the
Board of Directors may be held at such time and place as may from time to time
be fixed by the Board of Directors. No notice of the date, time, place or
purpose of the annual meeting or any regular meeting of the Board of Directors
shall be required to be given to either old or new members of the Board of
Directors. If the annual meeting of the Board of Directors is not held as
provided herein, the election of the officers of the Corporation may be held at
any subsequent regular or special meeting of the Board of Directors.
<PAGE>
Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board of Directors (if any) or
by the President, and shall be called upon the written request of a majority of
the Directors then in office. Notice of the date, time and place of each special
meeting of the Board of Directors, and a description of the purpose or purposes
of such meeting if required by the Articles of Incorporation, shall be given by
the Chairman of the Board, (if any), President, Secretary or an Assistant
Secretary of the Corporation, or by the Directors who called the meeting, to
each Director at least forty-eight (48) hours before the time of the meeting, in
any of the following manners:
(a) By oral notice, in person or by telephone, communicated to such
Director, which notice shall be effective when communicated;
(b) By written notice personally delivered to such Director, which notice
shall be effective when received by such Director;
(c) By written notice mailed to such Director either by first class,
certified or registered United States mail, postage prepaid, or by private
carrier service, fees prepaid or billed to the Corporation, which notice shall
be effective as of the earliest of the following: (i) when received; (ii) five
days after its mailing, as evidenced by the postmark or private carrier receipt,
if correctly addressed to the address of such Director listed in the most
current records of the Corporation; or (iii) on the date shown on the return
receipt, if sent by registered or certified United States mail, return receipt
requested, and the receipt is signed by or on behalf of such Director; or
(d) In such other form and manner authorized by the Act.
A Director may waive notice of such special meeting before or after the date and
time stated in the notice by signing and filing with the minutes or corporate
records a written waiver of such special meeting. A Director's attendance at or
participation in a meeting waives any required notice to the Director of the
meeting, unless the Director, at the beginning of the meeting, or promptly upon
the Director's arrival, objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to any action taken at
the meeting.
Section 2.5. Quorum; Action by Directors. Except as otherwise provided by
the Articles of Incorporation or these By-Laws, a quorum of the Board of
Directors shall be necessary for the transaction of any business. A quorum of
the Board of Directors shall consist of: (i) a majority of the fixed number of
Directors, if the Corporation has a fixed Board size, or (ii) a majority of the
number of Directors prescribed, or if no number is prescribed, the number in
office immediately before the meeting begins, if the Corporation has a variable
range size Board; provided, however, that, for the purpose of filling vacancies
on the Board of Directors, a majority of the Directors then in office, but in no
event less than one-third (1/3) of the number of Directors determined in (i) or
(ii) above, shall constitute a quorum. If a quorum of Directors is present when
a vote is taken, the affirmative vote of a majority of the Directors present
shall be the act of the Board of Directors, unless the Articles of Incorporation
or these By-Laws provide otherwise. A Director who is present at a meeting of
the Board of Directors when corporate action is taken shall be deemed to have
assented to the action taken unless: (i) the Director objects at the beginning
of the meeting, or promptly upon his arrival, to holding the meeting or
transacting business thereat; or (ii) the Director's dissent or abstention from
the action taken is entered in the minutes of the meeting; or (iii) the Director
delivers written notice of his dissent or abstention to the presiding officer of
the meeting before its adjournment or to the Secretary of the Corporation
immediately after adjournment of the meeting. The right of dissent or abstention
shall not be available to a Director who votes in favor of the action taken.
<PAGE>
Section 2.6. Action By Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the Board of Directors may be taken
without a meeting if the action is approved by all members of the Board of
Directors, evidenced by one (1) or more written consents describing the action
taken, signed by each Director and included in the minutes or filed with the
corporate records reflecting the action taken. Such action by the Board of
Directors by unanimous written consent shall be effective when the last Director
signs the consent, unless the consent specifies a different prior or subsequent
effective date.
Section 2.7. Participation in Meetings by Conference Telecommunication. Any
or all Directors may participate in any annual, regular or special meeting by,
or conduct a meeting through the use of, any means of communication by which all
Directors participating may simultaneously hear each other during the meeting. A
Director participating in a meeting by this means shall be deemed to be present
in person at the meeting.
Section 2.8. Resignations. A Director may resign at any time by delivering
written notice to the Board of Directors, the Chairman of the Board of Directors
(if any), or the President or Secretary of the Corporation, which resignation
shall be effective when such notice is delivered, unless such notice specifies a
later effective date.
Section 2.9. Removal. Except as otherwise provided by the Act or the
Articles of Incorporation, a Director may be removed, with or without cause, by
the Board of Directors or by the shareholders at a special meeting called for
the purpose of removing the Director, the notice of which shall state that the
purpose or one of the purposes of the meeting shall be to remove the Director.
<PAGE>
Section 2.10. Vacancies. Unless provided otherwise by the Articles of
Incorporation, any vacancy occurring in the Board of Directors, caused by the
removal, resignation, death or other incapacity of a Director, an increase in
the number of Directors, or for any other reason, may be filled by the Board of
Directors, or if the Directors remaining in office constitute fewer than a
quorum of the Board of Directors, by the affirmative vote of a majority of all
of the Directors remaining in office.
Section 2.11. Compensation. Unless the Articles of Incorporation provide
otherwise, the Board of Directors may fix the compensation, if any, of
Directors.
ARTICLE III
OFFICERS
Section 3.1. Election, Qualification and Term of Officers. The officers of
the Corporation shall consist of a President, a Secretary, a Treasurer, and such
other officers as the Board of Directors may from time to time deem advisable,
including, without limitation, one or more Vice Presidents, a Chairman of the
Board of Directors, an Assistant Secretary, or an Assistant Treasurer. The same
individual may simultaneously hold more than one office in the Corporation. The
initial officers of the Corporation shall be elected at the first meeting of the
Board of Directors. Thereafter, the officers of the Corporation shall be chosen
annually at the annual meeting of the Board of Directors, and each officer shall
hold office until his successor is chosen and qualified, or until his death,
resignation, or removal. The election or appointment of an officer does not
itself create contract rights.
Section 3.2. Resignation. Any officer may resign at any time by delivering
notice to the Board of Directors, the Chairman of the Board of Directors (if
any), or the President or Secretary of the Corporation, which resignation shall
be effective when the notice is delivered unless the notice specifies a later
effective date. The resignation of an officer does not affect the Corporation's
contract rights, if any, with the officer.
Section 3.3. Removal. Any officer may be removed at any time, with or
without cause, by action of the Board of Directors; provided, however, that the
removal of an officer does not affect such officer's contract rights, if any,
with the Corporation.
Section 3.4. Vacancies. Any vacancy in any office because of the death,
resignation, removal, increase in the number of offices of the Corporation, or
otherwise, shall be filled by the Board of Directors, and the officer so elected
shall hold office until his successor is chosen and qualified, or until his
death, resignation or removal.
Section 3.5. Chairman of the Board. The Chairman of the Board (if any)
shall be chosen from among the Directors. The Chairman of the Board shall
preside at all meetings of the Board of Directors at which he is present, and
shall generally perform all duties incident to the office of Chairman of the
Board and such other duties as, from time to time, may be assigned to him by the
Board of Directors.
<PAGE>
Section 3.6. President. If and while there is no incumbent of the office of
Chairman of the Board, and during the absence or disability of the Chairman of
the Board, the President shall have the duties and authority of the Chairman of
the Board. Subject to the control of the Board of Directors and unless as
otherwise determined by the Board of Directors, the President shall be the chief
executive and operating officer of the Corporation, shall direct and manage the
business and affairs of the Corporation, and shall coordinate and supervise the
work of its other officers. The President shall preside at all meetings of the
shareholders at which he is present. Either personally or through other officers
or employees of the Corporation, the President shall employ, direct, fix the
compensation of, discipline, and discharge its personnel; employ agents,
professional advisers and consultants; and perform all functions of a general
manager of the Corporation's business. The President shall have authority to
sign (either manually or in facsimile), with the Secretary or an Assistant
Secretary, certificates representing shares of capital stock of the Corporation.
The President shall also have authority to execute and deliver on behalf of the
Corporation, singly and without any additional signature or attestation, all
deeds, mortgages, assignments, contracts and other instruments when required or
deemed necessary or advisable by him in the ordinary conduct of the
Corporation's normal business, except where such documents are expressly
required by these ByLaws, by resolution of the Board of Directors, or by law to
be executed by some other or an additional officer or agent of the Corporation.
The President shall, in general, have all authority incident to the office of
the President and shall have such other powers and duties as may, from time to
time, be conferred upon or assigned to him by the Board of Directors.
Section 3.7. Vice Presidents. The Vice Presidents (if any) shall perform
such duties as may be assigned to them, individually or collectively, by the
Board of Directors or by the President. In the absence or disability of the
President, one or more of the Vice Presidents may perform such duties of the
President as the President or the Board of Directors may designate.
Section 3.8. Secretary. The Secretary shall: (i) prepare or cause to be
prepared the minutes of the meetings of the shareholders and the Board of
Directors in books provided for such purpose and authenticate records of the
Corporation; (ii) attend to the giving of all notices in accordance with the
provisions of these By-Laws and as required by law; (iii) have the authority
(when required) to sign with the President or a Vice President in the name of
the Corporation, and/or attest the signature of either to, all contracts,
conveyances, transfers, assignments, encumbrances, authorizations and all other
instruments, documents and papers, of any and every description whatsoever, of
or executed for or on behalf of the Corporation; (iv) be the custodian of the
records and the seal (if any) of the Corporation and attend to the affixing of
the seal (if any) to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the provisions
of these By-Laws; (v) have authority to sign (either manually or in facsimile),
with the President or a Vice President, any and all certificates representing
shares of capital stock of the Corporation; (vi) have charge of and maintain and
keep, or supervise and control the maintenance and keeping of, the stock
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may authorize, direct or provide for; (vii)
perform generally all the duties incident to the office of Secretary; and (viii)
have such other powers and duties as may, from time to time, be conferred upon
or assigned to him by the Board of Directors.
<PAGE>
Section 3.9. Treasurer. Unless otherwise determined by the Board of
Directors or the President, the Treasurer shall be the financial officer of the
Corporation. The Treasurer shall: (i) have charge and custody of, and be
responsible for, all funds and securities of the Corporation which come into his
hands; (ii) have authority to endorse on behalf of the Corporation, for
collection, checks, notes and other obligations, and deposit the same to the
credit of the Corporation in such banks or other depositories as shall be
selected by the Board of Directors; (iii) receive, and give receipts and
vouchers for, payments made to the Corporation from any source whatsoever; (iv)
enter or cause to be entered, punctually and regularly, on the books of the
Corporation, to be kept by him or under his supervision or direction for that
purpose, full and accurate accounts of all monies received and paid out by, for
or on account of, the Corporation; (v) render to the President and the Board of
Directors, whenever required by them, an account of all of his transactions as
Treasurer of the Corporation and of the financial condition of the Corporation;
(vi) perform generally all the duties incident to the office of Treasurer; and
(vii) have such other powers and duties as may, from time to time, be conferred
upon or assigned to him by the Board of Directors or by the President. If
required by the Board of Directors, the Treasurer shall give such bond for the
faithful performance of his duties in such amount and with such sureties as the
Board of Directors shall determine.
Section 3.10. Assistant Secretaries. The Assistant Secretaries (if any)
shall perform such duties as from time to time may be assigned to them,
individually or collectively, by the Board of Directors, by the President, any
Vice President, or by the Secretary. In the absence or disability of the
Secretary, one or more of the Assistant Secretaries may perform such duties of
the Secretary as the Secretary, the President, or the Board of Directors may
designate.
Section 3.11. Assistant Treasurers. The Assistant Treasurers (if any) shall
perform such duties as from time to time may be assigned to them, individually
or collectively, by the Board of Directors, by the President, by any Vice
President, or by the Treasurer. In the absence or disability of the Treasurer,
one or more of the Assistant Treasurers may perform such duties of the Treasurer
as the Treasurer, the President, or the Board of Directors may designate.
Section 3.12. Delegation of Authority. In the case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, a majority of the entire Board of Directors may delegate
powers or duties of such officer to any other officer or officers for such
length of time as the Board may determine.
Section 3.13. Compensation. Each officer of the Corporation shall receive
such compensation, if any, for his service in such office as may be fixed from
time to time by action of the Board of Directors.
<PAGE>
ARTICLE IV
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 4.1. Indemnification. The Corporation shall indemnify any person
who is or was a Director, officer or employee of the Corporation, or who is or
was serving, at the Corporation's request, as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
whether for profit or not, against any liability and reasonable expense,
including, without limitation, any obligation to pay a judgment, settlement,
penalty, fine, court costs, and reasonable attorneys' fees, incurred by such
person who was, is or is threatened to be made a named defendant or respondent
in any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, and whether formal or
informal; provided, however, that such person is determined, in accordance with
the provisions of Indiana Code Section 23-1-37-12, as amended from time to time,
to have met the standard of conduct specified in Indiana Code Section 23-1-37-8,
as amended from time to time. Upon the demand by such person for such
indemnification, the Corporation shall proceed as provided in Indiana Code
Section 23-1-37-12, as amended from time to time, to determine whether such
person is entitled to indemnification hereunder.
Section 4.2. Advances of Expenses. The Corporation may pay for in advance
or reimburse the reasonable expenses, including reasonable attorneys' fees,
incurred by such person in such proceeding referred to in Section 4.1 in advance
of the final disposition of such proceeding, or, where appropriate, may assume
the defense of any such person at the Corporation's expense, if the requirements
of Indiana Code Section 23-1-37-10, as amended from time to time, are satisfied.
Section 4.3. Notice to Shareholders. If the Corporation indemnifies or
advances expenses to a Director under this Article IV or under the Act in
connection with a proceeding by or in the right of the Corporation, then to the
extent required by the Act, the Corporation shall report the indemnification or
advance in writing to the shareholders of the Corporation with or before the
notice of the next shareholders' meeting.
Section 4.4. Indemnification Not Exclusive. The indemnification and advance
for expenses provided for in this Article IV shall not exclude, limit or
preclude any other rights to which any such Director, officer, employee, agent
or other person seeking indemnification or advance of expenses may be entitled
under the Act, the Articles of Incorporation, any agreement or contract, any
other applicable law or otherwise, and shall continue as to a person who has
ceased to serve as a Director, officer, employee, agent, partner, trustee, or in
any other indemnified capacity, and shall inure to the benefit of the heirs,
executors, administrators of any such person.
Section 4.5. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a Director, officer, employee or agent of
the Corporation, or who is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, against any liability asserted against or incurred by such
person in any capacity or arising out of his or her status as such, whether or
not the Corporation has the obligation or power to indemnify such person against
such liability under the provisions of this Article IV, the Act, the Articles of
Incorporation, or otherwise.
<PAGE>
Section 4.6. Effective Date; Continuation of Indemnity. The provisions
of this Article IV shall be applicable to any proceeding specified in Section
4.1 which commenced after the adoption of this Article IV, whether arising from
acts or omissions to act occurring before or after the adoption of this Article
IV. The provisions of this Article IV shall continue to apply to any proceeding
specified in Section 4.1 made or commenced against any person who has ceased to
be a person entitled to indemnification hereunder and shall inure to the benefit
of the estate, heirs and personal representatives of such person.
ARTICLE V
SHARES AND TRANSFER OF SHARES
Section 5.1. Stock Certificates. Each holder of shares of capital stock of
the Corporation shall be entitled to a certificate or certificates, which shall
be in such form as the Board of Directors shall from time to time prescribe,
certifying the number of shares owned by such holder in the Corporation. Each
certificate shall be signed, either manually or in facsimile, by the President
or a Vice President and the Secretary or any Assistant Secretary of the
Corporation and shall state on its face the name of the Corporation, the fact
that the Corporation is organized under the laws of the State of Indiana, the
name of the person to whom the shares are issued, and the number and class of
shares and the designation of the series, if any, the certificate represents, if
such shares are not fully paid up, the certificate shall be legibly stamped to
indicate the percentage which has been paid up, and as further payments are made
thereon, the certificate shall be stamped accordingly. If the Corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences, and limitations
applicable to each class and the variations in rights, preferences and
limitations determined for each series, and the authority of the Board of
Directors to determine variations for future series, must be summarized on the
front or back of each certificate, or alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder this information on request in writing and without charge.
Notwithstanding the foregoing, the Board of Directors may authorize the issue of
some or all of the shares of any or all classes or series of capital stock of
the Corporation without certificates in accordance with the provisions of the
Act.
Section 5.2. Record Holders. The Corporation shall be entitled to treat the
person in whose name any share of stock of the Corporation, or any warrant,
right or option to acquire stock of the Corporation, is registered in the
records of the Corporation as the owner thereof for all purposes and shall not
be bound to recognize any equitable or other claim to, or interest in, such
share, warrant, right or option on the part of any other person, whether or not
the Corporation shall have notice thereof, except as may be expressly provided
otherwise by law, the Articles of Incorporation, or these By-Laws. In no event
shall any transferee of shares of the Corporation become a shareholder of the
Corporation until express notice of the transfer shall have been received by the
Corporation.
<PAGE>
Section 5.3. Transfer of Shares. Except as otherwise provided by law,
transfers of shares of the capital stock of the Corporation shall be made only
on the books of the Corporation by the record owner thereof in person, or by his
legal guardian or personal representative, or by his attorney-in-fact thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, upon payment of any and all taxes thereon and surrender to the
Secretary of the Corporation of the certificate or certificates for such shares,
properly endorsed by the holder thereof or accompanied by the proper evidence of
succession, assignment or authority to transfer satisfactory to the Corporation.
No restriction on the transfer or registration of transfer of shares of stock of
the Corporation shall be enforceable against a holder or transferee of such
shares who has no knowledge of such restriction, unless such restriction: (i) is
permitted by the Act and all other applicable laws, and (ii) is noted
conspicuously on the front or back of the certificates for such shares, or is
contained in the information statement required by the Act with respect to any
shares issued without certificates.
Section 5.4. Lost, Destroyed and Stolen Certificates. If any certificate
for shares becomes worn, defaced, or mutilated, but is still substantially
intact and recognizable, the Directors, upon production and surrender thereof,
shall order it cancelled and a new certificate issued in lieu of it. The holder
of any shares shall immediately notify the Corporation if a certificate therefor
shall be lost, stolen, destroyed, or mutilated beyond recognition, and the
Corporation may issue a new certificate in the place of any certificate
theretofore issued by it which is alleged to have been lost, stolen, destroyed
or mutilated beyond recognition. The Board of Directors may, in its discretion,
require the owner of the certificate which is alleged to have been lost, stolen,
destroyed or mutilated beyond recognition, or his legal representative, to
furnish an affidavit as to such loss, theft or destruction and/or give the
Corporation a bond with such surety or sureties, and in such sum, as it may
direct, to indemnify the Corporation and its Directors and officers against any
claim that may be made against it or any of them on account of the issuance of
such new certificate in place of the allegedly lost, stolen, destroyed or
mutilated certificate. The Board of Directors may, however, if it so chooses,
refuse to issue any such new certificate except pursuant to the order of a court
having jurisdiction in such matter.
Section 5.5. Transfer Agent. The Board of Directors may appoint a transfer
agent and a registrar for each class of capital stock of the Corporation and may
require all certificates representing such shares to bear the signature of such
transfer agent and registrar. Each shareholder shall be responsible for
notifying in writing the transfer agent and registrar for the class of stock
held by such shareholder of any changes in such shareholder's address from time
to time, and the failure to do so shall relieve the Corporation, its
shareholders, Directors, officers, transfer agent and registrar of any liability
arising from the failure to direct notices, dividends or other documents or
property to an address other than the one appearing upon the records of the
transfer agent and registrar of the Corporation.
<PAGE>
Section 5.6. Regulations. The Board of Directors may adopt such rules and
regulations as it may deem expedient, not inconsistent with the law, the
Articles of Incorporation, or these Bylaws, regarding the issue, transfer, and
registration or the replacement of certificates for shares of the capital stock
of the Corporation.
ARTICLE VI
EXECUTION OF CONTRACTS, CHECKS AND NOTES
AND OTHER ACTIONS ON BEHALF OF THE CORPORATION
Section 6.1. Execution of Ordinary Contracts and Agreements. All written
contracts and agreements into which the Corporation enters in the ordinary
course of its business shall be executed on behalf of the Corporation by any
duly elected officer of the Corporation or by any other employee or agent of the
Corporation expressly authorized by resolution of the Board of Directors to
execute any such contracts and agreements.
Section 6.2. Execution of Deeds, Mortgages, Notes and Non-ordinary
Contracts and Agreements. Unless otherwise required by law, all deeds,
mortgages, deeds of trust, notes, assignments and other instruments made by the
Corporation and all written contracts and agreements entered into by the
Corporation, other than those contracts and agreements entered into in the
ordinary course of its business, shall be executed on behalf of the Corporation
by the President of the Corporation and, when required, attested by the
Secretary or an Assistant Secretary of the Corporation; provided, however, that
the Board of Directors may expressly authorize by resolution any officer,
employee, or agent of the Corporation to execute any such deed, mortgage,
assignment, instrument, contract or agreement on behalf of the Corporation
singly and without the necessity of any additional execution or attestation by
any other officer of the Corporation.
Section 6.3. Execution and Endorsement of Checks and Drafts. Unless
otherwise required by law, all checks, drafts, bills of exchange and other
orders for the payment of money (other than notes) by or to the Corporation
shall be executed or endorsed on behalf of the Corporation by any two of the
following duly elected officers of the Corporation: President, Vice President,
Treasurer or Secretary. However, the Board of Directors may expressly authorize
by resolution any one or more officers or other employees of the Corporation to
execute or endorse any checks, drafts, or other orders for the payment of money
on behalf of the Corporation, singly and without any additional signature,
endorsement or attestation by any other officer of the Corporation.
Section 6.4. Endorsement of Stock Certificates. Unless otherwise directed
by resolution of the Board of Directors, any stock certificate or certificates
representing shares of stock of any corporation owned by the Corporation,
including shares of the Corporation reacquired by the Corporation, shall, for
the purpose of sale or transfer thereof, be endorsed on behalf of the
Corporation by the President or any vice President and, when required, attested
by the Secretary or an Assistant Secretary.
<PAGE>
Section 6.5. Voting of Shares Owned by Corporation. Unless otherwise
directed by resolution of the Board of Directors, any shares of stock of any
corporation owned or controlled by the Corporation (other than shares of the
Corporation) may be voted at any shareholders' meeting of such corporation by
the President of the Corporation, if he is present at such meeting, or in his
absence, by the Secretary of the Corporation. Whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or give a
shareholders' consent in respect to any such shares of a corporation owned by
the Corporation, such proxy or consent shall be executed in the name of the
Corporation by the President or the Secretary of the Corporation. Any person or
persons designated in the manner above stated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote such shares of a
corporation owned by the Corporation in the same manner as such shares might be
voted by the Corporation.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Corporate Seal. The Board of Directors of the Corporation may
designate the design and cause the Corporation to obtain and use a corporate
seal. The Corporation shall not be required to have a corporate seal or to use
any corporate seals it may have for any purpose whatsoever. The absence of the
impression of the corporate seal from any document shall not affect in any way
the validity or effect of such document.
Section 7.2. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of April in each year and end on the last day of March in each
year.
Section 7.3. Amendment of By-Laws. Except as otherwise provided by the
Articles of Incorporation or the Act, only the Board of Directors of the
Corporation may adopt, amend or repeal the By-Laws of the Corporation.
Section 7.4. Construction of By-Laws. In the event these By-Laws contain
any terms or provisions that are inconsistent or in conflict with any of the
terms or provisions of the Articles of Incorporation or with any provision of
the Act, such terms and provisions of the Articles of Incorporation or
provisions of the Act shall control and supersede such conflicting or
inconsistent terms and provisions of these By-Laws, but such conflict or
inconsistency shall not impair, nullify or otherwise affect the remaining terms
and provisions of these By-Laws which shall remain in full force and effect. The
captions at the beginning of the several Articles and Sections of these By-Laws
are not part of the context hereof, but are merely labels to assist in locating
and reading those Articles and sections thereof, and such captions shall be
ignored in construing these By-Laws. Whenever used or appearing in these
By-Laws, pronouns of the masculine gender shall include the feminine and neuter
genders, and the singular shall include the plural wherever appropriate, unless
the context clearly indicates otherwise. As used in these By-Laws: (a) the "Act"
shall mean the Indiana Business Corporation Law, as then in effect and as
amended from time to time; (b) the "Articles of Incorporation" shall mean the
Articles of Incorporation of the Corporation as then in effect and as amended
from time to time; and (c) the "By-Laws" shall mean the By-Laws of the
Corporation as then in effect and as amended from time to time.
[END OF BY-LAWS]
ARTICLES OF AMENDMENT
Form BCA-10.30
(Rev. Jan. 1995)
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-1832
Remit payment in check or money order
payable to "Secretary of State"
The filing fee for articles of amendment - $25.00
1. CORPORATE NAME: NWS, Inc.
2. MANNER OF ADOPTION OF AMENDMENT:
[ ] The following amendment of the Articles of Incorporation was adopted on
December 22, 1995 in the manner indicated below. ("X" one box only)
[ ] By a majority of the incorporators, provided no directors were named in
the articles of incorporation and no directors have been elected;
[ ] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment;
[ ] By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment;
[ ] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment;
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required
by statute and by the articles of incorporation. Shareholders who have
not consented in writing have been given notice in accordance with
Section 7.10;
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by all the shareholders entitled to vote on this amendment.
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments. Article I: The name of the
corporation is:
(NEW NAME)
All changes other than name, include on page 2
(Over)
<PAGE>
Text of Amendment
b. (If amendment affects the corporate purpose, the amended purpose is
required to be set forth in its entirety. If there is not sufficient
space to do so, add one or more sheets of this size.)
SEE ATTACHMENT
<PAGE>
The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(If not applicable, insert "No change")
No change
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
No change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
No change
Before Amendment After Amendment
Paid-in Capital $ $
(Complete either Item 6 or 7 below. All signatures must be in BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the fact stated herein are true.
<TABLE>
<CAPTION>
<S> <C>
Dated: December 22, 1995 NWS, Inc.
---------------------------- -------------------------------
(Exact Name of Corporation at date
of execution)
attested by _______________ by ____________________
(Signature of Secretary or (Signature of President or
Assistant Sec.) Vice President
/s/NORMA JOHNSTON, SECRETARY /s/JAMES E. LaCROSSE, PRESIDENT
---------------------------- -------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors
as may be designated by the board, must sign below, and type or print name
and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated _______________, 19 ___
----------------------------- --------------------------
----------------------------- --------------------------
----------------------------- --------------------------
<PAGE>
NOTES and INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of the
office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected..
(ss. 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
seven instances, as follows:
(a) to remove the names and addresses of directors named in the
articles of incorporation;
(b) to remove to remove the name and address of the initial
registered agent and registered office, provided a statement
pursuant to ss. 5.10 is also filed;
(c) to increase, decrease, create or eliminate the par value of the
shares of any class, so long as no class or series of shares is
adversely affected;
(d) to split the issued whole shares and unissued authorized shares
by multiplying them by a whole number, so long as no class or
series is adversely affected thereby;
(e) to change the corporate name by substituting the word
"corporation", "incorporated", "company", "limited", or the
abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word
or abbreviation in the name, or by adding a geographical
attribution to the name;
(f) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with ss. 9.05; or
(g) to restate the articles of incorporation as currently amended.
(ss. 10.15)
NOTE 4: All amendments not adopted under ss.10.10 or ss. 10.15 require (1) that
the board of directors adopt a resolution setting forth the proposed
amendment and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supersede the 2/3 vote
requirement by specifying any smaller or larger vote requirement not
less than a majority of the outstanding shares entitled to vote and
not less than a majority within each class when class voting applies.
(ss. 10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must be given
notice of the proposed amendment at least 5 days before the consent is
signed. If the amendment is adopted, shareholders who have not signed
the consent must be promptly notified of the passage of the amendment.
(ss.ss. 7.10 & 10.20)
C-173.9
<PAGE>
ATTACHMENT TO ARTICLES OF AMENDMENT
FOR NWS, INC, DATED DECEMBER 22, 1995
The Articles of Incorporation of NWS, Inc. shall be amended ** and restated
as follows:
A. 1. The corporate name is: NWS, Inc.
2. Registered agent: Andrew D. James
Registered office: 225 W. Washington Street
Suite 2400
Chicago, Illinois 60606
3. The purposes for which the corporation is organized are the
transaction of any or all lawful business for which corporations
may be incorporated under the Illinois Business Corporation
Act of 1983, as amended.
4.** Paragraph 1: Authorized Shares, Issued Shares and Consideration
Received.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of
Par Value Shares Number of
Class Per Share Authorized Shares Issued Paid-In-Capital
- ----- --------- ---------- ------------- ---------------
Common Voting $.01 200,000 88,256* $16,757,780.00*
Common Non-voting $.01 10,000,000 0
--------- ---------- ------------- ---------------
TOTAL 10,200,000 88,256* $16,757,780.00*
<FN>
*Issued Shares and Paid-in-Capital on record with Secretary of State is
currently 66,909 and $12,701,850.00, respectively; the difference being
additional shares issued and paid-in capital received during the current
anniversary year, which will be reported on Form 14.30 with the corporation's
Annual Report due on June 1, 1996.
**Denotes provisions being amended.
</FN>
</TABLE>
Paragraph2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
Cumulative voting rights shall be denied. The terms, preferences,
limitations and relative rights of shares of Voting Common Stock and shares of
Non-voting Common Stock, including rights to distribution and liquidation
proceeds, shall be identical, as provided by the Illinois Business Corporation
Act of 1983, as amended, except that: (i) the holders of the outstanding shares
of Voting Common Stock shall have exclusive and unlimited voting rights and
shall be entitled to one (1) vote per share on each matter submitted, or
required to be submitted, to a vote of the shareholders of the corporation, and
(ii) the holders of the outstanding shares of the Non-voting Common Stock shall
not be entitled to any voting rights and shall not be entitled to any notice of
any meetings of the shareholders or to any notice of any other action requiring
the vote, consent, approval or other action of the shareholders of the
Corporation, except as expressly required otherwise by the Illinois Business
Corporation Act of 1983, as amended.
B. The date of incorporation of NWS, Inc. is June 14, 1991.
BY-LAWS
OF
NWS, INC.
ARTICLE I
OFFICES
SECTION 1.1 Illinois Registered Office. The corporation shall continuously
maintain in the State of Illinois a registered office and registered agent whose
office is identical with such registered office.
SECTION 1.2 Other Offices. The corporation may have other offices within or
without the state.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 Annual Meeting. An annual meeting of the shareholders shall be
held on the 1st Thursday in April of each year for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
SECTION 2.2 Special Meetings. Special meetings of the shareholders may be
called either by the president, the board of directors or by the holders of a
majority of all outstanding shares of the corporation, for the purpose or
purposes stated in the call of the meeting.
SECTION 2.3 Place of Meeting. The board of directors may designate any
place as the place of meeting for any annual meeting or for any special meeting
called by the board of directors.
SECTION 2.4 Informal Action By Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed
(a) by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voting, or
(b) by all of the shareholders entitled to vote with respect to the
subject matter thereof.
<PAGE>
If such consent is signed by less than all of the shareholders entitled to
vote, then such consent shall become effective only if at least five days prior
to the execution of the consent a notice in writing is delivered to all the
shareholders entitled to vote with respect to the subject matter thereof and,
after the effective date of the consent, prompt notice of the taking of the
corporation action without a meeting by less than unanimous written consent
shall be delivered in writing to those shareholders who have not consented in
writing.
SECTION 2.5 Notice of Meetings. Written notice stating the place, date and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets, not less than twenty nor more than sixty days before the meeting, either
personally or by mail, by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited with the United States Postal Service, addressed
to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 2.6 Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors of the corporation may fix in
advance a record date which shall not be more than sixty days and, for a meeting
of shareholders, not less than ten days, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets,
not less than twenty days, immediately preceding the date of such meeting. If no
record date is fixed, the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders shall be the date
on which notice of the meeting is mailed, and the record date for the
determination of shareholders for any other purpose shall be the date on which
the board of directors adopts the resolution relating thereto. A determination
of shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting.
SECTION 2.7 Voting Lists. The officer or agent having charge of the
transfer books for shares of the corporation shall make, within twenty days
after record date or ten days before each meeting of shareholders, whichever is
earlier, a complete list of the shareholders entitled to vote at such meeting,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of the shareholder, which list, for a period of ten days
prior to such meeting, shall be kept on file at the registered office of the
corporation and shall be open to inspection by any shareholder for any purpose
germane to the meeting, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and may be
inspected by any shareholder during the whole time of the meeting. The original
share ledger or transfer book, or a duplicate thereof kept in this State, shall
be prima facie evidence as to who are the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting of shareholders.
<PAGE>
SECTION 2.8 Voting of Shares. Except as otherwise provided in the articles
of incorporation or these by-laws, each outstanding share, regardless of class,
shall be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders.
SECTION 2.9 Voting of Shares by Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as the by-laws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation may
determine.
(a) Shares standing in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his administrator, executor, court
appointed guardian, or conservator, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor,
court appointed guardian, or conservator. Shares standing in the name of a
trustee may be voted by him, either in person or by proxy.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by
which such receiver was appointed.
(c) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their share, for a period not to exceed ten years, by
entering into a written voting trust agreement specifying the terms and
conditions of the voting trust, and by transferring their shares to such
trustee or trustees for the purpose of the agreement. Any such trust
agreement shall not become effective until a counterpart of the agreement
is deposited with the corporation at its registered office. The counterpart
of the voting trust agreement so deposited with the corporation shall be
subject to the same right of examination by a shareholder of the
corporation, in person or by agent or attorney, as are the books and
records of the corporation, and shall be subject to examination by any
holder of a beneficial interest in the voting trust, either in person or by
agent or attorney, at any reasonable time for any proper purpose.
(e) Shareholders may provide for the voting of their shares by signing
an agreement for that purpose. A voting agreement under this subsection is
not subject to the provisions of subsection (d) above.
<PAGE>
(f) Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but
shares of its own stock held by it in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares at
any given time.
SECTION 2.10 Proxies. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 2.11 Quorum. The holders of a majority of the outstanding shares of
the corporation, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders; provided that if less than a majority of
the outstanding shares are represented at said meeting, a majority of the shares
so represented may adjourn the meeting at any time without further notice. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by the Illinois Business
Corporation Act of 1983, as amended, the articles of incorporation, or these
by-laws. At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the original
meeting. Withdrawal of shareholders from any meeting shall not cause failure of
a duly constituted quorum at that meeting.
SECTION 2.12 Inspectors. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
(a) Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity
and effect of proxies; count all votes and report the results; and do such
other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
(b) Each report of an inspector shall be in writing and signed by him
or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or
inspectors on the number of shares represented at the meeting and the
results of the voting shall be prima facie evidence thereof.
SECTION 2.13 Voting By Ballot. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.1 General Powers. The business of the corporation shall be
managed by, or under the direction of, its board of directors.
SECTION 3.2 Number, Tenure and Qualifications. The number of directors of
the corporation shall be three (3). Each director shall hold office until the
next annual meeting of shareholders or, thereafter, until his successor shall
have been elected. Directors need not be residents of Illinois or shareholders
of the corporation. The number of directors may be increased or decreased from
time to time by the amendment of this section; but no decrease shall have the
effect of shortening the term of any incumbent director. A director may resign
at any time by giving written notice to the board of directors, its chairman, or
to the president or secretary of the corporation. A resignation is effective
when the notice is given unless the notice specifies a future date. The pending
vacancy may be filled before the effective date, but the successor shall not
take office until the effective date.
SECTION 3.3 Quorum. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 3.4 Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 3.5 Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 3.6 Special Meetings. Special meetings of the board of directors
may be called by or at the request of the president or any one or more
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place as the place for holding any special
meeting of the board of directors called by them.
SECTION 3.7 Notice. Notice of any special meeting shall be given at least
two (2) days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
with the United States Postal Service so addressed, with postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegram company. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be specified
in the notice or waiver of notice of such meeting.
<PAGE>
SECTION 3.8 Vacancies. Any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors, may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
SECTION 3.9 Removal of Directors. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors, except as follows:
(a) No director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is to
vote upon the removal of one or more directors named in the notice. Only
the named director or directors may be removed at such meeting.
(b) If a director is elected by a class or series of shares, he or she
may be removed only by the shareholders of that class or series.
SECTION 3.10 Committees. A majority of the directors may create one or more
committees and appoint members of the board to serve on the committee or
committees. Each committee shall have two or more members, who serve at the
pleasure of the board. Unless the appointment by the board of directors requires
a greater number, a majority of any committee shall constitute a quorum and a
majority of a quorum is necessary for committee action.
To the extent specified by the board of directors, each committee may
exercise the authority of the board of directors in the management of the
corporation, except as otherwise prohibited by law. Vacancies in the membership
of any committee shall be filled by the board of directors at a regular or
special meeting of the board. The committees shall keep regular minutes of their
proceedings and report the same to the board when required.
SECTION 3.11 Action Without a Meeting. Any action required to be taken at a
meeting of the board of directors, or any other action which may be taken at a
meeting of the board of directors, or of any committee thereof may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote, and may be stated as
such in any document filed with the Secretary of State or with anyone else.
<PAGE>
SECTION 3.12 Compensation. The board of directors, by the affirmative vote
of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13 Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
ARTICLE IV
OFFICERS
SECTION 4.1 Number. The officers of the corporation shall be a president, a
secretary, a treasurer, a vice president, and, if desired, any number of vice
presidents, treasurers, assistant treasurers, assistant secretaries or other
officers as may be elected by the board of directors. Any two or more offices
may be held by the same person.
SECTION 4.2 Election and Term of Office. The officers of the corporation
shall be elected or appointed annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
of an officer shall not of itself create contract rights.
SECTION 4.3 Removal. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4.4 President. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board of
directors, the president shall be in charge of the business of the corporation;
shall see that the resolutions and directions of the board of directors are
carried into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, shall discharge all duties incident to the office of president and such
other duties as may be prescribed by the board of directors from time to time.
The president shall preside at all meetings of the shareholders and of the board
of directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, the president may execute for the corporation certificates for
its shares, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, and the president
may accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument. He may vote all
securities which the corporation is entitled to vote except as and to the extent
such authority shall be vested in a different officer or agent of the
corporation by the board of directors.
<PAGE>
SECTION 4.5 The Vice-Presidents. The vice-president (or in the event there
be more than one vice-president, each of the vice-presidents) shall assist the
president in the discharge of duties as the president may direct and shall
perform such other duties as from time to time may be assigned to the
vice-president by the president or by the board of directors. In the absence of
the president or in the event of his inability or refusal to act, the
vice-president (or in the event there be more than one vice-president, the
vice-presidents in the order designated by the board of directors, or by the
president if the board of directors has not made such a designation, or in the
absence of any designation, then in the order of seniority of tenure as
vice-president) shall perform the duties of the president, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, the vice-president (or each of them if there are more than one)
may execute for the corporation certificates for its shares and any contracts,
deeds, mortgages, bonds or other instruments which the board of directors has
authorized to be executed, and may accomplish such execution either under or
without the seal of the corporation and either individually or with the
secretary, any assistant secretary, or any other officer thereunto authorized by
the board of directors, according to the requirements of the form of the
instrument.
SECTION 4.6 The Treasurer. The treasurer shall be the principal accounting
and financial officer of the corporation. The treasurer shall:
(a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation;
(b) have charge and custody of all funds and securities of the
corporation, and be responsible therefore and for the receipt and
disbursement thereof; and
(c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the
president or by the board of directors.
<PAGE>
If required by the board of directors, the treasurer shall give a bond for the
faithful discharge of the treasurer's duties in such sum and with such surety or
sureties as the board of directors may determine.
SECTION 4.7 The Secretary. The secretary shall:
(a) record the minutes of the shareholders' and of the board of
directors' meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation;
(d) keep a register of the post-office address of each shareholder
which shall be furnished to the secretary by such shareholder;
(e) sign with the president, or a vice-president, or any other officer
thereunto authorized by the board of directors, certificates for shares of
the corporation, the issue of which shall have been authorized by the board
of directors, and any contracts, deeds mortgages, bonds, or other
instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of
directors or these by-laws;
(f) otherwise certify the by-laws, resolutions of the shareholders and
board of directors and committees thereof, and other documents of the
corporation as true and correct copies thereof;
(g) have general charge of the stock transfer books of the
corporation; and
(h) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
SECTION 4.8 Assistant Treasurers and Assistant Secretaries. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors. The assistant secretaries may sign with the
president, or a vice-president, or any other officer thereunto authorized by the
board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly proscribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
<PAGE>
SECTION 4.9 Salaries. The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1 Contracts. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 5.2 Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 5.3 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the board of directors.
SECTION 5.4 Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Shares. Certificates representing shares of
the corporation shall be signed by the president or a vice-president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and shall be sealed with the seal or a
facsimile of the seal of the corporation. If both of the signatures of the
officers be by facsimile, the certificate shall be manually signed by or on
behalf of a duly authorized transfer agent or clerk. Each certificate
representing shares shall be consecutively numbered or otherwise identified, and
shall also state the name of the person to whom issued, the number and class of
shares (with designation of series, if any), the date of issue, and that the
corporation is organized under Illinois law. If the corporation is authorized
and does issue shares of more than one class or of series within a class, the
certificate shall also contain such information or statement as may be required
by law. The name and address of each shareholder, the number and class of shares
held and the date on which the certificates for the shares were issued shall be
entered on the books of the corporation. The person in whose name shares stand
an the books of the corporation shall be deemed the owner thereof for all
purposes as regard the corporation.
<PAGE>
SECTION 6.2 Lost Certificates. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 6.3 Transfers of Shares. Transfers of shares of the corporation
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective.
ARTICLE VII
FISCAL YEAR
SECTION 7.1 Resolution of Directors. The fiscal year of the corporation
shall be fixed by resolution of the board of directors.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8.1 Distributions to Shareholders. The board of directors may
authorize, and the corporation may make, distributions to its shareholders,
subject to any restriction in the articles of incorporation and subject also to
the limitations of subsection (b) of this Section.
(a) The record date for determining shareholders entitled to a
distribution is the date of the resolution of the board of directors
authorizing the distribution, if not otherwise determined under Section
7.25 of the Illinois Business Corporation Act of 1983, as amended.
(b) No distribution may be made if, after giving it effect:
(1) the corporation would be insolvent; or
(2) the net assets of the corporation would be less than zero or
less than the maximum amount payable at the time of distribution to
shareholders having preferential rights in liquidation if the
corporation were then to be liquidated.
<PAGE>
(c) The board of directors may base a determination that a
distribution may be made under subsection (b) either on financial
statements prepared on the basis of accounting practices and principles
that are reasonable in the circumstances or on a fair valuation or other
method that is reasonable in the circumstances.
(d) The effect of a distribution under subsection (b) is measured as
of the earlier of:
(1) the date of its authorization if payment occurs within 120
days after the date of authorization or the date of payment if payment
occurs more than 120 days after the date of authorization; or
(2) in the case of distribution by purchase, redemption, or other
acquisition of the corporation's shares, the earlier of (i) the date
money or other property is transferred or debt incurred by the
corporation or (ii) the date shareholders cease to be shareholders.
ARTICLE IX
WAIVER OF NOTICE
SECTION 9.1 Waiver in Lieu of Notice. Whenever any notice is required to be
given under the provisions of these by-laws or under the provisions of the
articles of incorporation or under the provisions of The Business Corporation
Act of the State of Illinois, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance at
any meeting shall constitute waiver of notice thereof unless the person at the
meeting objects to the holding of the meeting because notice was not given.
ARTICLE X
AMENDMENTS
SECTION 10.1 Determined by Directors. The by-laws of the corporation may be
made, altered, amended or repealed by the shareholders or the board of
directors, but no by-law adopted by the shareholders may be altered, amended or
repealed by the board of directors. The by-laws may contain any provisions for
the regulation and management of the affairs of the corporation not inconsistent
with law or the articles of incorporation.
<PAGE>
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 11.1 Power to Hold Harmless. The 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, 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 he or she is or was a
director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment or 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 he or she reasonably believed to be in or not opposed to the best
interest of the corporation, or with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 11.2 Power to Indemnify Litigant. The 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 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,
of is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such persons shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her 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 as the
court shall deem proper.
SECTION 11.3 Reimbursement Authorized. To the extent that a director,
officer, employee, or agent of a corporation has been successful, on the merits
or otherwise, in defense of any action, suit or proceeding referred to in
Sections 11.1 and 11.2 above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
<PAGE>
SECTION 11.4 Determination if Reimbursement is Proper. Any indemnification
under Sections 11.1 and 11.2 above (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case, upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Sections 11.1 or 11.2 above. Such determination shall be made:
(a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or
(b) if such a quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or
(c) by the shareholders.
SECTION 11.5 Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding, as authorized by the
board of directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount, unless
it shall ultimately be determined that he or she is entitled to be indemnified
by the corporation as authorized in this Article.
SECTION 11.6 Non-Exclusivity. The indemnification provided by this Article
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any contract, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 11.7 Right to Acquire Insurance. The corporation shall have power
to purchase and maintain insurance on behalf of any person who 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 any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his or her status as such, whether or
not the corporation would have the power to indemnify him or her against such
liability under the provisions of this Article.
SECTION 11.8 Notice to Shareholders. If a corporation has paid indemnity or
has advanced expenses to a director, officer, employee or agent, the corporation
shall report the indemnification or advance in writing to the shareholders with
or before the notice of the next shareholders meeting.
SECTION 11.9 "Corporation" Definition. For purposes of this Article,
references to the "corporation" shall include, in addition to the surviving
corporation, any merging corporation (including any corporation having merged
with a merging corporation) absorbed in a merger which, if its separate
existence had continued, would have had the power and authority to indemnify its
directors, officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was serving
at the request of such merging corporation as a director, officer, employee or
agent of an other corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
(FOR BUREAU USE ONLY) FILED Date Received
OCT 21 1996 Oct 21 1996
EFFECTIVE DATE:
CORPORATION IDENTIFICATION NUMBER 426-410
ARTICLE OF INCORPORATION
OF
NWS MICHIGAN, INC.
These Articles of Incorporation are executed by the undersigned for the
purpose of forming a profit corporation pursuant to the provisions of the Act
284, Public Acts of 1972, as amended.
ARTICLE I
The name of the corporation is: NWS MICHIGAN, INC.
ARTICLE II
The purpose for which the corporation is formed is to engage in any
activity within the purposes for which corporations may be famed under the
Business Corporation Act of Michigan, as it may be amended from time to time.
ARTICLE III
Total authorized shares: 60,000 Common Shares.
ARTICLE IV
The address of the registered office is:
400 Renaissance Center
Detroit, Michigan 48243
The mailing address of the registered office if different than above is:
Same as above.
The name of the resident agent at the registered office is: Barbara Kaye,
Esq.
<PAGE>
ARTICLE V
The name and address of the incorporator is as follows:
<TABLE>
<CAPTION>
<S> <C>
NAME RESIDENCE OR BUSINESS ADDRESS
Barbara Kaye, Esq. 400 Renaissance Center
Detroit, Michigan 48243
</TABLE>
ARTICLE VI
To the full extent permitted by the Michigan Business Corporation Act or
any other applicable laws presently or hereafter in effect, no director of the
corporation shall be personally liable to the corporation or its shareholders
for or with respect to any acts or omissions in the performance of his or her
duties as a director of the corporation. Any repeal or modification of this
Article VI shall not adversely affect any right or protection of a director of
the corporation existing immediately prior to, or for or with respect to any
acts or omissions occurring before, such repeal or modification.
ARTICLE VII
Any action required or permitted by the Michigan Business Corporation Act
to be taken at an annual or special meeting of shareholders may be taken without
a meeting, without prior notice, and without a vote, if before or after the
action, consents in writing, setting forth the action so taken are signed by the
holders of the corporation's shares having not less that the minimum number of
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote on the action were present and voted.
ARTICLE VIII
When a compromise or arrangement or a plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them, a
court of equity jurisdiction within the State, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or a reorganization, agree to a compromise, arrangement or a
reorganization of this corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if sanctioned
by the court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders and also on this corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the incorporator of the above-named
corporation has executed these Articles of Incorporation on this 18th day of
October, 1996.
/s/ Barbara Kaye
---------------------------------------
Barbara Kaye, Esq.
Prepared by and after filing return to:
Barbara Kaye, Esq.
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243
BYLAWS
of
NWS MICHIGAN, INC.
- -----------------------------------------------------
OCTOBER, 1996
<PAGE>
BYLAWS
OF
NWS MICHIGAN, INC.
ARTICLE I
OFFICES
1.01 Principal Office. The principal Office of NWS Michigan, Inc. (the
"Corporation") shall be at such place within the State of Michigan as the Board
of Directors shall determine from time to time.
1.02 Other Offices. The Corporation also may have offices at such other
places as the Board of Directors from time to time determines or the business of
the Corporation requires.
ARTICLE II
SEAL
2.01 Seal. The Corporation may have a seal in such form as the Board of
Directors may from time to time determine. The seal may be used by causing it or
a facsimile to be impressed, affixed, reproduced or otherwise.
ARTICLE III
CAPITAL STOCK
3.01 Issuance of Shares. The shares of capital stock of the Corporation
shall be issued in such amounts, at such times, for such consideration and on
such terms and conditions as the Board shall deem advisable, subject to the
Articles of Incorporation and any requirements of the laws of the State of
Michigan.
3.02 Certificates for Shares. The shares of the Corporation shall be
represented by certificates signed by the Chairman of the Board, President or a
Vice President and also may be signed by the Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary of the Corporation, and may be sealed with the
seal of the Corporation or a facsimile thereof. A certificate representing
shares shall state upon its face that the corporation is formed under the laws
of the State of Michigan, the name of the person to whom it is issued, the
number and class of shares, and the designation of the series, if any, which the
certificate represents, and such other provisions as may be required by the laws
of the State of Michigan.
<PAGE>
3.03 Transfer of Shares. The shares of the capital stock of the Corporation
are transferable only on the books of the Corporation upon surrender of the
certificate therefor, properly endorsed for transfer, and the presentation of
such evidences of ownership and validity of the assignment as the Corporation
may require.
3.04 Registered Shareholders. The Corporation shall be entitled to treat
the person in whose name any share of stock is registered as the owner thereof
for purposes of dividends and other distributions in the course of business, or
in the course of recapitalization, merger, plan of share exchange,
reorganization, sale of assets, liquidation or otherwise and for the purpose of
votes, approvals and consents by shareholders, and for the purpose of notices to
shareholders, and for all other purposes whatever, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have notice thereof,
save an expressly required by the laws of the State of Michigan.
3.05 Lost or Destroyed Certificates. Upon the presentation to the
Corporation of a proper affidavit attesting the loss, destruction or mutilation
of any certificate or certificates for shares of stock of the Corporation, the
Board of Directors shall direct the issuance of a new certificate or certi
ficates to replace the certificates so alleged to be lost, destroyed or
mutilated. The Board of Directors may require as a condition precedent to the
issuance of new certificates a bond or agreement of indemnity, in such form and
amount and with such sureties, or without sureties, as the Board of Directors
may direct or approve.
ARTICLE IV
SHAREHOLDERS AND MEETINGS OF SHAREHOLDERS
4.01 Place of Meetings. All meetings of shareholders shall be held at the
principal office of the Corporation or at such other place as shall be
determined by the Board of Directors and stated in the notice of meeting.
4.02 Annual Meeting. The annual meeting of the shareholders of the
Corporation shall be held during the fourth month after the end of the
Corporation's fiscal year, or at such time as the Board of Directors shall from
time to time determine. Directors shall be elected at each annual meeting and
such other business transacted as may come before the meeting.
4.03 Special Meetings. Special meetings of shareholders may be called by
the Board of Directors, the Chairman of the Board (if such office is filled) or
the President and shall be called by the President or Secretary at the written
request of shareholders holding a majority of the shares of stock of the
Corporation outstanding and entitled to vote. The request shall state the
purpose or purposes for which the meeting is to be called.
4.04 Notice of Meetings. Except as otherwise provided by statute, written
notice of the time, place and purposes of a meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder of record entitled to vote at the meeting, either personally or
by mailing such notice to the shareholder's last address as it appears on the
books of the Corporation. No notice need be given of an adjourned meeting of the
shareholders provided the time and place to which such meeting is adjourned are
announced at the meeting at which the adjournment is taken and at the adjourned
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment a new record date is fixed
for the adjourned meeting a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice as provided
in this Bylaw.
<PAGE>
4.05 Record Dates. The Board of Directors may fix in advance a date as the
record date for the purpose of determining shareholders entitled to notice of
and to vote at a meeting of shareholders or an adjournment thereof, or to
express consent or to dissent from a proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of a dividend or
allotment of a right, or for the purpose of any other action. The date fixed
shall not be more than 60 nor less than 10 days before the date of the meeting,
nor more then 60 days before any other action. In such case only such
shareholders as shall be shareholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting or adjournment thereof, or to
express consent or to dissent from such proposal, or to receive payment of such
dividend or to receive such allotment of rights or to participate in any other
action, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation, or otherwise, after any such record date. Nothing in
this Bylaw shall affect the rights of a shareholder and the shareholder's
transferee or transferor as between themselves.
4.06 List of Shareholders. The Secretary of the Corporation or the agent of
the Corporation having charge of the stock transfer records for shares of the
Corporation shall make and certify a complete list of the shareholders entitled
to vote at a shareholders' meeting or any adjournment thereof. The list shall be
arranged alphabetically within each class and series, with the address of, and
the number of shares held by, each shareholder; be produced at the time and
place of the meeting; be subject to inspection by any shareholder during the
whole time of the meeting; and be prima facie evidence as to who are the
shareholders entitled to examine the list or vote at the meeting.
4.07 Quorum. Unless a greater or lesser quorum is required in the Articles
of Incorporation or by the laws of the State of Michigan, the shareholders
present at a meeting in person or by proxy who, as of the record date for such
meeting, were holders of a majority of the outstanding shares of the Corporation
entitled to vote at the meeting shall constitute a quorum at the meeting.
Whether or not a quorum is present, a meeting of shareholders may be adjourned
by a vote of the shares present in person or by proxy. When the holders of a
class or series of shares are entitled to vote separately on an item of
business, this Bylaw applies in determining the presence of a quorum of such
class or series for transaction of such item of business.
4.08 Proxies. A shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting may authorize other persons
to act for the shareholder by proxy. A proxy shall be signed by the shareholder
or the shareholder's authorized agent or representative and shall not be valid
after the expiration of three years from its date unless otherwise provided in
the proxy. A proxy is revocable at the pleasure of the shareholder executing it
except as otherwise provided by the laws of the State of Michigan.
<PAGE>
4.09 Voting. Each outstanding share is entitled to one vote on each matter
submitted to a vote, unless otherwise provided in the Articles of Incorporation.
Votes may be cast orally or in writing, but if more than 25 shareholders of
record are entitled to vote, then votes shall be cast in writing signed by the
shareholder or the shareholder's proxy. When an action, other than the election
of directors, is to be taken by a vote of the shareholders, it shall be
authorized by a majority of the votes cast by the holders of shares entitled to
vote thereon, unless a greater vote is required by the Articles of Incorporation
or by the laws of the State of Michigan. Except as otherwise provided by the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast at any election.
ARTICLE V
DIRECTORS
5.01 Number. The business and affairs of the Corporation shall be managed
by a Board of not less than one nor more than five directors as shall be fixed
from time to time by the Board of Directors. The directors need not be residents
of Michigan or shareholders of the Corporation.
5.02 Election, Resignation and Removal. Directors shall be elected at each
annual meeting of the shareholders, each to hold office until the next annual
meeting of shareholders and until the director's successor is elected and
qualified, or until the director's resignation or removal. A director may resign
by written notice to the Corporation. The resignation is effective upon its
receipt by the Corporation or a subsequent time and set forth in the notice of
resignation. A director or the entire Board of Directors may be removed, with or
without cause, by vote of the holders of a majority of the shares entitled to
vote at an election of directors.
5.03 Vacancies. Vacancies in the Board of Directors occurring by reason of
death, resignation, removal, increase in the number of directors or otherwise
shall be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless filled by proper
action of the shareholders of the Corporation. Each person so elected shall be a
director for a term of office continuing only until the next election of
directors by the shareholders. A vacancy that will occur at a specific date, by
reason of a resignation effective at a later date or otherwise, may be filled
before the vacancy occurs, but the newly elected director may not take office
until the vacancy occurs.
5.04 Annual Meeting. The Board of Directors shall meet each year
immediately after the annual meeting of the shareholders, or within three days
of such time excluding Sundays and legal holidays if such later time is deemed
advisable, at the place where such meeting of the shareholders has been held or
such other place as the Board may determine, for the purpose of election of
officers and consideration of such business that may properly be brought before
the meeting; provided, that if less than a majority of the directors appear for
an annual meeting of the Board of Directors the holding of such annual meeting
shall not be required and the matters which might have been taken up therein may
be taken up at any later special or annual meeting, or by consent resolution.
<PAGE>
5.05 Regular and Special Meetings. Regular meetings of the Board of
Directors may be held at such times and places as the majority of the directors
may from time to time determine at a prior meeting or as shall be directed or
approved by the vote or written consent of all the directors. Special meetings
of the Board May be called by the Chairman of the Board (if such office is
filled) or the President and shall be called by the President or Secretary upon
the written request of any two directors.
5.06 Notices. No notice shall be required for annual or regular meetings of
the Board or for adjourned meetings, whether regular or special. Three days'
written notice shall be given for special meetings of the Board, and such notice
shall state the time, place and purpose or purposes of the meeting.
5.07 Quorum and Voting. A majority of the Board of Directors then in
office, or of the members of a committee thereof, constitutes a quorum for the
transaction of business. The vote of a majority of the directors present at any
meeting at which there is a quorum shall be the acts of the Board or of the
committee, except as a larger vote may be required by the laws of the State of
Michigan. A member of the Board or of a committee designated by the Board may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can communicate with each other. Participation in a meeting in this
manner constitutes presence in person at the meeting.
5.08 Executive and Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, appoint three or more
members of the Board as an executive committee to exercise all powers and
authorities of the Board in management of the business and affairs of the
Corporation, except that the committee shall not have power or authority to (a)
amend the Articles of Incorporation; (b) adopt an agreement of merger or
consolidation; (c) recommend to shareholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets; (d) recommend to
shareholders a dissolution of the Corporation or revocation of a dissolution;
(e) amend these Bylaws; (f) fill vacancies in the Board; or (g) unless expressly
authorized by the Board, declare a dividend or authorize the issuance of stock.
The Board of Directors from time to time may, by like resolution, appoint
such other committees of one or more directors to have such authority as shall
be specified by the Board in the resolution making such appointments. The Board
of Directors may designate one or more directors as alternate members of any
committee who may replace an absent or disqualified member at any meeting
thereof.
<PAGE>
5.09 Dissents. A director who is present at a meeting of the Board of
Directors, or a committee thereof of which the director is a member, at which
action on a corporate matter is taken is presumed to have concurred in that
action unless the director's dissent is entered in the minutes of the meeting or
unless the director files a written dissent to the action with the person acting
as secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation promptly after
the adjournment of the meeting. Such right to dissent does not apply to a
director who voted in favor of such action. A director who is absent from a
meeting of the Board, or a committee thereof of which the director is a member,
at which any such action is taken in presumed to have concurred in the action
unless the director files a written dissent with the Secretary of the
Corporation within a reasonable time after the director has knowledge of the
action.
5.10 Compensation. The Board of Directors, by affirmative vote of a
majority of directors in office and irrespective of any personal interest of any
of them, may establish reasonable compensation of directors for services to the
Corporation as directors or officers.
ARTICLE VI
NOTICES, WAIVER OF NOTICE AND MANNER OF ACTING
6.01 Notices. All notices of meetings required to be given to shareholders,
directors or any committee of directors may be given by mail, telecopy,
telegram, radiogram or cablegram to any shareholder, director or committee
member at the addressee's last address an it appears on the books of the
Corporation. Such notice shall be deemed to be given at the time when the same
shall be mailed or otherwise dispatched.
6.02 Waiver of Notice. Notice of the time, place and purpose of any meeting
of shareholders, directors or committee of directors may be waived by telecopy,
telegram, radiogram, cablegram or other writing, either before or after the
meeting, or in such other manner as may be permitted by the laws of the State of
Michigan. Attendance of a person at any meeting of shareholders, in person or by
proxy or at any meeting of directors or of a committee of directors, constitutes
a waiver of notice of the meeting except as follows:
(a) In the case of a shareholder, unless the shareholder at the beginning
of the meeting objects to holding the meeting or transacting business at the
meeting for lack of notice, or unless with respect to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, the shareholder objects to considering the
matter when it is presented.
(b) In the case of a director, unless he or she at the beginning of the
meeting, or upon his or her arrival, objects to the meeting or the transacting
of business at the meeting and does not thereafter vote for or assent to any
action taken at the meeting.
<PAGE>
6.03 Action Without a Meeting. Except as may be provided otherwise in the
Articles of Incorporation for action to be taken by shareholders, any action
required or permitted at any meeting of shareholders or directors or committee
of directors may be taken without a meeting, without prior notice and without a
vote, if all of the shareholders or directors or committee members entitled to
vote thereon consent thereto in writing, before or after the action in taken.
ARTICLE VII
OFFICERS
7.01 Number. The Board of Directors shall elect or appoint a President, a
Secretary and a Treasurer, and may select a Chairman of the Board, and one or
more Vice Presidents, Assistant Secretaries or Assistant Treasurers. The
President and Chairman of the Board, if any, shall be members of the Board of
Directors. Any two or more of the above offices, except those of President and
Vice President, may be held by the same person. No officer shall execute,
acknowledge or verify an instrument in more than one capacity if the instrument
is required by law, the Articles of Incorporation or these Bylaws to be
executed, acknowledged, or verified by one or more officers.
7.02 Term of Office, Resignation and Removal. An officer shall hold office
for the term for which he is elected or appointed and until his successor is
elected or appointed and qualified, or until his resignation or removal. An
officer may resign by written notice to the Corporation. The resignation is
effective upon its receipt by the Corporation or at a subsequent time specified
in the notice of resignation. An officer may be removed by the Board with or
without cause. The removal of an officer shall be without prejudice to his
contract rights, if any. The election or appointment of an officer does not of
itself create contract rights.
7.03 Vacancies. The Board of Directors may fill any vacancies in any office
occurring for whatever reason.
7.04 Authority. All officers, employees and agents of the Corporation shall
have such authority and perform such duties in the conduct and management of the
business and affairs of the Corporation as may be designated by the Board of
Directors and these Bylaws.
ARTICLE VIII
DUTIES OF OFFICERS
8.01 Chairman of the Board. The Chairman of the Board, if such office is
filled, shall preside at all meetings of the shareholders and of the Board of
Directors at which the Chairman is present.
8.02 President. The President shall be the chief executive officer of the
Corporation. The President shall see that all orders and resolutions of the
Board are carried into effect, and the President shall have the general powers
of supervision and management usually vested in the chief executive officer of a
corporation, including the authority to vote all securities of other
corporations and business organizations held by the Corporation. In the absence
or disability of the Chairman of the Board, or if that office has not been
filled, the President also shall perform the duties of the Chairman of the Board
as set forth in these Bylaws.
<PAGE>
8.03 Vice Presidents. The Vice Presidents, in order of their seniority,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties as the
Board of Directors or the President may from time to time prescribe.
8.04 Secretary. The Secretary shall attend all meetings of the Board of
Directors and of shareholders and shall record all votes and minutes of all
proceedings in a book to be kept for that purpose, shall give or cause to be
given notice of all meetings of the shareholders and of the Board of Directors,
and shall keep in safe custody the seal of the Corporation and, when authorized
by the Board, affix the same to any instrument requiring it, and when so affixed
it shall be attested by the signature of the Secretary, or by the signature of
the Treasurer or an Assistant Secretary. The Secretary may delegate any of the
duties, powers and authorities of the Secretary to one or more Assistant
Secretaries, unless such delegation is disapproved by the Board.
8.05 Treasurer. The Treasurer shall have the custody of the corporate funds
and securities; shall keep full and accurate accounts of receipts and
disbursements in books of the corporation; and shall deposit all moneys and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
render to the President and directors, whenever they may require it, an account
of his or her transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer may delegate any of his or her duties, powers and
authorities to one or more Assistant Treasurers unless such delegation is
disapproved by the Board of Directors.
8.06 Assistant Secretaries and Treasurers. The Assistant Secretaries, in
order of their seniority, shall perform the duties and exercise the powers and
authorities of the Secretary in case of the Secretary's absence or disability.
The Assistant Treasurers, in the order of their seniority, shall perform the
duties and exercise the powers and authorities of the Treasurer in case of the
Treasurer's absence or disability. The Assistant Secretaries and Assistant
Treasurers shall also perform such duties as may be delegated to them by the
Secretary and Treasurer, respectively, and also such duties as the Board of
Directors may prescribe.
ARTICLE IX
SPECIAL CORPORATE ACTS
9.01 Orders for Payment of Money. All checks, drafts, notes, bonds, bills
of exchange and orders for payment of money of the Corporation shall be signed
by such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
<PAGE>
9.02 Contracts and Conveyances. The Board of Directors of the Corporation
may in any instance designate the officer and/or agent who shall have authority
to execute any contract, conveyance, mortgage or other instrument on behalf of
the Corporation, or may ratify or confirm any execution. When the execution of
any instrument has been authorized without specification of the executing
officers or agents, the Chairman of the Board, the President or any Vice
President, and the Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer, may execute the same in the name and on behalf of this Corporation
and may affix the corporate seal to it.
ARTICLE X
BOOKS AND RECORDS
10.01 Maintenance of Books and Records. The proper officers and agents of
the Corporation shall keep and maintain such books, records and accounts of the
Corporation's business and affairs, minutes of the proceedings of its
shareholders, Board and committees, if any, and such stock ledgers and lists of
shareholders, as the Board of Directors shall deem advisable, and as shall be
required by the laws of the State of Michigan and other states or jurisdictions
empowered to impose such requirements. Books, records and minutes may be kept
within or without the State of Michigan in a place which the Board shall
determine.
10.02 Reliance on Books and Records. In discharging his or her duties, a
director or an officer of the Corporation, when acting in good faith, may rely
upon information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by any of the
following:
(a) one or more directors, officers, or employees of the Corporation or of
a business organization under joint control or common control, whom the director
or officer reasonably believes to be reliable and competent in the matters
presented.
(b) Legal counsel, public accountants, engineers, or other persons as to
matters the director or officer reasonably believes are within the person's
professional or expert competence.
(c) A committee of the board of which he or she is not a member if the
director or officer reasonably believes the committee merits confidence.
A director or officer is not entitled to rely on the information set forth above
if he or she has knowledge concerning the matter in question that makes reliance
otherwise permitted unwarranted.
<PAGE>
ARTICLE XI
INDEMNIFICATION
11.01 Non-Derivative Actions. Subject to all of the other provisions of
this Article XI, the Corporation 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 and whether formal or informal (other than an action by or in the
right of the Corporation) by reason of the fact that the person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, whether for profit or not, against expenses (including actual
and reasonable attorneys' fees), judgments, penalties, fines, and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the beat
interests of the Corporation or its shareholders, and with respect to any
criminal action or proceeding, if the person had no reasonable cause to believe
his or her 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 the person reasonably
believed to be in or not opposed to the best interests of the Corporation or its
shareholders, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
11.02 Derivative Actions. Subject to all of the provisions of this Article
XI, the Corporation shall indemnify any person who was or is a party to 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 the person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorneys' fees) and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Corporation or its shareholders. However, indemnification shall
not be made for any claim, issue or matter in which such person has been found
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought has determined upon application that, despite
the adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for the reasonable
expenses incurred.
11.03 Expenses of Successful Defense. To the extent that a person has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 11.01 or 11.02 of these Bylaws, or in defense
of any claim, issue or matter in the action, suit or proceeding, the person
shall be indemnified against actual and reasonable expenses (including
attorneys' fees) incurred by such person in connection with the action, suit or
proceeding and any action, suit or proceeding brought to enforce the mandatory
indemnification provided by this Section 11.03.
<PAGE>
11.04 Definition. For the purposes of Sections 11.01 and 11.02, "other
enterprises" shall include employee benefit plans; "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit Plan; and
"serving at the request of the Corporation" shall include any service as a
director, officer, employee, or agent of the Corporation which imposes duties
on, or involves services by, the director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner the person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
considered to have acted in a manner "not opposed to the best interests of the
Corporation or its shareholders" as referred to in Sections 11.01 and 11.02.
11.05 Contract Right; Limitation on Indemnity. The right to indemnification
conferred in this Article XI shall be a contract right, and shall apply to
services of a director or officer as an employee or agent of the Corporation as
well as in such person's capacity an a director or officer. Except as provided
in Section 11.03 of these Bylaws, the Corporation shall have no obligations
under this Article XI to indemnify any person in connection with any proceeding,
or part thereof, initiated by such person without authorization by the Board of
Directors.
11.06 Determination That Indemnification is Proper. Any indemnification
under Section 11.01 or 11.02 of these Bylaws (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the person is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
Section 11.01 or 11.02, whichever is applicable, and upon an evaluation of the
reasonableness of expenses and amount paid in settlement. Such determination and
evaluation shall be made in any of the following ways:
(a) By a majority vote of a quorum of the Board consisting of directors who
are not parties or threatened to be made parties to such action, suit or
proceeding.
(b) If the quorum described in clause (a) above is not obtainable, then by
a majority vote of a committee of directors duly designated by the Board of
Directors and consisting solely of two or more directors who are not at the time
parties or threatened to be made parties to the action, suit or proceeding.
(c) By independent legal counsel in a written opinion which counsel shall
be selected in one of the following ways: (i) by the board or its committee in
the manner prescribed in subparagraph (a) or (b); or (ii) if a quorum of the
board cannot be obtained under subparagraph (a) and a committee cannot be
designated under subparagraph (b), by the board.
<PAGE>
(d) By all directors who are independent directors as defined in Section
107(3) of the Michigan Business Corporation Act and who are not parties or
threatened to be made parties to the action, suit or proceeding.
(e) By the shareholders, but shares held by directors or officers who are
parties or threatened to be made parties to the action, suit or proceeding may
not be voted.
11.07 Proportionate Indemnity. If a person is entitled to indemnification
under Section 11.01 or 11.02 of these Bylaws for a portion of expenses,
including attorneys' fees, judgments, penalties, fines, and amounts paid in
settlement, but not for the total amount thereof, the Corporation shall
indemnify the person for the portion of the expenses, judgments, penalties,
fines, or amounts paid in settlement for which the person is entitled to be
indemnified.
11.08 Expense Advance. The Corporation may pay or reimburse the reasonable
expenses incurred by a person referred to in Section 11.01 or 11.02 of these
bylaws who is a party or threatened to be made a party to an action, suit, or
proceeding in advance of final disposition of the proceeding it all of the
following apply: (a) the person furnishes the Corporation a written affirmation
of his or her good faith belief that he or she has met the applicable standard
of conduct set forth in Section 11.01 or 11.02; (b) the person furnishes the
Corporation a written undertaking executed personally, or on his or her behalf,
to repay the advance if it is ultimately determined that he or she did not meet
the standard of conduct; (c) the authorization of payment is made in the manner
specified in Section 11.06; and (d) a determination is made that the facts then
known to those making the determination would not preclude indemnification under
Section 11.01 or 11.02. The undertaking shall be an unlimited general obligation
of the person on whose behalf advances are made but need not be secured.
11.09 Non-Exclusivity of Rights. The indemnification or advancement of
expenses provided under this Article XI is not exclusive of other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under a contractual arrangement with the Corporation. However, the
total amount of expenses advanced or indemnified from all sources combined shall
not exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses.
11.10 Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the corporation to the fullest extent of the provisions
of this Article XI with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
11.11 Former Directors and Officers. The indemnification provided in this
Article XI continues as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such person.
<PAGE>
11.12 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who 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, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against the person and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have power to indemnify the person against such liability under these Bylaws or
the laws of the State of Michigan.
11.13 Changes in Michigan Law. In the event of any change of the Michigan
statutory provisions applicable to the Corporation relating to the subject
matter of this Article XI, then the indemnification to which any person shall be
entitled hereunder shall be determined by such changed provisions, but only to
the extent that any such change permits the Corporation to provide broader
indemnification rights than such provisions permitted the Corporation to provide
prior to any such change. Subject to Section 11.14, the Board of Directors is
authorized to amend these Bylaws to conform to any such changed statutory
provisions.
11.14 Amendment or Repeal of Article XI. No amendment or repeal of this
Article XI shall apply to or have any affect on any director or officer of the
Corporation for or with respect to any acts or omissions of such director or
officer occurring prior to such amendment or repeal.
ARTICLE XII
AMENDMENTS
12.01 Amendments. The Bylaws of the Corporation may be amended, altered or
repealed, in whole or in part, by the shareholders or by the Board of Directors
at any meeting duly held in accordance with these Bylaws, provided that notice
of the meeting includes notice of the proposed amendment, alteration or repeal.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
ARTICLE I OFFICES.........................................................1
1.01 Principal Office................................................1
1.02 Other Offices...................................................1
ARTICLE II SEAL............................................................1
2.01 Seal............................................................1
ARTICLE III CAPITAL STOCK...................................................1
3.01 Issuance of Shares..............................................1
3.02 Certificates for Shares.........................................1
3.03 Transfer of Shares..............................................2
3.04 Registered Shareholders.........................................2
3.05 Lost or Destroyed Certificates..................................2
ARTICLE IV SHAREHOLDERS AND MEETINGS OF SHAREHOLDERS.......................2
4.01 Place of Meetings...............................................2
4.02 Annual Meeting..................................................2
4.03 Special Meetings................................................2
4.04 Notice of Meetings..............................................2
4.05 Record Dates....................................................3
4.06 List of Shareholders............................................3
4.07 Quorum..........................................................3
4.08 Proxies.........................................................3
4.09 Voting..........................................................4
ARTICLE V DIRECTORS.......................................................4
5.01 Number..........................................................4
5.02 Election, Resignation and Removal...............................4
5.03 Vacancies.......................................................4
5.04 Annual Meeting..................................................4
5.05 Regular and Special Meetings....................................5
5.06 Notices.........................................................5
5.07 Quorum and Voting...............................................5
<PAGE>
5.08 Executive and Other Committees..................................5
5.09 Dissents........................................................6
5.10 Compensation....................................................6
ARTICLE VI NOTICES, WAIVER OF NOTICE AND MANNER OF ACTING..................6
6.01 Notices.........................................................6
6.02 Waiver of Notice................................................6
6.03 Action Without a Meeting........................................7
ARTICLE VII OFFICERS........................................................7
7.01 Number..........................................................7
7.02 Term of Office, Resignation and Removal.........................7
7.03 Vacancies.......................................................7
7.04 Authority.......................................................7
ARTICLE VIII DUTIES OF OFFICERS..............................................7
8.01 Chairman of the Board...........................................7
8.02 President.......................................................7
8.03 Vice Presidents.................................................8
8.04 Secretary.......................................................8
8.05 Treasurer.......................................................8
8.06 Assistant Secretaries and Treasurers............................8
ARTICLE IX SPECIAL CORPORATE ACTS..........................................8
9.01 Orders for Payment of Money.....................................8
9.02 Contracts and Conveyances.......................................9
ARTICLE X BOOKS AND RECORDS...............................................9
10.01 Maintenance of Books and Records................................9
10.02 Reliance on Books and Records...................................9
ARTICLE XI INDEMNIFICATION................................................10
11.01 NonDerivative Actions..........................................10
11.02 Derivative Actions.............................................10
<PAGE>
11.03 Expenses of Successful Defense.................................10
11.04 Definition.....................................................11
11.05 Contract Right; Limitation on Indemnity........................11
11.06 Determination That Indemnification is Proper...................11
11.07 Proportionate Indemnity........................................12
11.08 Expense Advance................................................12
11.09 NonExclusivity of Rights.......................................12
11.10 Indemnification of Employees and Agents of the Corporation.....12
11.11 Former Directors and Officers..................................12
11.12 Insurance......................................................13
11.13 Changes in Michigan Law........................................13
11.14 Amendment or Repeal of Article XI..............................13
ARTICLE XII AMENDMENTS.....................................................13
12.01 Amendments.....................................................13
</TABLE>
LLC-5.5
<TABLE>
<CAPTION>
<S> <C> <C>
Form LLC-5.5 Illinois
January 1998 Limited Liability Company Act
Articles of Organization Secretary of State
George H. Ryan FILED
Secretary of State SUBMIT IN DUPLICATE DECEMBER 17, 1998
Department of Business Services Must be typewritten
Limited Liability Company Division ---------------------- LIMITED LIABILITY CO. DIV.
Room 359, Howlett Building GEORGE H. RYAN
Springfield, IL 62756 This space for use by Secretary of State SECRETARY OF STATE
http://www.sos.state.il.us Date DEC 17, 1998
Assigned File # 0024 536 4 PAID
Payment must be made by certified check, Filing Fee $400.00 DECEMBER 17, 1998
cashier's check, Illinois attorney's check, Approved: JE
Illinois C.P.A.'s check or money order,
payable to "Secretary of State."
</TABLE>
1. Limited Liability Company Name: NWS-Illinois, LLC
(The LLC name must contain the words limited liability company, L.L.C. or
LLC and cannot contain the terms corporation, corp., incorporated, inc.,
ltd., co., limited partnership, or LP.)
2. Transacting business under an assumed name: | | Yes |X| No
(If YES, a Form LLC-1.20 is required to be completed and attached to these
Articles.)
3. The address, including county, of its principal place of business:
(Post office box alone and c/o are unacceptable.)
2600 West 35th Street, Chicago, IL 60632 Cook County
4. Federal Employer Identification Number (F.E.I.N.): applied for
5. The Articles of Organization are effective on: (Check one)
a) [X] the filing date, or b) [ ] another date later than but not more than
60 days subsequent to the filing date:
6. The registered agent's name and registered office address is:
Registered agent: Stephen O'Malley
Registered Office: 2600 West 35th Street
(P.O. Box alone and c/o are unacceptable) Chicago 60632 Cook
7. Purpose or purposes for which the LLC is organized: Include the business
code # (from IRS Form 1065)
(If not sufficient space to cover this point, add one or more sheets of
this size.)
To engage in the wholesale distribution of wine and alcohol beverages and
to conduct any and all other lawful business and activities for which
limited liability companies may be organized.
(Business Code #5101)
8. The latest date, if any, upon which the company is to dissolve N/A.
<PAGE>
Any other events of dissolution enumerated on an attachment. (Optional)
9. Other provisions for the regulation of the internal affairs of the LLC per
Section 5-5(a)(8) included as attachment:
| | Yes |X| No
If yes, state the provision(s) and the statutory cite(s) from the ILLCA.
10. a) Management is vested, in whole or in part, in the manager(s):
|X| Yes | | No
If yes, list names and business addresses.
<TABLE>
<CAPTION>
<S> <C>
James E. LaCrosse 2600 West 35th Street, Chicago, IL 60632
Norma M. Johnston 2600 West 35th Street, Chicago, IL 60632
Patricia J. LaCrosse 2600 West 35th Street, Chicago, IL 60632
</TABLE>
b) Management is vested, in whole or in part, by the member(s):
| | Yes |X| No
If yes, list names and addresses.
11. The undersigned affirms, under penalties of perjury, having authority to
sign hereto, that these articles of organization are to the best of my
knowledge and belief, true, correct and complete.
Dated December 7, 1998
<TABLE>
<CAPTION>
<S> <C>
Signature(s) and Name(s) of Organizer(s) Business Address(es)
1. /S/ 2. 2600 West 25th Street
Stephen O'Malley, Assistant Secretary Chicago
Illinois 60632
<FN>
(Signatures must be in ink on an original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies)
</FN>
</TABLE>
OPERATING AGREEMENT
OF
NWS-ILLINOIS, LLC
THIS OPERATING AGREEMENT of NWS-ILLINOIS, LLC, an Illinois limited
liability company (the "Company"), is made and entered into as of December 31,
1998, by and among NWS, INC., an Illinois corporation ("NWS"), and MARTIN H.
BART ("Bart"), as the Initial Members, and any other Persons executing or
otherwise bound by this Agreement pursuant to the terms hereof. Certain
capitalized terms used in this Agreement are defined in Sections 14.19 and 13.1
hereof. In consideration of the mutual covenants and agreements contained in
this Agreement, the Members agree as follows:
ARTICLE I
Organization
Section 1.1. Formation. The Members hereby authorize and ratify the
formation of the Company as a limited liability company pursuant to the
provisions of the Act effective on the later of (i) the date of the filing of
the Articles of Organization of the Company with the Illinois Secretary of State
pursuant to the Act, or (ii) the date of organization, if any, specified in the
Articles (the "Organization Date").
Section 1.2. Name. The name of the Company shall be "NWS-Illinois, LLC," or
such other name as the Members may from time to time determine. The Managers
shall cause to be filed on behalf of the Company such assumed or fictitious name
certificate or certificates as may, from time to time, be required by law.
Section 1.3. Purposes and Powers. The purposes for which the Company is
organized are as set forth in the Articles. Except as otherwise provided in the
Articles, the Company shall have all powers permissible under the Act to carry
out its business and affairs.
Section 1.4. Effective Date. This Agreement shall be effective on the
Organization Date of the Company (the "Effective Date").
Section 1.5. Term. The term of duration of the Company shall be as set
forth in the Articles, unless the Company is earlier dissolved and terminated in
accordance with this Agreement or the Act.
<PAGE>
Section 1.6. Registered Office and Registered Agent. The street address of
the Company's initial registered office in Illinois and the name of the
Company's initial registered agent at such registered office are as set forth in
the Articles. The registered office and registered agent of the Company may be
changed from time to time by complying with the procedures set forth in the Act.
Section 1.7. Principal Place of Business. The principal place of business
of the Company within the State of Illinois shall be located at 2600 West 35th
Street, Chicago, Illinois 60632, or such other address, within or outside of the
State of Illinois, as the Managers shall from time to time establish as a
location of the Company's principal executive offices.
ARTICLE II
Members, Capital Contributions, and Capital Accounts
Section 2.1. Names and Addresses of Members. The names, addresses, and
taxpayer identification numbers of the Members of the Company, and their
respective Capital Contributions, Percentages, Interests, and number of Units
are set forth in Schedule A attached hereto. The Company shall have Class A
Members, Class B Members, and Class C Members. The Class B Members and the Class
C Members shall have no voting rights. The Members shall update Schedule A from
time to time as necessary to accurately reflect the information therein in
accordance with this Agreement.
Section 2.2. Initial Capital Contributions. Each Initial Member shall make
the initial Capital Contribution in such amount and form as specified for such
Member in Schedule A attached hereto. Each Initial Member shall make such
required initial Capital Contribution at such time and upon such terms as are
specified in Schedule A attached hereto, or if not so specified, such initial
Capital Contributions shall be made at the time of such Initial Member's
execution of this Agreement.
Section 2.3. Additional Capital Contributions. No Member shall be required
to make any additional Capital Contributions. However, if the Managers shall at
any time determine that additional Capital Contributions are necessary or
advisable, then, for a period of thirty (30) days after the Managers notify the
Members of such need for additional Capital Contributions, the Class A Members
and the Class B Members shall have the right, but not the obligation, to make
such additional Capital Contributions at the same price and upon the same terms
and conditions on a pro rata basis in accordance with their respective
Percentages. If any Class A Member or Class B Member does not agree to make such
additional Capital Contributions within such thirty (30)-day period, then such
additional Capital Contributions shall be made by participating Class A Members
and Class B Members only in exchange for Class C Interests. Notwithstanding the
foregoing, nothing in this Section shall preclude the Company from obtaining
additional Capital Contributions from, and issuing Interests (whether Class A,
Class B, Class C or other Interests) to, any Person other than NWS, the LaCrosse
Family Group, the Johnston Family Group, the Bart Family Group, or any of their
Affiliates, as deemed advisable by the Managers and approved by a Majority in
Interest of the Class A Members and a Majority in Interest of the Class B
Members pursuant to Section 11.1.
<PAGE>
Section 2.4. Member Loans. Any Member may loan such funds to the Company
upon such terms and conditions as shall be approved by a Majority in Interest of
the Members. Any such Member loan shall not be considered a Capital
Contribution, except as otherwise agreed to in writing by the loaning Member and
a Majority in Interest of the Members.
Section 2.5. Capital Accounts.
Subsection 2.5.1. Maintenance of Capital Accounts. A separate Capital
Account shall be established and maintained for each Interest Holder in the
manner provided by Section 1.704-1(b)(2)(iv) of the Regulations. Capital
Accounts shall be maintained separately for Class A Interests, Class B
Interests, and Class C Interests for each Member, but the combined Capital
Accounts of any Member shall constitute such Member's single Capital
Account maintained as required by the Regulations. The Capital Account of
each Interest Holder shall consist of the amount of cash and the fair
market value of property (net of any liability secured by such property
that the Company is considered to assume or take subject to under Section
752 of the Internal Revenue Code) that the Interest Holder has contributed,
or is deemed herein to have contributed, to the Company as Capital
Contributions, adjusted as follows:
(a) The Capital Account of an Interest Holder shall be increased
by (i) all Profits allocated to such Interest Holder, (ii) any items
in the nature of income or gains specially allocated to the Interest
Holder pursuant to Section 3.3, and (iii) the amount of any Company
liabilities assumed by the Interest Holder (or which are secured by
Company property distributed to the Interest Holder).
(b) The Capital Account of an Interest Holder shall be decreased
by (i) all Losses allocated to the Interest Holder, (ii) any items in
the nature of expenses or losses specially allocated to the Interest
Holder pursuant to Section 3.3, and (iii) the amount of cash and the
fair market value of any Company property distributed to the Interest
Holder (net of any liability securing such distributed property that
the Interest Holder is considered to assume or take subject to under
Section 752 of the Internal Revenue Code).
(c) If the book value of the Company property is adjusted
pursuant to Section 3.4, the Capital Account of each Interest Holder
shall be adjusted to reflect the aggregate adjustment in the same
manner as if the Company had recognized gain or loss equal to the
amount of such aggregate adjustment.
(d) It is intended that the Capital Accounts of all Interest
Holders shall be maintained in compliance with the provisions of
Section 1.704-1(b) of the Regulations, and all provisions of this
Agreement relating to the maintenance of Capital Accounts shall be
interpreted and applied in a manner consistent with such Regulations.
The Capital Account of the Interest Holders shall be adjusted in any
other manner required by such Regulations or otherwise in order to be
deemed properly maintained for federal income tax purposes.
<PAGE>
Subsection 2.5.2. Transferee's Capital Account. If any Interest is
transferred in compliance with this Agreement, the Capital Account of the
Transferor shall become the Capital Account of the Transferee to the extent
it relates to the transferred Interest in accordance with Section
1.704-1(b)(2)(iv)of the Regulations.
Subsection 2.5.3. No Obligation to Restore Negative Capital Account.
No Interest Holder shall have any liability or obligation to restore a
negative or deficit balance in such Interest Holder's Capital Account.
Section 2.6. Return and Withdrawal of Capital Contributions. No interest
shall accrue or be payable on any Capital Contribution or Capital Account. No
Interest Holder shall have the right to withdraw his Capital Contribution or to
demand and receive property of the Company or any distribution in return for his
Capital Contribution, except as expressly provided in the Put Option Agreement,
this Agreement, or as required by law. To the extent that an Interest Holder has
a right to demand a return of all or any portion of his Capital Contribution,
the Interest Holder shall not have a right to demand and receive a return of his
Capital Contribution in a form other than cash, irrespective of the nature of
his Capital Contribution.
ARTICLE III
Distributions and Allocations
Section 3.1. Distributions.
Subsection 3.1.1. Distributions of Net Cash Flow. If and to the extent
not prohibited by the Act, and subject to restrictions contained in any
Bank Agreements, the Net Cash Flow of the Company for each taxable year of
the Company shall be distributed to and among the Interest Holders, at such
times as shall be determined by the Managers (but, in the case of Tax
Distributions pursuant to Subsection 3.1.1(a), by no later than April 15
following such taxable year), as follows:
(a) First, to the Class A and Class B Interest Holders, an amount
equal to the Applicable Tax Rate multiplied by the earnings of the
Company taxable to such Interest Holders arising from the Company's
tax status as a partnership (the "Tax Distributions");
<PAGE>
(b) Second, to the Class C Interest Holders, pro rata in
proportion to their respective Percentages, an amount equal to the
Class C Interest Holders' Priority Return for that taxable year;
(c) Third, to the Class C Interest Holders, pro rata in
proportion to their respective Percentages, until the Class C Interest
Holders have received an amount equal to the Class C Interest Holders'
Unpaid Priority Return;
(d) Fourth, to the Class C Interest Holders, pro rata in
proportion to their respective Percentages, until the Class C Interest
Holders have received an amount equal to the unpaid balance of the
Preference Amount (i.e., by redemption of the outstanding Class C
Units in accordance with and subject to the limitations set forth in
Section 8.2); and
(e) Fifth, to the Class A and Class B Interest Holders, pro rata
in proportion to their respective Percentages.
Notwithstanding the foregoing in this Subsection 3.1.1, any distributions
in anticipation of the dissolution of the Company or subsequent to the
occurrence of the dissolution of the Company shall be made as provided in
Section 12.4.
Subsection 3.1.2. Record Date for Distributions. Tax Distributions
shall be made to the Persons shown on the records of the Company to have
been Interest Holders of the Company in proportion to the length of time
that such Persons were Interest Holders of the Company for the applicable
taxable year. Any other distributions of Net Cash Flow or other assets of
the Company in respect of an Interest shall be made to the Persons shown on
the records of the Company to have been Interest Holders as of the date of
such distributions. Neither the Company nor any Manager or Member shall
incur any liability for making distributions in accordance with this
Subsection whether or not the Company or the Manager or Member has
knowledge or notice of any transfer or purported transfer of an Interest.
Section 3.2. Allocation of Profits and Losses. Except as may be required by
Section 704(c) of the Internal Revenue Code and after giving effect to the
special allocations set forth in Sections 3.3 and 3.4, Profits, Losses and other
items of income, gain, loss, deduction and credit for each taxable year of the
Company shall be allocated among the Interest Holders as follows:
Subsection 3.2.1. Losses. Losses for such taxable year shall be
allocated:
(a) First, solely to the Class C Interest Holders, pro rata in
proportion to their respective Percentages, until the Capital Accounts
of the Class C Interest Holders are reduced to zero; and
<PAGE>
(b) Second, to the Class A and Class B Interest Holders, pro rata
in proportion to their respective Percentages.
Subsection 3.2.2. Profits. Profits for such taxable year shall be
allocated:
(a) First, to the Class C Interest Holders, pro rata, in an
amount equal to the cumulative Losses allocated to such Interest
Holders pursuant to Section 3.2.1 (a) for all prior taxable years,
less the cumulative Profits allocated to such Interest Holders
pursuant to this Section 3.2.2(a);
(b) Second, to the Class A and Class B Interest Holders, pro
rata, in an amount equal to the cumulative Losses allocated to such
Interest Holders pursuant to Section 3.2.1 (b) for all prior taxable
years, less the cumulative Profits allocated to such Interest Holders
pursuant to this Section 3.2.2(b) for all prior taxable years;
(c) Third, to the Class C Interest Holders, pro rata, in an
amount equal to their Priority Return for the current and all prior
taxable years, less the amount allocated to the Class C Interest
Holders in prior taxable years pursuant to this Section 3.2.2(c);
(d) Fourth, to the Class C Interest Holders, pro rata, in an
amount equal to the difference between the unpaid balance of their
Preference Amount and their Initial Capital Contributions, less any
amounts allocated pursuant to this Section 3.2.2(d) for all prior
taxable years; and
(e) Fifth, the remainder of the Profits to the Class A and Class
B Interest Holders, pro rata in proportion to their respective
Percentages.
Section 3.3. Special Allocations.
Subsection 3.3.1. Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(f) of the Regulations, if, during any taxable
year, there is a net decrease in Minimum Gain, notwithstanding any other
allocation pursuant to this Article III, each Interest Holder shall be
specially allocated items of income and gain for such taxable year (and, if
necessary, subsequent taxable years) in an amount equal to that Interest
Holder's share of the net decrease in Minimum Gain, determined in
accordance with Section 1.704- 2(g) of the Regulations. Such allocations
shall be made in proportion to the respective amounts required to be
allocated to each Interest Holder pursuant to such Regulations. Allocations
of income and gain pursuant to this Subsection shall be made first from
gain recognized from the disposition of Company assets subject to
nonrecourse liabilities (within the meaning of the Regulations promulgated
under Section 752 of the Internal Revenue Code), to the extent of the
Minimum Gain attributable to those assets, and thereafter, from a pro rata
portion of the Company's other items of income and gain for the taxable
year. This Subsection is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall
be interpreted consistently therewith.
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Subsection 3.3.2. Member Minimum Gain. Except as otherwise provided in
Section 1.704-1(i)(4) of the Regulations, if there is a net decrease in
Member Minimum Gain during any taxable year, notwithstanding any other
allocation pursuant to this Article III, each Interest Holder who has a
share of the Member Minimum Gain, determined in accordance with Section
1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Company income and gain for such taxable year (and, if necessary,
subsequent taxable years) in an amount equal to such Person's share of the
net decrease in Member Minimum Gain, determined in accordance with Section
1.704-2(i)(4) of the Regulations. Such allocations shall be made in
proportion to the respective amounts required to be allocated to each
Interest Holder pursuant to such Regulations. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(i)(4) and
1.704-2(j)(2) of the Regulations. This Subsection is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of
the Regulations and shall be interpreted consistently therewith.
Subsection 3.3.3. Qualified Income Offset. No Interest Holder shall be
allocated Losses or deductions if the allocation causes an Interest Holder
to have an Adjusted Capital Account Deficit. If an Interest Holder receives
(i) an allocation of Loss or deduction (or item thereof), or (ii) any
distribution which causes the Interest Holder to have an Adjusted Capital
Account Deficit at the end of any taxable year, then all items of income
and gain of the Company (consisting of a pro rata portion of each item of
Company income, including gross income and gain) for that taxable year
shall be allocated to that Interest Holder, before any other allocation is
made of Company items for that taxable year, in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit of such
Interest Holder as quickly as possible and to the extent required by
Section 1.704-1(b)(2)(ii)(d) of the Regulations. This Subsection is
intended to comply with, and shall be interpreted consistently with, the
"qualified income offset" provisions of the Regulations promulgated under
Section 104(b) of the Internal Revenue Code.
Subsection 3.3.4. Nonrecourse Deductions. Nonrecourse Deductions for a
taxable year or other period shall be specially allocated among the Class A
and Class B Interest Holders, pro rata in proportion to their respective
Percentages.
Subsection 3.3.5. Member Loan Nonrecourse Deductions. Any Member Loan
Nonrecourse Deduction for any taxable year or other period shall be
specially allocated to the Interest Holder who bears the risk of loss with
respect to the loan to which the Member Loan Nonrecourse Deduction is
attributable in accordance with Section 1.704-2(i)(1) of the Regulations.
Subsection 3.3.6. Section 754 Adjustments. To the extent an adjustment
to the tax basis of any Company asset pursuant to Section 734(b) or Section
743(b) of the Internal Revenue Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in
determining Capital Accounts, the amount of the adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases basis), and
the gain or loss shall be specially allocated to the Interest Holders in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Regulations.
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Subsection 3.3.7. Distribution of Assets. If the Company at any time
distributes any of its assets in kind to any Interest Holder, the Capital
Account of each Interest Holder shall be adjusted to account for that
Interest Holder's allocable share (as determined pursuant to Section 3.2)
of the Profits or Losses that would have been realized by the Company had
it sold the assets that were distributed at their respective fair market
values immediately prior to their distribution.
Subsection 3.3.8. Guaranteed Payments. To the extent any compensation
paid to any Member by the Company is determined by the Internal Revenue
Service not to be a guaranteed payment under Section 707(c) of the Internal
Revenue Code or is not paid to the Member other than in the Person's
capacity as a Member within the meaning of Section 707(a) of the Internal
Revenue Code, the Member shall be specially allocated gross income of the
Company in an amount equal to the amount of that compensation, and the
Member's Capital Account shall be adjusted to reflect the payment of that
compensation.
Subsection 3.3.9. Unrealized Receivables. If an Interest Holder's
Interest is reduced (provided the reduction does not result in a complete
termination of the Interest Holder's Interest), the Interest Holder's share
of the Company's "unrealized receivables" and "substantially appreciated
inventory" (within the meaning of Section 751 of the Internal Revenue Code)
shall not be reduced, so that, notwithstanding any other provision of this
Agreement to the contrary, that portion of the Profits otherwise allocable
upon a liquidation or dissolution of the Company which is taxable as
ordinary income (recaptured) for federal income tax purposes shall, to the
extent possible without increasing the total gain to the Company or to any
Interest Holder, be specially allocated among the Interest Holders in
proportion to the deductions (or basis reductions treated as deductions)
giving rise to such recapture. Any questions as to the aforesaid allocation
of ordinary income (recapture), to the extent such questions cannot be
resolved in the manner specified above, shall be resolved by the Managers.
Subsection 3.3.10. Withholding. All amounts required to be withheld
pursuant to Section 1446 of the Internal Revenue Code or any other
provision of federal, state, or local tax law shall be treated as amounts
actually distributed to the affected Interest Holders for all purposes
under this Agreement.
Subsection 3.3.11. Curative Allocations. The allocations set forth in
Subsections 3.3.1 through 3.3.6 (the "Regulatory Allocations") are intended
to comply with certain requirements of the Regulations. It is the intent of
the Members that, to the extent possible, all Regulatory Allocations shall
be offset either with other Regulatory Allocations or with special
allocations of the items of Company income, gain, loss, deduction, or
credit pursuant to this Subsection. Therefore, notwithstanding any other
provisions of this Article III (other than the Regulatory Allocations), the
Managers shall make such offsetting special allocations of income, gain,
loss, or deduction in whatever manner they determine appropriate so that,
after such offsetting allocations are made, the Capital Account balance of
each Interest Holder is, to the extent possible, equal to the Capital
Account balance which such Interest Holder would have had if the Regulatory
Allocations were not part of the Agreement. In exercising their discretion
under this Subsection, the Managers shall take into account future
Regulatory Allocations under Subsections 3.3.1 and 3.3.2 that, although not
yet made, are likely to offset other Regulatory Allocations previously made
under Subsections 3.3.4 and 3.3.5.
<PAGE>
Section 3.4. Contributed Property and Book-Ups. In accordance with Section
704(c) of the Internal Revenue Code and the Regulations thereunder, as well as
Section 1.704(1)(b)(2)(iv)(d)(3) of the Regulations, income, gain, loss, and
deduction with respect to any property contributed (or deemed contributed) to
the Company shall, solely for tax purposes. be allocated among the Interest
Holders so as to take account of any variation between the adjusted basis of the
property to the Company for federal income tax purposes and its fair market
value of the date of contribution (or deemed contribution). If the adjusted book
value of any Company asset is adjusted as provided herein, subsequent
allocations of income, gain, loss, and deduction with respect to the asset shall
take account of any variation between the adjusted basis of the asset for
federal income tax purposes and its adjusted book value in the manner required
under Section 704(c) of the Internal Revenue Code and the Regulations
thereunder.
Section 3.5. Partial Year Allocations. If any Interest is transferred, or
if the number of Units outstanding is increased or decreased by reason of the
admission of an Additional Member or otherwise, during any fiscal year of the
Company, the Profits, Losses, and other items of income, gain, loss, deduction
and credit of the Company for such fiscal year shall be (i) assigned pro rata to
each day of such fiscal year during which such item is accrued or otherwise
incurred, and the amount of each item so assigned to any such day shall be
allocated to Interest Holders based upon their respective Percentages at the
close of each such day, or (ii) allocated among the Interest Holders in
accordance with Section 706 of the Internal Revenue Code and the Regulations
promulgated thereunder, using any conventions permitted by law.
ARTICLE IV
Management; Rights and Duties of Managers
Section 4.1. Management of Company's Business and Affairs. Except as
expressly provided otherwise in this Agreement or any mandatory provision of the
Act, the management, control, and operation of the business and affairs of the
Company shall be exclusively vested in the Managers. Except as expressly
provided otherwise in this Agreement or any mandatory provision of the Act, the
affirmative vote, approval, or consent of a majority in number of the Managers
shall be required to decide any matter that requires the approval of the
Managers.
<PAGE>
Section 4.2. Number, Term and Qualifications. The Company shall initially
have three (3) Managers, and the initial Managers shall be James E. LaCrosse,
Patricia J. LaCrosse, and Norma M. Johnston. The number of Managers may be
changed and fixed from time to time by the affirmative vote of a Majority in
Interest of the Members, but in no event shall there be less than one (1)
Manager. Each Manager shall serve until the first annual meeting of the Members
and until his successor is duly elected and qualified. At the first annual
meeting of the Members, and at each annual meeting of the Members thereafter,
the Managers shall be elected by a Majority in Interest of the Members, and each
Manager so elected shall serve for a term expiring at the next annual meeting of
the Members following his election and until his successor is duly elected and
qualified, or until his earlier death, resignation, or removal. Managers need
not be Members or natural persons.
Section 4.3. Powers of Managers. Except and subject to the rights and
authority reserved to the Members pursuant to Section 5.1 and elsewhere in this
Agreement, the Managers may generally exercise all powers of the Company and do
all lawful acts necessary, advisable, or convenient to carry out the business
and affairs of the Company, including, without limitation, the right, power, and
authority, on behalf of the Company, to:
(a) purchase, sell, lease, exchange, and otherwise deal with the
properties and assets of the Company at such price, rental, or amount, and
upon such terms and conditions, as the Managers shall deem advisable;
(b) borrow money and issue notes, bonds, and other debt obligations;
mortgage, grant a security interest in, or subject to any other lien, any
or all of the property of the Company; repay, refinance, modify, or extend
any loan and any mortgage or other security instrument or lien; and
guarantee any indebtedness of National Wine & Spirits Corporation, NWS, NWS
Michigan, Inc., or any other Affiliate of the Company that is engaged in
the business of selling, marketing or distributing alcoholic beverage
products, bottled water or other beverage products, or other similar
products;
(c) open, maintain and close accounts in the name of the Company in
banks, savings and loan associations, brokerage firms, and other financial
institutions; deposit funds into and withdraw funds from such accounts; and
draw checks and other orders for the payment of money by the Company;
(d) employ, retain, and discharge such employees, agents, managers,
architects, contractors, subcontractors, accountants, attorneys,
consultants and other Persons, including any other Member or Affiliate of
any Member, necessary or appropriate to carry out the business and affairs
of the Company, and to pay such fees, expenses, salaries, wages and other
compensation to such Persons as the Managers shall determine to be
reasonable;
<PAGE>
(e) commence, defend, and settle, on behalf of the Company, any and
all actions and proceedings at law or equity before any court or
governmental, administrative, or other regulatory agency, body, or
commission;
(f) enter into, execute, and perform such contracts, agreements and
other undertakings to which the Company may be a party, including
agreements, undertakings and transactions with any Member or Manager, or
any of their Affiliates (subject to Section 14.3);
(g) incur and pay all expenses and obligations incident to the
management, control, and operation of the Company;
(h) make reasonable and necessary capital expenditures for the repair
and improvement of real estate held by the Company and take all actions
reasonably necessary for the maintenance, operation, and management
thereof;
(i) obtain and maintain, at the expense of the Company, public
liability, property, casualty, and other insurance coverage necessary or
desirable for the protection or conservation of the Company and its assets;
(j) invest funds of the Company temporarily in savings accounts in
federally insured financial institutions, certificates of deposits issued
by federally insured financial institutions, short-term interest-bearing
obligations of publicly-held corporations, state and local governments, and
the United States, and money market funds;
(k) prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members as may be required or
determined to be appropriate by the Members from time to time;
(l) prepare and file all necessary returns and statements and pay all
taxes, assessments and other impositions applicable to the assets of the
Company; and
(m) execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Company in all matters
necessary or desirable or incidental to the foregoing.
Section 4.4. Reliance by Third Parties. Each Manager shall be an agent of
the Company for the purpose of its business, and any act of a Manager, including
the signing of an instrument in the Company's name, for apparently carrying on,
in the ordinary course, the Company's business or business of the kind carried
on by the Company shall bind the Company, unless (i) the Manager had no
authority to act for the Company in a particular matter, and (ii) the person
with whom the Manager was dealing knew or had notice that the Manager lacked
authority. Any act of a Manager which is not apparently for carrying on, in the
ordinary course, the Company's business or business of the kind carried on by
the Company shall bind the Company only if the act was authorized pursuant to
Section 5.1. Notwithstanding the foregoing, except as expressly provided
otherwise in the Articles, any Manager may sign and deliver any instrument
transferring or affecting the Company's interest in real property, and the
instrument shall be conclusive in favor of a person who gives value without
knowledge of the lack of the authority of the person signing and delivering the
instrument.
<PAGE>
Section 4.5. Liability of Managers. The Managers shall not be liable for
damages to the Company or to the Members or any Transferees for any action taken
or failure to act on behalf of the Company, unless the act or omission
constitutes grossly negligent or reckless conduct, intentional misconduct, a
knowing violation of law, or a material breach of this Agreement. A Manager
shall not be liable when relying in good faith upon the records of the Company
and on the information, opinions, reports, or statements presented to the
Company by the Company's other Managers, Members, agents, or employees, or by
any other Person concerning matters which the Manager reasonable believes are
within such other Person's professional or expert competence, and who has been
selected with reasonable care by or on behalf of the Company, including
information, opinions, reports, or statements concerning the value and amount of
the assets, liabilities, profits, or losses of the Company or other facts
pertinent to the existence and amount of assets from which distributions to
Members might properly be paid.
Section 4.6. Compensation. The Company may pay to the Managers such
compensation for services rendered to the Company as shall be determined from
time to time by the Members. Such compensation shall be treated as expenses of
the Company and shall not be deemed to constitute distributions to the recipient
of any Profits, Losses, or capital of the Company.
Section 4.7. Reimbursement of Expenses. Each Manager shall be entitled to
reimbursement by the Company of expenses reasonably incurred and paid by such
Manager on behalf of or for the benefit of the Company. Any question as to
whether a Manager is entitled to reimbursement of expenses under this Section
shall be determined by a Majority in Interest of the Members.
Section 4.8. Resignation. A Manager may resign as a Manager of the Company
at any time by giving written notice thereof to the Company, which resignation
shall be effective when such notice is given to the Company, unless such notice
specifies a later effective date. The resignation of a Manager who is also a
Member shall not affect the Manager's rights as Member and shall not constitute
a withdrawal of the Member.
Section 4.9. Removal. Any Manager may be removed, with or without cause, by
the affirmative vote of a Majority in Interest of the Members. Such removal
shall be effective when written notice thereof, signed by a Majority in Interest
of the Members is received by the Manager, unless such notice specifies a later
effective date. The removal of a Manager who is also a Member shall not affect
the Manager's rights as a Member and shall not constitute a withdrawal of the
Member.
<PAGE>
Section 4.10. Vacancies. Any vacancy occurring among the Managers caused by
an increase in the number of Managers shall be filled by the affirmative vote of
a Majority in Interest of the Members. Any vacancy occurring among the Managers,
whether caused by the death, resignation, or removal of a Manager, or for any
other reason (other than an increase in the number of Managers), may be filled
by the affirmative vote of a majority in number of the remaining Managers then
in office; provided, however, that if there are no remaining Managers, the
vacancy or vacancies shall be filled by the affirmative vote of a Majority in
Interest of the Members.
Section 4.11. Power of Attorney. Each Member constitutes and appoints each
and every Manager as the Member's true and lawful attorney-in-fact (the
"Attorney in Fact"), in the Member's name, place and stead, to make, execute,
sign, acknowledge and file:
(a) The Articles, and all amendments thereto made in accordance with
this Agreement;
(b) Any and all certificates, instruments or other documents required
to be filed by the Company under the laws of the State of Illinois or of
any other state or jurisdiction, including, without limitation, any
certificate or other instruments necessary in order for the Company to
continue to qualify as a limited liability company under the laws of the
State of Illinois;
(c) One or more fictitious, assumed name, or trade name certificates;
(d) Any and all certificates, instruments and other documents which
may be required to dissolve and terminate the Company; and
(e) All other certificates, instruments and documents that may be
required or permitted by law to be filed on behalf of the Company that are
not inconsistent with the provisions of this Agreement.
This power of attorney granted herein is irrevocable and shall be deemed to be
coupled with an interest, and, to the extent permitted by applicable law, shall
survive the death or disability of a Member. This power of attorney shall also
survive any Transfer of any Interest, except that if the Transferee is admitted
as a Substitute Member, this power of attorney shall survive the delivery of the
assignment for the sole purpose of enabling the Attorney in Fact to execute,
acknowledge and file any documents necessary to effectuate the admission of the
Transferee as a Substitute Member. Each Member shall be bound by any
representations made by the Attorney in Fact acting in good faith pursuant to
this power of attorney, and each Member hereby waives any and all defenses which
may be available to contest, negate, or disaffirm the action of the Attorney in
Fact taken in good faith under this power of attorney.
<PAGE>
ARTICLE V
Rights and Duties of Members
Section 5.1. Management Rights of Members. Except as expressly provided
otherwise in the Articles or this Agreement or by any mandatory provision of the
Act, no Member, except a Member who is also a Manager (and then only in his
capacity as a Manager within the scope of his authority hereunder), shall
participate in the management of the business or affairs of the Company, said
powers being vested solely and exclusively in the Managers. Notwithstanding the
preceding sentence, the Members shall have the right to approve the following
matters (which are the only matters of the Company's business requiring the
consent of the Members):
(a) the election and removal of a Manager or Managers, in accordance
with Article IV;
(b) the amendment of the Articles, in accordance with the Act;
(c) the amendment of this Agreement, in accordance with Section 14.4;
(d) the approval of the admission of an Additional Member, in
accordance with Section 11.1;
(e) the dissolution of the Company, in accordance with Section 12.1;
(f) the continuation of the business of the Company after dissolution
of the Company, in accordance with Section 12.2;
(g) any of the following actions which shall require the consent of a
Majority in Interest of the Class A Members and a Majority in Interest of
the Class B Members: (i) the sale of all or substantially all of the
Company's assets or any material asset to an Affiliate of the Company, any
Member, or any Affiliate of any Member; (ii) the merger of the Company with
or into an Affiliate of the Company, any Member that is an Entity, or any
Affiliate of any Member: (iii) a material change in the Company's business
outside of the beverage industry: and (iv) a material employment contract
or consulting agreement with a Member, an Affiliate of the Member, or an
Affiliate of the Company, unless such agreement is substantially similar in
all material respects to agreements negotiated at arm's length with third
parties; and
(h) any other matters for which the consent or approval of the Members
is expressly required pursuant to this Agreement, the Articles, or any
mandatory provision of the Act.
<PAGE>
Section 5.2. Approval of Matters by Members. Except as expressly provided
otherwise in the Articles or this Agreement or by any mandatory provision of the
Act, each matter required or permitted to be approved by the Members shall be
considered approved or consented to upon the affirmative vote, approval, or
consent, either in writing or at a meeting of the Members, of a Majority in
Interest of the Class A Members.
Section 5.3. Meetings of Members.
Subsection 5.3.1. Annual Meetings. The annual meeting of the Members
shall be held on the first Thursday of April of each year at 10:00 a.m., if
such day is not a legal holiday, and if such day is a legal holiday, then
on the next following business day that is not a legal holiday, or at such
time and on such date as shall otherwise be fixed by the Managers and
specified in the notice of such meeting. The failure to hold the annual
meeting of the Members at the designated time shall not affect the validity
of any Company action.
Subsection 5.3.2. Special Meetings. Special meetings of the Members
shall be held if called by those Members holding at least twenty-five
percent (25 %) of the Percentages then held by the Members entitled to vote
on any matter and describing the purposes of the meeting.
Subsection 5.3.3. Place of Meetings. Meetings of the Members shall be
held at the principal place of business of the Company or at such other
place, within or without the State of Illinois, as may be specified in the
notice of the meeting, or waiver of notice thereof.
Subsection 5.3.4. Notice of Meetings. Notice of the date, time and
place of each annual and special meeting of the Members, and a description
of the purpose or purposes of such meeting if it is a special meeting,
shall be given by the Managers or by the Members who called the meeting to
each Member of record entitled to vote at such meeting no fewer than ten
(10) nor more than sixty (60) days before the date of the meeting, in the
manner specified in Section 14.12.
Subsection 5.3.5. Waiver of Notice. Notice of any such meeting may be
waived by any Member before or after the date and time stated in the notice
by delivering a written waiver of notice to the Company for inclusion in
the minutes or filing with the Company records. A Member's attendance at a
meeting, either in person or by duly authorized proxy: (i) waives objection
to lack of notice or defective notice of the meeting, unless the Member at
the beginning of the meeting objects to holding the meeting or transacting
business at the meeting; and (ii) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the Member objects to considering
the matter when it is presented.
Subsection 5.3.6. Record Date. For the purpose of determining the
Members entitled to notice of a Members' meeting, to demand a special
meeting, to vote, or to take any other action, the record date for
determining Members entitled to notice of and to vote at an annual or
special Members' meeting shall be the close of business on the day before
the notice is first mailed, sent, or delivered to the Members.
<PAGE>
Subsection 5.3.7. Voting at Meetings.
(a) Voting Rights. The Class B Members and the Class C Members
shall have no voting rights. Except as expressly provided otherwise in
the Articles or by any mandatory provision of the Act, each Member
entitled to vote shall be entitled to one (1) vote for each Unit owned
by such Member, or such fraction of one (1) vote for each fractional
Unit owned by such Member, on each matter voted on at a meeting of the
Members.
(b) Voting of Units Owned by Other Corporations. Any Units
standing in the name of another corporation may be voted by such
officer, agent or proxy as the Board of Directors of such other
corporation may appoint, or as the By-Laws of such other corporation
may prescribe, and in the absence of such designation, by such Person
as may be nominated in a proxy duly executed for the purpose by the
President or a Vice President, and a Secretary or an Assistant
Secretary, of such other corporation.
(c) Voting of Units Owned by Fiduciaries. Units held by
fiduciaries may be voted by the fiduciaries in such manner as the
instrument or order, appointing such fiduciaries, may direct. In the
absence of such direction, or the inability of the fiduciaries to act
in accordance therewith, the following provisions shall apply:
(i) Where Units are held jointly by three or more fiduciaries,
such Units shall be voted in accordance with the will of the
majority in number of such fiduciaries.
(ii) Where the fiduciaries, or a majority of them, cannot agree,
or where they are equally divided, upon the question of
voting such Units, any court of general equity jurisdiction
may, upon petition filed by any of such fiduciaries, or by
any party in interest, direct the voting of such Units as it
may deem for the best interests of the beneficiaries, and
such Units shall be voted in accordance with such
direction..
(iii)The general proxy of a fiduciary shall be given the same
weight and effect as the general proxy of an individual or
corporation.
(d) Voting of Pledged Units. Units that are pledged may, unless
otherwise provided in the agreement of pledge, be voted by the Member
pledging the same until the Units shall have been transferred to the
pledgee on the books of the Company and the pledgee shall have been
admitted as a Substitute Member, and thereafter they may be voted by
the pledgee.
<PAGE>
(e) Proxies. A Member may vote such Member's Units in person or
by proxy appointed by a written appointment form signed by such Member
or by such Member's attorney-in-fact. An appointment of a proxy is
effective when received by the Secretary or other officer or agent of
the Company authorized to tabulate votes. An appointment of a proxy is
valid for eleven (11) months unless a shorter or longer period is
expressly provided in the appointment form.
Subsection 5.3.8. Conduct of Meetings. At any meeting of the Members,
any Manager or other Person selected by a majority in number of all of the
Managers shall preside as chairman at any meeting of the Members. The
chairman of any meeting of the Members shall appoint a Person to act as
secretary of the meeting, and the secretary of the meeting shall prepare
minutes of the meeting which shall be placed in the minute books of the
Company. The order of business at each Members' meeting shall be as
determined by the chairman of the meeting , except that the order of
business at any meeting may be changed by the vote of the Members present
in person or by proxy and entitled to vote as such meeting.
Subsection 5.3.9. Action by Unanimous Written Consent. Any action
required or permitted to be taken at a Members' meeting may be taken
without a meeting if the action is approved by all of the Members entitled
to vote on the action, evidenced by one or more written consents describing
the action taken, signed by all of the Members entitled to vote on the
action, and delivered to the Company for inclusion in the minutes or filing
with the Company records. Unless the record date has been determined
pursuant to Subsection 5.3.6, the record date. for determining Members
entitled to take action without a meeting shall be the earliest date on
which any Member signs a consent. Such action by the Members by unanimous
written consent shall be effective when the last Member signs a consent,
unless the consent specifies a different prior or subsequent effective
date.
Subsection 5.3.10. Participation in Meetings by Conference
Telecommunication. Any or all Members may participate in a Members' meeting
by or through the use of any means of communication by which all Members
participating may simultaneously hear each other during the meeting. A
Member participating in a meeting by this means shall be deemed to be
present in person at the meeting.
Section 5.4. No Authority to Bind Company. A Member acting solely in such
Member's capacity as a Member (rather than as a Manager) shall not be an agent
of the Company and shall not have any right, power, or authority to transact any
business in the name of the Company or to act for or on behalf of, or to bind,
the Company.
<PAGE>
Section 5.5. No Duties. No Member shall have any duties to the Company or
to the other Members solely by reason of being a Member or acting in the
capacity as a Member of the Company, except as provided otherwise in this
Agreement or the Articles.
Section 5.6. Compensation. No Member shall be entitled to any compensation
for services performed for the Company in such Member's capacity as a Member,
except as approved by the Managers, and except for reasonable compensation for
services rendered in winding up the business of the Company. Any such
compensation so approved by the Members shall be treated as expenses of the
Company and shall not be deemed to constitute distributions of Profits or
capital of the Company.
Section 5.7. Reimbursement of Expenses. Each Member shall be entitled to
reimbursement by the Company of expenses reasonably incurred and paid by such
Member on behalf of or for the benefit of the Company. Any question as to
whether a Member is entitled to reimbursement of expenses under this Section
shall be determined by the Managers.
Section 5.8. Further Assurances. Each Member agrees to execute and deliver
to the Company, within five (5) days after receipt of a written request
therefor, all estoppel certificates, other certificates, designations, powers of
attorney, and other instruments and documents, including, without limitation,
all amendments to this Agreement adopted in accordance with this Agreement, tax
statements, and tax returns, and to take such other actions, as the Company
shall deem necessary or advisable to comply with any laws, rules or regulations
applicable to the Company or to enable the Company to carry on its business or
otherwise effectuate the purposes of this Agreement.
Section 5.9. Waiver of Partition. Each Member, on behalf of such Member and
such Member's successors and assigns, hereby waives any rights to have any
property of the Company partitioned. No Member shall make any application to any
court or other authority, or otherwise commence or prosecute any action or
proceeding, for partition or sale of the Company property. Upon any breach of
this Section, the Company and each non-breaching Member shall be entitled to a
decree or other order restraining and enjoining any such application, action or
proceeding.
ARTICLE VI
Officers
Section 6.1. Election, Qualification and Term of Officers. The officers of
the Company shall consist of a President, a Secretary, a Treasurer, and such
other officers as the Managers may from time to time deem advisable, including,
without limitation, a Chairman of the Managers, one or more Vice Presidents, an
Assistant Secretary, or an Assistant Treasurer. The same individual may
simultaneously hold more than one office in the Company. The initial officers of
the Company shall be elected at the first meeting of the Managers. Thereafter,
the officers of the Company shall be chosen annually at the annual meeting of
the Managers, and each officer shall hold office until his successor is chosen
and qualified, or until his death, resignation, or removal. The election or
appointment of an officer does not itself create contract rights.
<PAGE>
Section 6.2. Resignation. Any officer may resign at any time by delivering
notice to the Managers, or the President or Secretary of the Company, which
resignation shall be effective when the notice is delivered unless the notice
specifies a later effective date. The resignation of an officer does not affect
the Company's contract rights, if any, with the officer.
Section 6.3. Removal. Any officer may be removed at any time, with or
without cause, by the Managers; provided, however, that the removal of an
officer does not affect such officer's contract rights, if any, with the
Company.
Section 6.4. Vacancies. Any vacancy in any office because of the death,
resignation, removal, increase in the number of offices of the Company, or
otherwise, shall be filled by the Managers, and the officer so elected shall
hold office until his successor is chosen and qualified, or until his death,
resignation or removal.
Section 6.5. Chairman of the Managers. The Chairman of the Managers (if
any) shall be chosen from among the Managers. The Chairman of the Managers shall
preside at all meetings of the Managers at which he is present, and shall
generally perform all duties incident to the office of Chairman of the Managers
and such other duties as, from time to time, may be assigned to him by the
Managers.
Section 6.6. President. If and while there is no incumbent in the office of
Chairman of the Managers, and during the absence or disability of the Chairman
of the Managers, the President shall have the duties and authority of the
Chairman of the Managers. Subject to the control of the Managers and unless as
otherwise determined by the Managers, the President shall be the chief executive
and operating officer of the Company, shall direct and manage the business and
affairs of the Company, and shall coordinate and supervise the work of its other
officers. The President shall preside at all meetings of the Members at which he
is present. Either personally or through other officers or employees of the
Company, the President shall employ, direct, fix the compensation of,
discipline, and discharge its personnel; employ agents, professional advisers
and consultants; and perform all functions of a general manager of the Company's
business. The President shall have authority to sign (either manually or in
facsimile), with the Secretary or an Assistant Secretary, certificates
representing Units or Interests of the Company. The President shall also have
authority to execute and deliver on behalf of the Company, singly and without
any additional signature or attestation, all deeds, mortgages, assignments,
contracts and other instruments when required or deemed necessary or advisable
by him in the ordinary conduct of the Company's normal business, except where
such documents are expressly required by this Agreement, by resolution of the
Managers, or by law to be executed by some other or an additional officer or
agent of the Company. The President shall, in general, have all authority
incident to the office of the President and shall have such other powers and
duties as may, from time to time, be conferred upon or assigned to him by the
Managers.
<PAGE>
Section 6.7. Vice Presidents. The Vice Presidents (if any) shall perform
such duties as may be assigned to them, individually or collectively, by the
Managers or by the President. In the absence or disability of the President, one
or more of the Vice Presidents may perform such duties of the President as the
President or the Managers may designate.
Section 6.8. Secretary. The Secretary shall: (i) prepare or cause to be
prepared the minutes of the meetings of the Members and the Managers in books
provided for such purpose and authenticate records of the Company; (ii) attend
to the giving of all notices in accordance with the provisions of this Agreement
and as required by law; (iii) have the authority (when required) to sign with
the President or a Vice President in the name of the Company, and/or attest the
signature of either to, all contracts, conveyances, transfers. assignments,
encumbrances, authorizations and all other instruments, documents and papers, of
any and every description whatsoever, of or executed for or on behalf of the
Company; (iv) be the custodian of the records and the seal (if any) of the
Company and attend to the affixing of the seal (if any) to all documents, the
execution of which on behalf of the Company under its seal is duly authorized in
accordance with the provisions of this Agreement; (v) have authority to sign
(either manually or in facsimile), with the President or a Vice President, any
and all certificates representing Units or Interests of the Company; (vi) have
charge of and maintain and keep, or supervise and control the maintenance and
keeping of, the Unit certificate books and transfer books (if any), and such
other books and papers as the Managers may authorize, direct or provide for;
(vii) perform generally all the duties incident to the office of Secretary; and
(viii) have such other powers and duties as may, from time to time, be conferred
upon or assigned to him by the Managers.
Section 6.9. Treasurer. Unless otherwise determined by the Managers or the
President, the Treasurer shall be the financial officer of the Company. The
Treasurer shall: (i) have charge and custody of, and be responsible for, all
funds and securities of the Company which come into his hands; (ii) have
authority to endorse on behalf of the Company, for collection, checks, notes and
other obligations, and deposit the same to the credit of the Company in such
banks or other depositories as shall be selected by the Managers; (iii) receive,
and give receipts and vouchers for, payments made to the Company from any source
whatsoever; (iv) enter or cause to be entered, punctually and regularly, on the
books of the Company, to be kept by him or under his supervision or direction
for that purpose, full and accurate accounts of all monies received and paid out
by, for or on account of, the Company; (v) render to the President and the
Managers, whenever required by them, an account of all of his transactions as
Treasurer of the Company and of the financial condition of the Company; (vi)
perform generally all the duties incident to the office of Treasurer; and (vii)
have such other powers and duties as may, from time to time, be conferred upon
or assigned to him by the Managers or by the President. If required by the
Managers, the Treasurer shall give such bond for the faithful performance of his
duties in such amount and with such sureties as the Managers shall determine.
Section 6.10. Assistant Secretaries. The Assistant Secretaries (if any)
shall perform such duties as from time to time may be assigned to them,
individually or collectively, by the Managers, by the President, any Vice
President, or by the Secretary. In the absence or disability of the Secretary,
one or more of the Assistant Secretaries may perform such duties of the
Secretary as the Secretary, the President, or the Managers may designate.
<PAGE>
Section 6.11. Assistant Treasurers. The Assistant Treasurers (if any) shall
perform such duties as from time to time may be assigned to them, individually
or collectively, by the Managers, by the President, by any Vice President, or by
the Treasurer. In the absence or disability of the Treasurer, one or more of the
Assistant Treasurers may perform such duties of the Treasurer as the Treasurer,
the President, or the Managers may designate.
Section 6.12. Delegation of Authority. In the case of the absence of any
officer of the Company, or for any other reason that the Managers may deem
sufficient, the Managers may delegate powers or duties of such officer to any
other officer or officers for such length of time as they may determine.
Section 6.13. Compensation. Each officer of the Company shall receive such
compensation, if any, for his service in such office as may be fixed from time
to time by action of the Managers.
ARTICLE VII
Accounting and Records
Section 7.1. Fiscal Year. The fiscal year of the Company for financial
reporting shall commence on the first day of April in each year and end on the
last day of March in each year.
Section 7.2. Books and Records. The Managers shall keep or cause to be kept
complete and accurate books and records of the Company and supporting
documentation of transactions with respect to the conduct of the Company's
business. The books and records shall be maintained in accordance with sound
accounting practices and shall be appropriate and adequate for the Company's
business.
Section 7.3. Records and Information at Principal Place of Business. The
Company shall keep at its principal place of business all records required to be
kept by Section 1-40 of the Act, including the following records and
information:
(a) A list of the full name and last known address of each Member
setting forth the amount of cash each Member has contributed, a description
and statement of the agreed value of the other property or services each
Member has contributed or has agreed to contribute in the future, and the
date on which each became a Member;
(b) A copy of the Articles, together with executed copies of any
powers of attorney under which any Articles, application, or certificate
has been executed;
<PAGE>
(c) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the three (3) most recent years; and
(d) Copies of the then effective Agreement and all amendments thereto
and all financial statements of the Company for the three (3) most recent
fiscal years.
Section 7.4. Access to Records. Any Member, legal representative of a
deceased Member, or Member under legal disability may, at his request and
expense, inspect and copy the records described in Section 7.3. The Company
shall provide Members and their agents and attorneys access to its records
(including the records required to be kept under Section 7.3) at the Company's
principal place of business at all reasonable times. The Company shall provide
former Members and their agents and attorneys access for proper purposes to such
records pertaining to the period during which they were Members at the Company's
principal place of business. Such right of access shall include the right to
inspect and copy records during ordinary business hours. The Company may impose
a reasonable charge, limited to the costs of labor and material, for copies of
records furnished. Each Member has the right upon written demand given to the
Company to obtain a copy of the Agreement at the Company's expense.
Section 7.5. Tax Returns and Information. The Managers shall cause to be
prepared and timely filed all tax returns required to be filed by the Company
pursuant to the Internal Revenue Code and the laws of each state in which the
Company does business. The Managers shall use their best efforts to cause the
Company to deliver, within ninety (90) days after the end of each taxable year
of the Company, to each Person who was an Interest Holder at any time during
such taxable year all tax information concerning the Company which is necessary
for the preparation of the Interest Holder's federal and state income tax
returns for such taxable year, as required by the Internal Revenue Code, the
Regulations, and the laws of any state.
Section 7.6. Tax Elections. The Managers may make any and all tax elections
permitted to be made by the Company pursuant to the Internal Revenue Code or the
tax laws of any state or other jurisdiction having taxing jurisdiction over the
Company; provided, however, that the Managers shall make any tax election
requested by a Majority in Interest of the Members.
Section 7.7. Tax Matters Partner. NWS, or such other Member as shall from
time to time be designated by a Majority in Interest of the Members. shall be
the "tax matters partner" of the Company pursuant to Section 6231 (a)(7) of the
Internal Revenue Code. The tax matters partner shall have all powers and
responsibilities provided in the Internal Revenue Code. The tax matters partner
shall keep all Members informed of all notices from government taxing
authorities which may come to the attention of the tax matters partner. The tax
matters partner shall incur no liability to any Member with respect to any
action undertaken in good faith in connection with such responsibilities. The
Company shall pay and be responsible for all reasonable third party costs and
expenses incurred by the tax matters partner in performing such
responsibilities. Each Member shall be responsible for any costs incurred by the
Member with respect to any tax audit or tax-related administrative or judicial
proceeding against the Member, even though it relates to the Company. The tax
matters partner shall not compromise any dispute with the Internal Revenue
Service without the approval of a Majority in Interest of the Members.
<PAGE>
Section 7.8. Bank Accounts. All funds of the Company shall be deposited in
a bank account or accounts in the Company's name. The Managers shall determine
the institution or institutions at which the accounts will be opened and
maintained, the types of accounts, and the Persons who will have authority with
respect to the accounts and the funds therein.
ARTICLE VIII
Provisions Affecting Class C Membership Interests
Section 8.1. Liquidation Preference. In the event of the liquidation,
dissolution or winding up of the affairs of the Company, voluntary or
involuntary, the Class C Interest Holders shall be entitled to be paid out of
the assets of the Company available for distribution to the Interest Holders an
amount equal to the sum of: (i) the unpaid Preference Amount with respect to
such Class C Interests, plus (ii) the amount of the Unpaid Priority Return with
respect to such Class C Interests (the "Liquidation Preference Amount"), in
preference to and before any amount shall be distributed or paid to the Class A
Interest Holders and Class B Interest Holders. Except for the payment of such
Liquidation Preference Amount, the Class C Interest Holders shall not be
entitled to any further distributions upon the liquidation, dissolution or
winding up of the Company.
Section 8.2. Redemption of Class C Membership Interests. Subject to any
restrictions and covenants contained in any Bank Agreements, the Company shall
have the right from time to time to purchase and redeem, any or all of the
outstanding Class C Units, in such manner and amounts as the Managers may
determine, by paying in cash therefor an amount equal to the Preference Amount
per Unit multiplied by the number of Class C Units so purchased and redeemed,
together with all Unpaid Priority Returns with respect to such redeemed Class C
Units to the date fixed for redemption (the "Redemption Price"); provided,
however, that (except in the event of the liquidation or dissolution of the
Company, the sale of substantially all of the assets of the Company, or the
purchase of all Class C Interests owned by an Interest Holder pursuant to this
Agreement) the maximum number of Class C Units subject to redemption in any
calendar year shall not exceed two hundred (200) Class C Units. In the event
that less than all of the issued and outstanding Class C Units are purchased and
redeemed by the Company, the Managers shall have full power and sole discretion
to determine the Class C Units to be purchased and redeemed, or may purchase and
redeem Class C Units from all Class C Interest Holders on a pro rata basis. Less
than all of the Class C Units at any time outstanding may not be redeemed until
all Unpaid Priority Returns shall have been paid for all past years and until
full Priority Returns for the then current year on all Class C Units then
outstanding (other than Class C Units to be purchased and redeemed) shall have
been paid. The Company shall give written notice of the redemption of any Class
C Units not less than ten (10) days prior to the date designated in such notice
as a day for such redemption to the holders of the Class C Units to be redeemed.
<PAGE>
ARTICLE IX
Provisions Affecting Class B Membership Interests
Section 9.1. LaCrosse Family Group's Option to Purchase Class B Units. At
any time on or after 12:01 a.m. (Chicago, Illinois, time) on the fifteenth
(15th) anniversary of the Effective Date of this Agreement (the "LaCrosse Option
Date"), the LaCrosse Family Group or any members thereof shall have the option
to purchase no less than all of the Class B Units owned by the Bart Family Group
(the "Option"). The LaCrosse Family Group may at any time assign its Option
rights hereunder to the Company or NWS, or any of their respective Affiliates.
The Option shall be subject to the following terms and conditions:
(a) The exercise of the Option shall be in writing and shall set out,
in reasonable detail, the terms and conditions of the proposed purchase,
including the number of Class B Units being offered (which must be all),
the price per Class B Unit, the total option price (the "Exercise Price"),
a statement of the manner in which the Exercise Price may be paid as set
out in paragraph (b) of this Section 9.1, the date of the closing (the
"Closing"), which shall not be less than sixty (60) days nor more than
ninety (90) days from the date of the exercise of the Option, and which
Closing shall be during regular business hours, and the place of such
Closing shall be within the City of Chicago, Illinois. The date that the
LaCrosse Family Group gives notice of the exercise of the Option shall be
referred to in this Agreement as the "Option Exercise Date." The Exercise
Price shall be equal to the sum of (i) the purchase price for the Class B
Units as determined in accordance with Section 9.3. plus (ii) if the Option
Exercise Date occurs during the 10 year period commencing on the LaCrosse
Option Date, a premium amount, depending on the calendar year during which
the Option Exercise Date occurs, starting at twenty percent (20%) of such
purchase price, if the Option Exercise Date occurs during the calendar year
commencing on the LaCrosse Option Date, and reducing by two percent (2%)
each calendar year thereafter so that after the end of such 10 year period
the premium amount shall be zero. All Members agree that, upon the Closing,
each Purchaser of Class B Units pursuant to the Option shall be admitted as
a Substitute Member of the Company.
(b) The Purchaser(s) of the Class B Units in accordance with the terms
of this Section 9.1 may, at their option, pay no less than twenty percent
(20%) of the Exercise Price in cash at the Closing with the remainder to be
paid in four (4) consecutive equal annual installments commencing after the
Closing date. Interest at the Applicable Interest Rate shall be payable on
the unpaid principal balance at the same time that principal installments
are due and payable. The unpaid balance shall be evidenced by a series of
four (4) promissory notes to each selling Class B Interest Holder made by
the Purchaser(s) in such form as is reasonably acceptable to both Family
Groups. Each note may be prepaid in whole or in part at any time without
premium or penalty; provided that any prepayment shall be applied against
the installments thereafter falling due in the inverse order of their
maturities.
(c) Each Purchaser of Class B Units pursuant to this Section
9.1 shall assign to and grant a security interest in the Class B Units
purchased by the Purchaser (the "Collateral") to the Bart Family Group, as
collateral security for the payment of all notes by such Purchaser made in
accordance with paragraph (b) of this Section 9.1. All Class B Units held
as collateral security shall be unencumbered as a requirement for the
exercise of the deferred payment option under paragraph (b) of this Section
9.1. The Collateral shall be so held until all of the notes payable by the
Purchaser shall have been paid. Upon default in the payment of any one (1)
note, the Bart Family Group may sell the Collateral at public or private
sale held in accordance with the provisions of the Uniform Commercial Code
as enacted in the State of Illinois. All parties agree that thirty (30)
days' written notice of the public or private sale to the defaulting
Purchasers shall be reasonable notification of such matters. The Bart
Family Group and any of its members shall have the right to bid at any such
sale. The proceeds of any such sale shall be applied first to the expenses
thereof, and next to the payment of the then unpaid balance due and owing
the Bart Family Group from such Purchaser. The excess of such proceeds, if
any, shall be paid to such Purchaser. If the proceeds are insufficient to
satisfy the unpaid balance, the Purchaser shall be liable for any
deficiency. During the time the Collateral is held in accordance herewith,
so long as the Purchaser is not in default, the Purchaser shall be entitled
to all Membership Interests with respect to the Class B Interests purchased
by the Purchaser, including any distributions with respect thereto.
<PAGE>
Section 9.2. Right of First Refusal to Purchase Class B Units.
(a) In the event that on or after the LaCrosse Option Date, any member
of the Bart Family Group shall receive a bona fide written offer (the
"Original Offer") for the purchase for cash of all or part of his Class B
Units or Interests, he shall notify the LaCrosse Family Group and the
Company that such offer has been made. Such notice shall be in writing and
shall have attached thereto a copy of the Original Offer.
(b) If the Bart Family Group intends to accept the Original Offer,
they shall give written notice to the LaCrosse Family Group, NWS, and the
Company that they intend to accept such offer. Such notice shall be deemed
to be an offer to sell all of the Class B Units referred to in the Original
Offer to the LaCrosse Family Group (or any member thereof). NWS, and/or the
Company for the same consideration and on the same terms and conditions as
forth in the Original Offer (other than the Closing Date).
(c) Thereafter, for a period of ninety (90) days after the date of
such notice, the LaCrosse Family Group, NWS, and the Company shall have
exclusive right to purchase all, but not less than all, of the Class B
Units referred to in the Original Offer. As, among the LaCrosse Family
Group, NWS, and the Company, the LaCrosse Family Group shall have the first
right, NWS shall have the second right, and the Company shall have the
third right, to purchase the Class B Units referred to in the Original
Offer.
<PAGE>
(d) The closing of any such sale of the Class B Units shall take place
upon such date at such time and place as shall be agreed to by the Bart
Family Group and the Purchasers of the Class B Units, but in no event later
than ninety (90) days after notice of the Original Offer to the LaCrosse
Family Group, NWS, and the Company. Upon the payment to the Bart Family
Group of the price set forth in the Original Offer, the Bart Family Group
shall assign to the Purchaser(s) all Membership Interests with respect to
the Units purchased by the Purchasers, free and clear of any liens,
encumbrances, restrictions and other claims (except for transfer
restrictions imposed by this Agreement). The Members agree that, upon the
Closing, the Purchaser(s) of the Class B Units shall be admitted as
Substitute Member(s) of the Company.
(e) In the event that the LaCrosse Family Group, NWS, and/or the
Company elect not to exercise such right of first refusal, the Bart Family
Group shall then have the right to convey to and only to the party making
the Original Offer the number of Class B Units referred to, and strictly in
accordance with the terms and conditions stated in, the Original Offer,
provided, however, if the Bart Family Group does not complete the transfer
of such offered Class B Units to the party specified in the Original Offer
within ninety (90) days after the LaCrosse Family Group, NWS, and the
Company fail to exercise their right of first refusal to purchase such
offered Class B Units pursuant to this Section 9.2, then the authority of
the Bart Family Group to transfer such Class B Units shall terminate, and
all Class B Units shall again be subject to all of the terms, conditions
and restrictions of this Agreement. Such Class B Units, whether purchased
by the third party or by the LaCrosse Family Group, NWS, or the Company
shall continue to be subject to the terms, covenants and conditions of this
Agreement.
Section 9.3. Purchase Price.
Subsection 9.3.1. Purchase Price for Class B Units. The purchase price
for each Class B Unit purchased and sold pursuant to Section 9.1 of this
Agreement shall be equal to (plus any premium amount required by Section
9.1):
(a) A total of:
(i) The Adjusted Net Book Value of the Company (as
determined in accordance with Subsection 9.3.2) as of
the last day of the month immediately preceding the
month during which the Option Exercise Date occurred
(the "Valuation Date"),
(ii) plus the pre-tax earnings, or minus the pre-tax losses,
of the Company for the fiscal year of the Company
immediately preceding the fiscal year during which the
Option Exercise Date occurred, based upon the financial
statements of the Company for such preceding fiscal
year,
(iii)minus the total Redemption Price for all outstanding
Class C Units as of the Closing Date, if any;
<PAGE>
(b) divided by the total number of Class A Units and Class B
Units outstanding as of the Closing Date.
Subsection 9.3.2. Determination of Adjusted Net Book Value. The
Adjusted Net Book Value of the Company shall be the net book value of the
Company determined from the Company's regularly maintained books of account
in accordance with past accounting practices consistently applied, subject,
however, to the following adjustments:
(a) The Adjusted Net Book Value shall not include any value for
any goodwill, deferred pension cost, unamortized organization and
start up expenses, or unamortized loan fees, other than any tax
benefits resulting from any income tax deductions which may be
lawfully taken with respect to such items subsequent to the Valuation
Date, determined by multiplying the amount of any such deductions by
the Tax Rate on the Valuation Date.
(b) All real estate and the improvements thereon (the "Real
Estate") shall be valued at the fair market value thereof on the
Valuation Date, reduced by an amount equal to (i) the difference
between the fair market value of the Real Estate on the Valuation Date
and the Company's income tax basis of the Real Estate (ii) multiplied
by the Applicable Tax Rate in effect on the Valuation Date. Promptly
following the occurrence of the Option Exercise Date, the Transferors
and Purchasers of Units shall each select an independent real estate
appraiser who is a member of the American Institute of Real Estate
Appraisers and possesses an MAI designation and shall notify the other
party of their selection. The appraiser selected by the Purchasers
shall complete his appraisal of the Real Estate within forty-five (45)
days after the occurrence of the Option Exercise Date. If the
appraised value of the Real Estate as determined by such appraiser
selected by the Purchasers is acceptable to the Transferors, then such
appraised value shall constitute the fair market value of the Real
Estate hereunder. If the appraised value of the Real Estate as
determined by the appraiser selected by the Purchasers is not
acceptable to the Transferors, then the appraiser selected by the
Transferors shall complete his appraisal of the Real Estate within
seventy-five (75) days after the occurrence of the Option Exercise
Date. If the appraised value of the Real Estate as determined by the
appraiser selected by the Transferors is acceptable to the Purchasers,
then such appraised value shall constitute the fair market value of
the Real Estate hereunder. If the appraised value of the Real Estate
as determined by the appraiser selected by the Transferors is not
acceptable to the Purchasers, then for the purposes of this Agreement,
the fair market value of the Real Estate shall be equal to the average
of the two appraisals. The Purchasers and Transferors shall share
equally the costs of all appraisals.
(c) The Adjusted Net Book Value shall be increased by the amount
of the current LIFO reserves on the Valuation Date, reduced by an
amount equal to the Applicable Tax Rate in effect on the Valuation
Date multiplied by the amount of such LIFO reserves.
<PAGE>
Subsection 9.3.3. Determination of Purchase Price. The total purchase
price payable by any Purchaser of Class B Units pursuant to Section 9.1
shall be equal to the purchase price per Class B Unit determined in
accordance with this Section 9.3 multiplied by the number of Class B Units
purchased by the Purchaser. If the Purchasers and the Transferors are
unable to agree upon the Purchase Price within ninety (90) days after the
Option Exercise Date, the Purchase Price for the Class B Units shall be
determined by the Company's Accountants pursuant to and in accordance with
this Agreement, which determination shall be conclusive and binding upon
all parties to this Agreement.
ARTICLE X
Transfer of Interests
Section 10.1. Permitted Transfers. Subject to the satisfaction of the
conditions set forth in Section 10.2, the following Transfers of Interests shall
be permitted (the "Permitted Transfers"): (i) the Class A Interest Holders may
at any time sell, assign, gift or otherwise Transfer all or any part of its or
his Interests to any Affiliate of NWS or to any member or members of the
LaCrosse Family Group or Johnston Family Group; (ii) the Class B Interest
Holders may at any time sell, assign, gift or otherwise Transfer all or any part
of his Interests to any member or members of the Bart Family Group; (iii) the
Class C Interest Holders may at any time sell, assign, gift or otherwise
Transfer all or any part of his Interests to any Affiliate of NWS or to any
member or members of the LaCrosse Family Group or Johnston Family Group; (iv)
any Transfers of Class B Interests to, the LaCrosse Family Group, NWS or the
Company pursuant to Sections 9.1 or 9.2; (v) any redemption of Class C Interests
pursuant to Section 8.2; (vi) any Transfers of Class B Interests pursuant to the
Put Option Agreement; and (vii) any Transfers of Interests made with the prior
written consent of a Majority in Interest of the Class A Members and a Majority
in Interest of the Class B Members. All Interests Transferred pursuant to this
Section 10.1 shall remain subject to the terms and conditions of this Agreement.
Section 10.2. Conditions of Transfer. No Member or Transferee (the
"Transferor") shall sell, assign, exchange, gift or otherwise Transfer all or
any part of the Transferor's Interests (or Membership Interests), unless and
until all of the following requirements are satisfied:
(a) The Transferor and transferee shall execute and deliver to the
Company such instruments of transfer, assignment, and assumption and other
certificates, instruments, and documents, and shall perform such other
acts, as the Managers may deem necessary or advisable to fully effectuate
such Transfer;
(b) The transferee shall execute a written instrument, in form
reasonably satisfactory to the Company, agreeing to be bound by all
provisions of this Agreement; and
<PAGE>
(c) The transferee shall furnish to the Company the transferee's
taxpayer identification number, sufficient information to determine the
transferee's initial tax basis in the Interests transferred, any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns, and other legally required information
statements and returns.
Any Transfer of an Interest made in compliance with the provisions of this
Section 10.2 shall be deemed effective as of the first day of the first month
following the satisfaction of all of the requirements contained in this
Subsection, and thereupon, the transferee shall be deemed a Transferee. Any
attempted Transfer of an Interest or any part thereof not in compliance with the
requirements of this Subsection shall be null and void ab initio. Each
Transferor shall indemnify the Company and the other Members from and against
any and all loss, damage, and expense, including, without limitation, tax
liabilities and loss of tax benefits, arising directly or indirectly as a result
of any Transfer or purported Transfer in violation of the provisions of this
Section.
Section 10.3. Admission of Transferee as Substitute Member. A Transferee of
Interests received in a Permitted Transfer made in compliance with Section 10.2
shall be admitted as a Substitute Member unless otherwise directed by the
Transferor. Any Transferee of Interests not received in a Permitted Transfer
shall have the right to become a Substitute Member with respect to such
Interests if and when: (i) the admission of such Transferee as a Substitute
Member is approved by a Majority in Interest of the Class A Members and a
Majority in Interest of the Class B Members; (ii) all of the requirements
contained in Section 10.2 shall have been satisfied; and (iii) the Transferor
and/or Transferee shall pay any and all expenses incurred by the Company in
connection with the admission of the Transferee as a Substitute Member,
including, without limitation, all reasonable attorneys' fees and expenses of
preparing any amendments to this Agreement.
Section 10.4. Rights of Transferee. Unless and until a Transferee is
admitted as a Substitute Member, a Transferee shall not be entitled to
participate in the management or conduct of the Company's business, require
access to information concerning the Company's transactions, or inspect or copy
any of the Company's records. A Transferee who is not admitted as a Substitute
Member shall only be entitled to: (i) receive distributions to which the
Transferor would otherwise be entitled with respect to the transferred
Interests, and (ii) upon dissolution and winding up of the Company's business,
receive the net amount otherwise distributable to the Transferor with respect to
the transferred Interests and receive a statement of account only from the date
of the latest statement of account agreed to by all of the Members.
Section 10.5. Rights of Transferring Member. If a Member assigns all or any
portion of his Interests in the Company to a Transferee in accordance with this
Agreement, then unless and until such Member ceases to be a Member pursuant to
this Agreement and the Act or unless and until such Transferee is admitted as a
Substitute Member, such transferring Member shall be entitled to the Membership
Interests (other than the Interests) incident to such assigned Interests.
<PAGE>
Section 10.6. Restrictions on Transfers. Except for the Permitted
Transfers, no Member or Transferee shall be permitted to sell, assign, exchange,
gift, pledge, hypothecate, encumber, or otherwise Transfer all or any part of
his or its Interests or Membership Interests. Each Member hereby acknowledges
the reasonableness of this prohibition in view of the purposes of the Company
and the relationship with the Members. Any attempted Transfer of any Interests
or Membership Interests, or any part thereof, shall be null and void ab initio,
and the proposed transferee shall acquire no rights incident to such Interests.
ARTICLE XI
Changes in Members
Section 11.1. Additional Members. Subject to the provisions of Section 2.3,
the Members may at any time admit any Person as an Additional Member of the
Company and grant to such Person such Interests, and such Person shall make such
Capital Contributions to the Company, as shall be determined by a Majority in
Interest of the Class A Members and a Majority in Interest of the Class B
Members. Such Person shall be admitted as an Additional Member as of the first
day of the first month following the satisfaction of all of the following
requirements: (i) the admission of such Person as an Additional Member is
approved by a Majority in Interest of the Class A Members and a Majority in
Interest of the Class B Members; (ii) such Person pays or otherwise makes all
required Capital Contributions; and (iii) such Person executes this Agreement,
or a counterpart signature page hereof, agreeing to be bound by the provisions
of this Agreement, and such other documents and instruments as shall be
reasonably required by the Managers to effectuate the admission of such Person
as an Additional Member.
Section 11.2. Events of Dissociation. A Person shall cease to be a Member
(the "Dissociated Member") of the Company upon the occurrence of any of the
following events:
(a) The Company's having received notice of the Member's express will
to voluntarily withdraw upon the date of notice or on a later date
specified by the Member; provided that such withdrawal shall be deemed to
be a wrongful dissociation under Section 35-50 of the Act unless the Member
has obtained the prior written consent of all other Members to such
Member's withdrawal, or unless such withdrawal is done pursuant to the
exercise of rights under the Put Option Agreement;
(b) The Transfer of all of a Member's Interest, other than a Transfer
for security purposes or a court order charging the Member's interests that
have not been foreclosed;
(c) The Member's expulsion by the unanimous vote of all of the other
Members if: (i) it is unlawful to carry on the Company's business with the
Member; (ii) there has been a transfer of substantially all of the Member's
Interests, other than a Transfer for security purposes or a court order
charging the Member's Interests that have not been foreclosed; (iii) within
ninety (90) days after the Company notifies a corporate Member that it will
be expelled because it has filed a certificate of dissolution or the
equivalent, its charter has been revoked, or its right to conduct business
has been suspended by the jurisdiction of its incorporation, the Member
fails to obtain a revocation of the certificate of dissolution or a
reinstatement of its charter or its right to conduct business; or (iv) a
partnership or a limited liability company that is a Member has been
dissolved and its business is being wound up;
<PAGE>
(d) On application by the Company or another Member, the Member is
expelled by judicial determination because the Member: (i) engaged in
wrongful conduct that adversely and materially affected the Company's
business; (ii) willfully or persistently committed a material breach of
this Agreement or of a duty owed to the Company or the Members under
Section 15-3 of the Act; or (iii) engaged in conduct relating to the
Company's business that makes it not reasonably practicable to carry on the
business with the Member;
(e) The Member: (i) becomes a Debtor in Bankruptcy, (ii) executes an
assignment for the benefit of creditors; (iii) seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or liquidator of the
Member or of all or substantially all of the Member's property; or (iv)
fails, within ninety (90) days after the appointment, to have vacated or
stayed the appointment of a trustee, receiver, or liquidator of the Member
or of all or substantially all of the Member's property obtained without
the Member's consent of acquiescence, or fails within ninety (90) days
after the expiration of a stay to have the appointment vacated;
(f) In the case of a Member who is an individual: (i) the death of the
Member; (ii) the appointment of a guardian or general conservator for the
Member; or (iii) a judicial determination that the Member has otherwise
become incapable of performing the Member's duties under the Agreement;
(g) In the case of a Member that is a trust or is acting as a Member
by virtue of being, a trustee of a trust, the distribution of the trust's
entire rights to receive distributions from the Company, but not merely by
reason of the substitution of a successor trustee;
(h) In the case of a Member that is an estate or is acting as a Member
by virtue of being a personal representative of an estate, the distribution
of the estate's entire rights to receive distributions from the Company,
but not merely the substitution of a successor personal representative; or
(i) The termination of the existence of a Member, if the Member is not
an individual, estate, or trust other than a business trust.
<PAGE>
Section 11.3. Effects of Dissociation.
Subsection 11.3.1. Wrongful Dissociation. A Member's dissociation from
the Company shall be wrongful only if it is in breach of an express
provision of this Agreement or if it is deemed to be wrongful under this
Agreement. A Member who wrongfully dissociates from the Company shall be
liable to the Company and to the other Members for any damages caused by
the dissociation, in addition to any other obligations of the Member to the
Company or to the other Members under this Agreement or by law. If the
Company does not dissolve and wind up its business as a result of the
Member's wrongful dissociation, any damages sustained by the Company for
the wrongful dissociation (which shall be monetary damages only and not
specific performance) shall be offset against any distributions otherwise
due the Member (or his Transferees) after the dissociation.
Subsection 11.3.2. Rightful or Wrongful Dissociation. Upon a Member's
dissociation from the Company, whether such dissociation is rightful or
wrongful, the Member shall cease to be a Member and shall be treated the
same as a Transferee, and the Member's right to participate in the
management and conduct of the Company's business shall terminate, except
that a Member who has not wrongfully dissociated from the Company may
participate in winding up of the Company's business. Upon a Member's
dissociation from the Company, except as expressly provided otherwise in
this Agreement or the Put Option Agreement, the Company shall not be
required to purchase the Dissociated Member's Interests pursuant to
Section35-60 of the Act, and thereafter, the Dissociated Member, or his
successors or assigns, shall have the rights as a Transferee in the Company
and shall be entitled to receive only those distributions to which such
Dissociated Member would have been entitled had such Dissociated Member
remained a Member (and only at such times as such distributions would have
been made had such Dissociated Member remained a Member). Each Member, on
behalf of such Member and such Member's successors and assigns, hereby
waives any and all rights under Sections 35-60 and 35-65 of the Act to
receive the fair value of such Member's Interests in the Company upon such
Member's dissociation from the Company.
ARTICLE XII
Dissolution and Winding Up
Section 12.1. Dissolution Events. The Company shall be dissolved, and,
unless continued pursuant to Section 12.2, its business shall be wound up, upon
the occurrence of any of the following, events:
(a) The occurrence of an event that makes it unlawful for all or
substantially all of the business of the Company to be continued, unless
such illegality is cured within ninety (90) days after notice to the
Company of the event, which cure shall be effective retroactively to the
date of the event for the purpose of this Section 12.1;
<PAGE>
(b) Upon the entry of a judicial decree on the application by any
Member or a Dissociated Member that: (i) the economic purpose of the
Company is likely to be unreasonably frustrated; (ii) another Member has
engaged in conduct relating to the %Company's business that makes it not
reasonably practicable to carry on the Company's business with that Member;
(iii) it is not otherwise reasonably practicable to carry on the Company's
business in conformity with the Articles and this Agreement; or (iv) the
Managers or Members in control of the Company have acted, are acting, or
will act in a manner that is illegal, oppressive, or fraudulent with
respect to the petitioner;
(c) The administrative dissolution of the Company under Section 35-25
of the Act, unless the Company is reinstated within ninety (90) days after
it receives notice of such administrative dissolution; or
(d) The written consent or agreement of a Majority in Interest of the
Class A Members and a Majority in Interest of the Class B Members.
Notwithstanding any provision in this Agreement to the contrary, no Transferee
of an Interest shall have the right to institute a proceeding to obtain a
judicial determination that it is equitable to wind up the Company's business.
Section 12.2. Continuation of Company After Dissolution. Notwithstanding
the dissolution of the Company, the business of the Company shall be continued
if, at any time within ninety (90) days after the dissolution of the Company and
before the winding up of its business is completed, a Majority in Interest of
the Class A Members and a Majority in Interest of the Class B Members (excluding
a Dissociated Member whose dissociation caused the dissolution) waive the right
to have the Company's business wound up and the Company terminated. In such
event, the Company shall resume carrying on its business as if dissolution had
never occurred and any liability incurred by the Company or a Member after the
dissolution and before the waiver is determined as if the dissolution had never
occurred, and the rights of a third party accruing under Section 35-7(a) of the
Act or arising out of conduct in reliance on the dissolution before the third
party knew or received a notification of the waiver shall not be adversely
affected.
Section 12.3. Winding Up Company's Business. After the dissolution of the
Company, unless and until the business of the Company is continued in accordance
with Section 12.2, the Managers shall wind up the Company's business and affairs
in accordance with the Act. A Dissociated Member who has wrongfully dissociated
may not participate in the winding up of the Company's business and affairs.
Section 12.4. Distribution of Assets. Upon the winding up of the Company,
the assets of the Company shall be distributed as follows:
<PAGE>
(a) First, to the creditors of the Company (including Members and
Managers who are creditors to the extent permitted by law) to satisfy the
liabilities of the Company, whether by payment or by the establishment of
adequate reserves;
(b) Second, to the Class C Interest Holders, the Liquidation
Preference Amount in accordance with the provisions of Section 8.1 (but
only to the extent of the positive balances in the Capital Accounts of the
Class C Interest Holders), after taking into account any allocations of
Profits or Losses, any distributions. and all other Capital Account
adjustments for the Company's taxable year in which the liquidation occurs;
and
(c) Third, to the Interest Holders in accordance with the positive
balances in their respective Capital Accounts, after taking into account
any allocations of Profits or Losses, any distributions, and all other
Capital Account adjustments for the Company's taxable year in which the
liquidation occurs.
Distributions to Interest Holders shall be in cash or property (which need not
be distributed proportionately), or partly in both, as determined by the
Managers. Liquidation proceeds shall be paid within sixty (60) days after the
end of the Company's taxable year during which liquidation occurs, or, if later,
within ninety (90) days after the date of liquidation.
Section 12.5. Articles of Dissolution. When all debts, liabilities and
obligations of the Company have been paid and discharged or adequate provisions
have been made therefor and all of the remaining property and assets of the
Company have been distributed, Articles of Dissolution as required by the Act
shall be executed in duplicate and filed with the Illinois Secretary of State.
Upon the filing of the Articles of Dissolution with the Illinois Secretary of
State, the existence of the Company shall terminate, except for the purpose of
suits, other proceedings, and appropriate action as provided in the Act.
ARTICLE XIII
Indemnification
Section 13.1. Definitions. As used in this Article XIII:
(a) "Claim" means any threatened, pending, or completed claim, action,
suit or proceeding, whether civil, criminal, administrative, or
investigative, and whether formal or informal, and all appeals thereof, in
which an Eligible Person was, is, or is threatened to be, made a named
defendant or respondent, or is otherwise involved because he or she is or
was an Eligible Person.
(b) "Eligible Person" means and includes: (i) any Person who is or was
a Member, Manager or Organizer; (ii) any responsible officer, partner,
shareholder, director. or manager of any such Member, Manager, or Organizer
which is an Entity; and (iii) if approved by a Majority in Interest of the
Members, any Person who is or was a Transferee, officer, employee, or agent
of the Company.
<PAGE>
(c) "Expenses" means and includes all direct and indirect costs
(including without limitation, counsel fees, retainer fees, court costs,
transcript expenses, fees of experts, witness fees, travel expenses,
duplication costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or out-of-pocket
expenses) actually incurred in connection with the investigation, defense,
settlement, or appeal of a Claim or in establishing or enforcing a right to
indemnification under this Article, applicable law, or otherwise.
(d) "Liability" means the obligation to pay any judgment, settlement,
penalty, fine, excise tax (including excise taxes assessed with respect to
an employee benefit plan), or reasonable Expenses incurred with respect to
a Claim.
(e) "Wholly Successful" means, with respect to a Claim: (i) the
termination of the Claim against the Eligible Person without any finding of
liability or guilt against him; (ii) the approval by a court or agency,
with knowledge of the indemnity provided herein, of a settlement of the
Claim; or (iii) the expiration of a reasonable period of time after the
threatened making of a Claim without commencement of an action, suit or
proceeding and without any payment or promise made to induce a settlement.
Section 13.2. Indemnification Rights. To the greatest extent not
inconsistent with the laws of the State of Illinois, the Company shall indemnify
as a matter of right any Eligible Person against all Liability (including
Expenses) incurred by such Eligible Person in connection with any Claim, if:
(i) Such Eligible Person is Wholly Successful with respect to
the Claim; or
(ii) It shall be determined in the specific case that
indemnification of such Eligible Person is permissible in
the circumstances because the Eligible Person has met the
standard of conduct for indemnification set forth in Section
13.3. For the purpose of this clause (ii), such
determination shall be made by either: (y) a Majority in
Interest of the Members who are not at the time parties to
the Claim; or (z) special legal counsel or other third party
selected by a Majority in Interest of the Members.
Section 13.3. Standard of Conduct. The Company shall indemnify an Eligible
Person (other than an Eligible Person who has been Wholly Successful with
respect to a Claim) under this Article only if it is determined in accordance
with the provisions of Section 13.2 that: (i) such Eligible Person's conduct or
failure to act was in good faith and did not constitute grossly negligent or
reckless conduct, intentional misconduct, a knowing violation of law, or a
material breach of this Agreement; and (ii) such Eligible Person reasonably
believed that his or her conduct was in the best interests of the Company or at
least not opposed to its best interests; and (iii) with respect to any criminal
Claim, such Eligible Person had reasonable cause to believe that his or her
conduct was lawful or had no reasonable cause to believe that his or her conduct
was unlawful. The termination of any Claim by judgment, order, settlement (with
or without court approval), or conviction, or upon a plea of guilty or nolo
contendere or its equivalent, shall not, of itself, be determinative that the
Eligible Person did not meet the standard of conduct set forth in this Section.
An Eligible Person's conduct with respect to an employee benefit plan which the
Person reasonably believed to be in the best interests of the participants in,
or beneficiaries of, the plan shall be deemed to be conduct that satisfies the
requirements of clause (ii) above of this Section.
<PAGE>
Section 13.4. Reliance on Information. For the purposes of any
determination under Section 13.2, an Eligible Person shall be deemed to have
acted in good faith and to have otherwise met the applicable standard of conduct
set forth in Section 13.3 if the action is based on information, opinions,
reports, or statements, including financial statements and other financial data,
prepared or presented by: (i) one or more Members or employees of the Company or
another enterprise whom the Eligible Person reasonably believes to be reliable
and competent in the matters presented; (ii) legal counsel, appraisers or other
Persons as to matters reasonably believed to be within such Person's
professional or expert confidence, unless the Eligible Person seeking
indemnification knew or should have known that the report, opinion or statement
was based upon information that was materially misleading or the professional
issuing the report, opinion, or statement did not have knowledge of the material
facts necessary for the report, opinion or statement to be accurate; or (iii)
the Board of Directors or other governing body of another enterprise. The term
"another enterprise" as used in this Section shall mean any other corporation or
any partnership, limited liability company, joint venture, trust, employee
benefit plan or other enterprise of which such Eligible Person is or was serving
at the request of the Company as a director, officer, partner, member, trustee,
employee or agent. The provisions of this Section 13.4 shall not be deem to be
exclusive or to limit in any way the circumstances in which an Eligible Person
may be deemed to have met the applicable standard of conduct set forth in
Section 13.3.
Section 13.5. Advance of Expenses. The Company may pay for or reimburse the
reasonable Expenses incurred by an Eligible Person in connection with any Claim
in advance of final disposition thereof, or, where appropriate, assume the
defense of such Eligible Person against such Claim at the Company's expense, if:
(i) the Eligible Person furnishes to the Company a written affirmation of the
Eligible Person's good faith belief that he or she has met the standard of
conduct for indemnification described in Section 13.3; (ii) the Eligible Person
furnishes to the Company a written undertaking, approved in form and substance
by the Company, by or on behalf of such Eligible Person to repay all such
advanced Expenses if it is ultimately determined that he or she is not entitled
to indemnification: and (iii) a determination is made in accordance with Section
13.2 that, based upon facts then known to those making the determination,
indemnification would not be precluded under this Article XIII. The undertaking
described in clause (ii) above must be a general obligation of the Eligible
Person, subject to such reasonable limitations as the Company may permit, but
need not be secured and may be accepted without reference to financial ability
to make repayment.
<PAGE>
Section 13.6. Indemnification Not Exclusive. The rights of indemnification
and advance of Expenses provided for in this Article XIII shall be in addition
to, and shall not exclude, limit or preclude, any other rights to which any
Eligible Person or other Person seeking indemnification or advance of Expenses
may be entitled to under the Act, any agreement or contract, any other
applicable law, or otherwise.
Section 13.7. Insurance. The Company may purchase and maintain insurance on
behalf of any Eligible Person against any liability asserted against or incurred
by such Eligible Person in any capacity or arising out of his or her status as
such, whether or not the Company has the obligation or power to indemnify such
Eligible Person against such liability under the provisions of this Article
XIII, the Act, the Articles, any applicable law, or otherwise.
Section 13.8. Effective Date; Continuation of Indemnity. The provisions of
this Article0 XIII shall be applicable to Claims made or commenced after the
adoption hereof, whether arising from acts or omissions to act occurring before
or after adoption hereof. The right of any Eligible Person to indemnification
under this Article shall vest at the time of occurrence or performance of any
event, act or omission giving rise to any Claim, and, once vested, shall not
later be impaired as a result of any amendment, repeal, alteration or other
modification of any or all of the provisions in this Article. The provisions of
this Article XIII shall continue to apply to Claims made or commenced against
any Person who has ceased to be an Eligible Person and shall inure to the
benefit of the estate, heirs and personal representatives of such Person.
ARTICLE XIV
Miscellaneous Provisions
Section 14.1. No Liability for Company Debts. The debts, obligations, and
liabilities of the Company, whether arising in contract, tort, or otherwise, are
and shall be solely the debts, obligations, and liabilities of the Company. A
Member or Manager shall not be personally liable for any debt, obligation, or
liability of the Company solely by reason of being or acting as a Member or
Manager. The failure of the Company to observe the usual Company formalities or
requirements relating to the exercise of its Company powers or management of its
business shall not be a ground for imposing personal liability on the Members or
Managers for the liabilities of the Company.
Section 14.2. Confidentiality. Each Member acknowledges that, as a result
of his relationship with the Company, he may acquire, or has acquired, access to
or knowledge of certain (i) trade secrets of the Company ("Trade Secrets"), and
(ii) information relating to the Company or its business and affairs (whether or
not constituting Trade Secrets), including, without limitation, the names,
addresses and other information and records relating to the Company's past,
present, and potential customers, clients and suppliers, technologies, formulas,
know-how, sales, marketing and distribution methods and strategies, new products
and services, project proposals and work in process, business plans, financial
results and financial conditions, computer programs and software (including flow
charts, logic diagrams, object codes and source codes), and all notes,
memoranda, correspondence, records and other written documents relating to such
information, whether or not marked "Confidential " (the information described in
clauses (i) and (ii) of this Section is collectively referred to herein as the
"Confidential Information"). Each Member further acknowledges that all such
Confidential Information is the property of the Company and that any disclosure
of such Confidential Information in violation of this Agreement will
substantially and adversely affect the business of the Company. Each Member
therefore agrees that he shall forever keep confidential all such Confidential
Information and shall not, directly or indirectly, disclose to anyone (except in
furtherance of the Company's or any Affiliate's business), or use for such
Member's benefit or to the detriment of the Company or any Affiliate of the
Company, any such Confidential Information or authorize, cause, or induce others
to do so. Notwithstanding the foregoing, the confidentiality covenants contained
herein shall not apply to any information that is or becomes generally available
to the public other than as a result of a disclosure by the Member or that is
required to be disclosed to the Company's Banks, other lenders, or other Persons
providing capital to the Company, NWS, or National Wine or in any judicial or
Administrative proceeding. This Section supplements and does not supersede the
Member's obligations under all statutes and common laws intended to protect the
Company's Trade Secrets.
<PAGE>
Section 14.3. Conflict Transactions. Any contract or other transaction
between the Company and any Member or Manager, or any Affiliate of the Member or
Manager, including any contract or other transaction that may violate a
fiduciary duty or standard of care required under the Act (a "Conflict
Transaction"), shall be valid for all purposes if: (i) the material facts of the
transaction and the Member's, Manager's, or Affiliate's interest were disclosed
or known to the Managers, and the transaction is approved or ratified by a
majority in number of the Managers who have no interest in the Conflict
Transaction, notwithstanding the fact that such majority may not constitute a
majority of the total number of Managers; or (ii) the material facts of the
transaction and the Member's, Manager's, or Affiliate's interest were disclosed
or known to the Members, and the transaction was approved or ratified by a
Majority in Interest of the Members; or (iii) the transaction was fair to the
Company. This Section shall not be construed to require authorization,
ratification, or approval by the Members of any Conflict Transaction or
invalidate any Conflict Transaction that would otherwise be valid under common
and statutory law applicable thereto.
Section 14.4. Amendments. This Agreement may be amended or modified from
time to time only by a written instrument approved by a Majority in Interest of
the Members, except that any amendment that would (i) impose additional
liability on any Member, (ii) increase the amount of Capital Contributions
required of a Member (other than additional Capital Contributions approved
pursuant to Section 2.3) or accelerate the dates of payment of any required
Capital Contributions, (iii) alter the rights of a Member in distributions,
Profits or Losses or the rights of a Member to approve or otherwise consent to
certain actions as provided in this Agreement, or (iv) modify the provisions of
this Section shall require the approval of all Members. All amendments to this
Agreement must be in writing.
<PAGE>
Section 14.5. Waivers. No provision of this Agreement shall be deemed to
have been waived unless such waiver is executed in writing by the party waiving
such provision. No waiver of any provision of this Agreement shall constitute a
waiver of any other provision of this Agreement. No waiver of any breach or
violation of any provision of this Agreement shall constitute a waiver of any
subsequent breach of such provision.
Section 14.6. Title to Company Property. Legal title to all property of the
Company shall be held and conveyed in the name of the Company.
Section 14.7. Organization Expenses. The Company shall pay all expenses
incurred in connection with the organization of the Company.
Section 14.8. No Partnership Intended for Non-Tax Purposes. The Members
have formed the Company under the Act and expressly do not intend hereby to form
a partnership or limited partnership. The Members do not intend to be partners
to one another or partners as to any third party.
Section 14.9. Rights of Creditors and Third Parties Under this Agreement.
This Agreement is entered into among the Members for the exclusive benefit of
the Company and the Members, and their successors and assigns (subject to the
provisions hereof restricting transfer of Interests), and is expressly not
intended for the benefit of any creditor of the Company or any other Person.
Except and only to the extent provided by applicable statute, no such creditor
or third Person shall have any rights or remedies under this Agreement or any
agreement between the Company and any Member with respect to any Capital
Contribution or otherwise.
Section 14.10. Representations and Warranties. Each Member hereby
represents and warrants to the Company and each other Member that:
(a) The Member is acquiring his Interests in the Company based upon
his own investigation, and the exercise by such Member of his rights and
the performance of his obligations under this Agreement, will be based upon
his own investigation, analysis and expertise. Prior to such Member's
execution of this Agreement, such Member: (i) has been given the
opportunity to ask questions concerning the Company and the terms and
conditions of the offering of the Interests, all of which have been
answered to his full satisfaction; (ii) has been given the opportunity to
obtain any additional information material to the Company and the Interests
which he has requested; and (iii) has either had access to all of the
material facts with respect to the Interests by reason of his active
involvement in the organization and/or management of the Company or has
otherwise received all of the material facts with respect to the Company
and the Interests.
<PAGE>
(b) The Member is acquiring the Interests for his own investment and
for his own account and has no present intention to sell, distribute, or
otherwise transfer the Interests, directly or indirectly, to any other
Person.
(c) The Member understands and acknowledges that: (i) the Interests
have not been registered under the Securities Act of 1933, as amended, or
any applicable state securities laws, in reliance upon certain exemptions
from such registration requirements, (ii) the Company has no present
intention to register the Interests; and (iii) the Interests may not be
sold or otherwise transferred unless and until the Interests are registered
under the applicable state and federal securities laws or unless exemptions
from such registration requirements are available.
(d) The Member has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of
investing in the Interests. The Member has adequate means of providing for
his current and anticipated financial needs, and is able to bear the
economic risk of an investment in the Interests for an indefinite period of
time, including the possibility of a total loss thereof.
(e) The Member acknowledges that he is aware of all restrictions
imposed upon the transferability and resale of the Interests pursuant to
this Agreement and otherwise.
Section 14.11. Reliance on Authority of Person Signing Agreement. If a
Member is an Entity, neither the Company nor any Member or Manager shall be
required to: (i) determine the authority of the individual signing this
Agreement to make any commitment or undertaking on behalf of such Entity or to
determine any fact or circumstance bearing upon the existence of the authority
of such individual; or (ii) see to the application of distributions paid or
credited to such individual signing this Agreement on behalf of such Entity.
Section 14.12. Notices. Except as expressly provided otherwise in this
Agreement, any notice or other communication required to be given pursuant to
this Agreement shall be in writing and shall be either: (i) delivered personally
to the party to be notified, (ii) sent by United States mail, first class
postage prepaid, to the party to be notified, (iii) delivered by an overnight
delivery courier service to the party to be notified, or (iv) transmitted by
facsimile to the party to be notified at such party's facsimile number provided
from time to time by such party to the Company. Any notice to the Company or any
Manager who is not a Member shall be addressed to the Company's principal place
of business, and any notice to any Interest Holder (including a Member in his
capacity as a Schedule A attached hereto. Any such notice shall be deemed to
have been given as of the earlier of: (a) the date of actual receipt of such
notice, or (b) the third business day following the date on which the mail
containing such notice is posted if sent by United States mail, or (c) the first
business day after such notice is delivered to an overnight delivery courier
service for delivery to the party to be notified, or (d) the date of the
confirmed transmission of any notice by facsimile. Any party to this Agreement
may designate a different address or facsimile number to which notices are to be
sent to such party by notifying all other parties to this Agreement as to such
different address or facsimile number in the manner set forth above in this
Section.
<PAGE>
Section 14.13. Unit Certificates. The Company's Units may, at the sole
discretion of the Managers, be represented by written certificates. In the event
that certificates representing Units are issued, such certificates shall bear a
legend indicating the restrictions on transferability set forth in this
Agreement.
Section 14.14. Specific Performance. The parties recognize that irreparable
injury will result from any breach of any provision of this Agreement and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of any breach or threatened breach of any provision of this Agreement, the
Company and any Member or Members who may be injured shall be entitled, in
addition to any other remedies which may be available, to one or more
preliminary or permanent orders: (i) restraining and enjoining any act or
omission which would constitute a breach of this Agreement; or (ii) compelling
the performance of any obligation which, if not performed, would constitute a
breach.
Section 14.15. Severability. If any provision of this Agreement is held to
be unenforceable, invalid or void, such provision shall be deemed to be
severable from the remaining provisions of this Agreement, and such holding
shall in no way impair or affect the validity or enforceability of the remaining
provisions of this Agreement, which shall then be construed as if such invalid
or unenforceable provision were omitted.
Section 14.16. Entire Agreement. This Agreement constitutes the entire
agreement among the Members and the Company with respect to the subject matter
of this Agreement and supersedes all prior and contemporaneous agreements,
representations, understandings, conditions, and warranties, written or oral,
not contained in this Agreement or the Articles.
Section 14.17. Controlling Law. This Agreement and the rights of the
parties hereunder shall be governed by, interpreted, and enforced in accordance
with the laws of the State of Illinois. Each Member and Transferee hereto
submits and consents to the jurisdiction of any state or federal court of
competent jurisdiction located in Cook County, Illinois, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of such action or proceeding may be heard and determined by
any such court.
Section 14.18. Successors and Assigns. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns, subject to the provisions hereof restricting the
transfer of Interests and the rights of Transferees.
Section 14.19. Defined Terms. Unless the context of their use requires a
different interpretation or unless expressly provided otherwise in this
Agreement, capitalized terms used in this Agreement shall have the meanings
assigned to such terms in this Section 14.19 or the meanings assigned to such
terms by parenthetic reference throughout this Agreement. Any term used but not
defined in this Agreement shall have the meaning set forth in the Act. When used
in this Agreement. the following terms shall have the meanings set forth below:
<PAGE>
"Act" means the Illinois Limited Liability Company Act (ILCS 180/1-1 ,et
seq.), as amended from time to time.
"Additional Member" means any Person admitted as a Member pursuant to
Section 11.1.
"Adjusted Capital Account Deficit" means, with respect to any Interest
Holder, the deficit balance, if any, in the Interest Holder's Capital Account as
of the end of the relevant taxable year, after giving effect to the following
adjustments: (i) the deficit shall be decreased by the amounts which the
Interest Holder is obligated to restore pursuant to this Agreement (if any) or
is deemed obligated to restore pursuant to Sections 1.704-2(g)(1) and (i)(5) of
the Regulations (i.e., the Interest Holder's share of Minimum Gain and Member
Minimum Gain); and (ii) the deficit shall be increased by the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations (i.e., certain
expected year-end adjustments required for "qualified income offset"
provisions).
"Affiliate" of a Person shall mean (i) any Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person, (ii) for each Person who is an individual, such individual's spouse, any
other individual related to such Person or spouse by consanguinity within the
third degree or in a step or adoptive relationship within such third degree or
related by affinity with such Person or spouse or any such individual, in each
case whether the degree of such relationship is determined under common law or
civil law, (iii) any Person which owns beneficially or of record 5 % or more of
any class of capital stock, partnership interests or any other equity interests
of such Person or an Affiliate of such Person or of which 5 % or more of any
class of capital. stock (or in the case of a Person that is not a corporation, 5
% or more of the partnership interest or other equity interest) is owned
beneficially or of record by such Person or an Affiliate of such Person, and
(iv) any Person directly or indirectly controlling or controlled by any of the
foregoing. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Operating Agreement and Schedule A, as amended from
time to time.
"Applicable Interest Rate" means the per annum interest rate charged from
time to time by the Company's Banks on National Wine's revolving line of credit
financing, or if National Wine has no revolving line of credit financing, the
prime rate of interest published in the "Money Rates" section of The Wall Street
Journal (Midwest Edition). The Applicable Interest Rate shall change effective
on the same day of each change in the applicable interest rate specified above.
"Applicable Tax Rate" means, at any given time, the combined sum of the
highest marginal federal, state and local income tax rates then in effect for
any Member or Interest Holder.
<PAGE>
"Articles" means the Articles of Organization of the Company filed with the
Illinois Secretary of State, as amended or restated from time to time.
"Bank Agreements" means any and all credit agreements, loan agreements,
reimbursement agreements, indentures, and other agreements with respect to
borrowed monies to which the Company, National Wine, or NWS is a party or
otherwise bound.
"Bart Family Group" means Bart and his estate and personal and legal
representatives, his spouse, his children and their spouses, Bart's direct
descendants and ancestors (whether natural or adopted), and any trust formed and
maintained solely for the benefit of the Bart Family Group or any member
thereof. All decisions by the Bart Family Group under this Agreement shall be
made by the Family Group Representative of the Bart Family Group, and the
decision of the Family Group Representative shall be conclusive and binding on
all members of the Bart Family Group.
"Capital Account" means the account established and maintained for each
Interest Holder pursuant to Section 2.5.
"Capital Contribution" means the total amount of cash, property (net of
liabilities assumed by the Company or to which the property is subject),
services rendered, and promissory notes and other binding obligations to
contribute cash or property or to perform services, contributed (or deemed
contributed under Section 1.704 1 (b)(2)(iv)(d) of the Regulations) to the
Company by a Member. Any reference in this Agreement to the Capital Contribution
of a Member or Transferee shall include all Capital Contributions previously
made by any predecessor owner of the Interest of such Member or Transferee and
shall be reduced by any distributions to such Member, Transferee, or predecessor
owner in return of his or its Capital Contributions as contemplated by this
Agreement.
"Company's Accountants" means, at any given time, the firm of certified
public accountants then providing accounting and auditing services to the
Company.
"Company's Banks" means, at any given time, the banks then providing the
primary revolving line of credit financing to National Wine, NWS, and the
Company.
"Entity" means any association, corporation, general partnership, limited
partnership, limited liability company, limited liability partnership, joint
stock association, joint venture, firm, trust, business trust, cooperative,
foreign association of like structure, or any other Person other than an
individual.
"Exercise Price" shall have the meaning ascribed to such term in Section
9.1.
"Family Group Representative" means, with respect to each Family Group,
that Person designated from time to time by a Family Group as its Family Group
Representative by notice thereof to the other Family Groups. If a Family Group
is unable to agree on a Family Group Representative, or has otherwise failed to
designate a Family Group Representative, the Family Group Representative shall
be a member of the Family Group who owns more Interests than any other member of
the Family Group.
<PAGE>
"Family Group" means the LaCrosse Family Group, the Bart Family Group, or
the Johnston Family Group, as the case may be.
"Initial Members" means those Members who make the initial Capital
Contributions to the Company pursuant to Section 2.2.
"Interest" means the economic rights of a Member or Transferee in the
Company, including a Member's or Transferee's right to receive distributions
from the Company and share of the Profits and Losses of the Company, as provided
in this Agreement and the Act, but shall not include any right to vote on,
consent to or otherwise participate in any decision of the Members (unless the
holder of the Interest is a Member). The Interests shall consist of "Class A
Interests," "Class B Interests," and "Class C Interests."
"Interest Holders" means any Person who holds an Interest in the Company,
including any Member who has not assigned his entire Interest in the Company and
any Transferee who has acquired an Interest in accordance with this Agreement
and the Act (whether or not the Transferee has been admitted as a Substitute
Member). A "Class A Interest Holder" means the holder of a Class A Interest, a
"Class B Interest Holder" means the holder of a Class B Interest, and a "Class C
Interest Holder" means the holder of a Class C Interest.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Johnston Family Group" means and includes Norma M. Johnston ("Johnston")
and her estate and personal and legal representatives, her spouse, Johnston's
direct descendants and ancestors (whether natural or adopted) and their spouses,
and any trust established and maintained for the benefit of the Johnston Family
Group or any member thereof. All decisions by the Johnston Family Group under
this Agreement, including the exercise of all put option rights, shall be made
by the Family Group Representative of the Johnston Family Group, and the
decision of the Family Group Representative shall be conclusive and binding on
all members of the Johnston Family Group.
"LaCrosse Family Group" means James E. LaCrosse ("LaCrosse") and his estate
and personal and legal representatives, his spouse, LaCrosse's direct
descendants and ancestors (whether natural or adopted) and their spouses, and
any trust established and maintained for the benefit of the LaCrosse Family
Group or any member thereof. All decisions by the LaCrosse Family Group under
this Agreement, including the exercise of the LaCrosse Family Group's options to
purchase Shares pursuant to this Agreement, the members of the LaCrosse Family
Group entitled to purchase Shares, and the number and classes of Shares to be
purchased by such members, shall be made by the Family Group Representative of
the LaCrosse Family Group, and the decision of the Family Group Representative
shall be conclusive and binding on all members of the LaCrosse Family Group.
<PAGE>
"Majority in Interest" means, at any given time, those Members that own in
the aggregate more than fifty percent (50%) of a then outstanding specified
Class of Units.
"Majority in Interest of the Members" means, at any given time, those
Members that own in the aggregate more than fifty percent (50%) of the then
outstanding Class A Units.
"Manager" means any Person designated by the Members as a Manager in
accordance with Article IV.
"Member" means any Person who becomes a Member of the Company upon
formation of the Company or in the manner and at the time provided in this
Agreement, or if this Agreement does not so provide, in the manner and at the
time provided in the Act, including any Initial Member, Additional Member, or
Substitute Member who is not a Dissociated Member. "Class A Member" means the
owner of a Class A Membership Interest, "Class B Member" means the owner of a
Class B Membership Interest, and "Class C Member" means the owner of a Class C
Membership Interest.
"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to a loan made or
guaranteed by a Member within the meaning of Section 1.704-2(i) of the
Regulations.
"Member Minimum Gain" has the meaning set forth in Section 1.704-2(i) of
the Regulations for "partner nonrecourse debt minimum gain."
"Membership Interests" means all of the rights of a Class A Member, Class B
Member, or Class C Member, as the case may be, in the Company as provided in
this Agreement, including a Member's (i) Interests (including the right to
receive distributions); (ii) right to inspect the Company's books and records;
and (iii) right to vote on, consent to, or otherwise participate in, any
decision or action of or by the Members granted pursuant to this Agreement or
the Act. "Class A Membership Interests" means the Membership Interests of the
Class A Members; "Class B Membership Interests" means the Membership Interests
of the Class B Members; and "Class C Membership Interests" means the Membership
Interests of the Class C Members.
"Minimum Gain" has the meaning set forth in Sections 1.704-2(b)(2) and
1.704-2(d) of the Regulations. Minimum Gain shall be computed separately for
each Interest Holder in a manner consistent with the Regulations under Section
704(b) of the Internal Revenue Code.
"Net Cash Flow" means, for any applicable period, all cash funds received
by the Company (other than from Capital Contributions and loans to the Company),
less: (i) all amounts paid, or set aside for payment of, operating expenses of
the Company, debt payments (including principal and interest), and capital
improvements and replacements, and (ii) any amounts determined by the Managers
as necessary as a reasonable allowance for reserves, contingencies, and
anticipated obligations of the Company.
<PAGE>
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1)
of the Regulations. The amount of Nonrecourse Deductions for a taxable year of
the Company equals the net increase, if any, in the amount of Minimum Gain
during that taxable year, determined according to the provisions of Section
1.704-2(c) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section 1.704-2(b)(3)
of the Regulations.
"Option" shall have the meaning ascribed to such term in Section 9.1.
"Organizer" means a signer of the original Articles.
"Original Offer" shall have the meaning ascribed to such term in Section
9.2.
"Percentage" means: (i) with respect to any Class A Interest Holder or
Class B Interest Holder at any time, the percentage computed by dividing the
total number of Class A Units or Class B Units held by such Interest Holder at
such time by the total number of Class A Units and Class B Units then held by
all Class A Interest Holders and Class B Interest Holders, and (ii) with respect
to any Class C Interest Holder at any time, the percentage computed by dividing
the total number of Class C Units held by such Interest Holder at such time by
the total number of Class C Units then held by all Class C Interest Holders. The
Percentage of each Interest Holder shall be reflected on Schedule A attached
hereto, as changed from time to time pursuant to this Agreement.
"Person" (whether or not capitalized) means and includes any individual,
partnership, domestic or foreign limited partnership, limited liability company
or foreign limited liability company, trust, estate, association, corporation,
governmental body, or other judicial being.
"Preference Amount" means the sum of $24,668,267.
"Preference Amount per Unit" means the Preference Amount divided by the
total number of outstanding Class C Units.
"Priority Return" means an amount equal to ten percent (10%) per annum of
the unpaid balance of the Preference Amount outstanding from time to time,
calculated annually on a cumulative basis.
"Profits" and "Losses" means, for each taxable year of the Company (or
other period for which Profits or Losses must be computed), the Company's
taxable income or loss as determined for federal income tax purposes, adjusted
as follows:
(a) All items of income, gain, loss, deduction, or credit required to
be stated separately pursuant to Section 703(a)(1) of the Code shall be
included in computing taxable income or loss; and
<PAGE>
(b) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses, shall
be added to such taxable income or loss; and
(c) Any expenditures of the Company described in Section 705(a)(2)(B)
of the Internal Revenue Code or treated as such pursuant to Section
1.7041(b)(2)(iv)(i) of the Regulations and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable
income or loss; and
(d) In lieu of the depreciation, amortization, or cost recovery
deductions allowable in computing taxable income or loss, there shall be
taken into account the depreciation computed based upon the adjusted book
value of the asset; and
(e) Gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the adjusted book value of the
property disposed of, notwithstanding the fact that the adjusted book value
differs from the adjusted basis of the property for federal income tax
purposes; and
(f) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 3.3 shall not be taken
into account in computing Profits or Losses.
"Purchaser" means any member or members of the LaCrosse Family Group, NWS,
and/or the Company who purchases any Class B Units from the Bart Family Group
pursuant to Article IX.
"Put Option Agreement" means that certain Put Option Agreement, dated as of
the same date as this Agreement, between the Company and Bart, as amended from
time to time.
"Regulations" means the proposed, temporary and final tax regulations of
the Department of Treasury promulgated under the Internal Revenue Code, as such
regulations may be changed from time to time.
"Substitute Member" means any Transferee admitted as a Member pursuant to
Sections 10.3.
"Transfer" (whether used as a noun or a verb) means any sale, assignment,
exchange, gift, pledge, hypothecation, or other disposition of Units or
Interests, whether voluntary or involuntary.
"Transferee" means a transferee of an Interest who has not been admitted as
a Substitute Member.
<PAGE>
"Transferor" means, as the case may be, any Member, Interest Holder, or
other Person who (i) makes or proposes to make a Transfer of any Units or
Interests, or (ii) offers, or is deemed to have offered, to sell any Units or
Interests upon the occurrence of the Option Exercise Date pursuant to Section
9.1 or upon the receipt of an Original Offer pursuant to Section 9.2.
"Unit" means a unit of measurement of an Interest of an Interest Holder in
the Profits, Losses, capital, and distributions of the Company as determined in
accordance with the Articles and this Agreement, including "Class A Units"
representing the Class A Interests, "Class B Units" representing Class B
Interests, and the "Class C Units" representing the Class C Interests. The
number and class of Units to be issued to each Initial Member in exchange for
his initial Capital Contribution is set forth on Schedule A attached hereto.
"Unpaid Priority Return" means, at any given time, the excess, if any, of
the aggregate Priority Return over all amounts previously paid with respect to
the Priority Return.
"Valuation Date" shall have the meaning ascribed to such term in Section
9.3.
Section 14.20. Conflicts and Inconsistencies with the Act. This Agreement
is an operating agreement within the meaning of, and is subject to and governed
by, the Act and the Articles. In the event that any provision of this Agreement
is prohibited by any provision of the Act or is in direct conflict with any
provision of the Articles, such provision of the Act or the Articles, as the
case may be, shall be controlling. If any provision of this Agreement is
inconsistent with, or different than, any non-mandatory provision of the Act,
the provision of this Agreement shall be controlling. To the extent that any
provision of this Agreement is prohibited by the Act, this Agreement shall be
considered amended to the smallest extent possible in order to make such
provision of this Agreement effective under the Act. In the event the Act is
subsequently amended or interpreted in such a way to make valid any such
provision of the Agreement that was formerly invalid, such provision shall be
considered to be valid from the effective date of such amendment or
interpretation.
Section 14.21. Rules of Construction. The headings of Articles, Sections,
Subsections and paragraphs in this Agreement are for descriptive purposes only
and shall not control, alter, or otherwise affect the meaning, scope or intent
of any provisions of this Agreement. Except as expressly provided otherwise in
this Agreement, any reference to an Article, Section, Subsection, Exhibit or
Schedule shall mean and refer to an Article, Section, Subsection, Exhibit or
Schedule of this Agreement. Except where the context of their use clearly
requires a different interpretation, singular terms shall include the plural,
and masculine terms shall include the feminine or neuter, and vice versa, to the
extent necessary to give the defined terms or other terms used in this Agreement
their proper meanings. The locative adverbs, "herein," "hereof," "hereunder,"
"hereto," "hereinafter," "hereinbefore," and similar words, wherever they appear
in this Agreement, shall mean and refer to this Agreement in its entirety and
not to any specific Article, Section, Subsection or paragraph of this Agreement,
unless the context of their use clearly requires a different interpretation. Any
reference to any statute or other provision of the Act, the Internal Revenue
Code, the Regulations, or other statute shall include all amendments thereto and
any and all corresponding sections or provisions of any successor statute.
<PAGE>
Section 14.22. Incorporation by Reference. Schedule A and all other
Schedules and Exhibits identified herein are hereby incorporated herein by this
reference.
Section 14.23. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed an original, but all of such
counterparts together shall constitute but one and the same instrument.
Section 14.24. Legal Representation. Each Member, for himself and on behalf
of his heirs, successors and assigns, understands and acknowledges that Locke
Reynolds Boyd & Weisell has acted, and will continue to act, as legal counsel
solely for NWS, and Christy & Viener has acted, and will continue to act, as
legal counsel solely for Bart, in connection with the organization and operation
of the Company, including, without limitation, the negotiation of the terms and
conditions of this Agreement.
IN WITNESS WHEREOF, the Members have executed this Agreement, or multiple
counterparts thereof as of the date first above written.
NWS, INC.
By: /s/ James E. LaCrosse
--------------------------------
James E. LaCrosse, President
/s/ Martin H. Bart
---------------------------------
Martin H. Bart
Acceptance by Company
The undersigned Company agrees to obey, abide by, and be bound by all of
the covenants, obligations, terms and conditions of the foregoing Operating
Agreement imposed on the Company, and as the Agreement may be amended from time
to time.
NWS-ILLINOIS, LLC
Date: December 31, 1998 By:/s/ James E. LaCrosse
------------------------------
James E. LaCrosse, a Manager
<PAGE>
SCHEDULE A
(To NWS-Illinois, LLC Operating Agreement)
Dated: December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest Holder (A) Capital Contribution No. of Units Percentage
- --------------- -------------------- ------------ ----------
Class A Interest Holders
- ------------------------
NWS, Inc. Assets of NWS, less 750 75%
2600 West 35th Street NWS liabilities assumed
Chicago, IL 60632 by the Company, having
Taxpayer I.D. No. - 36-3784235 a net agreed value of
$147,000
Class B Interest Holders
- ------------------------
Martin H. Bart $49,000 250 25%
10 Berkley Court
Briarcliff Manor, NY 10510
Taxpayer I.D. No. - ###-##-####
Class C Interest Holders
- ------------------------
NWS, Inc. Assets of NWS, less 1,000 100%
2600 West 35th Street NWS liabilities assumed
Chicago, IL 60632 by the Company, having
Taxpayer I.D. No. - 36-3784235 a net agreed value of
$2,694,000
<FN>
(A) All Interest Holders are Members unless specified otherwise.
</FN>
</TABLE>
Exhibit 5
- ---------
Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282
May 12, 1999
National Wine & Spirits, Inc.
700 W. Morris Street
Indianapolis, Indiana 46225
Ladies and Gentlemen:
We have acted as counsel to National Wine & Spirits, Inc., an Indiana
corporation (the "Company"), and the Company's subsidiaries, National Wine &
Spirits Corporation, an Indiana corporation, NWS Michigan, Inc., a Michigan
corporation, NWS, Inc., an Illinois corporation and NWS-Illinois, LLC, an
Illinois limited liability company (collectively, the "Guarantors"), in
connection with the public offering by the Company of $110,000,000 aggregate
principal amount at maturity of the Company's 10.125% Senior Notes due 2009 (the
"Exchange Notes"), which are to be jointly and severally fully and
unconditionally guaranteed on a senior unsecured basis pursuant to guarantees
(the "Guarantees") by each of the Guarantors. The Notes are to be issued
pursuant to an exchange offer (the "Exchange Offer") in exchange for a like
principal amount at maturity of the issued and outstanding 10.125% Senior Notes
due 2009 of the Company (the "Old Notes") under the Indenture, dated as of
January 25, 1999 (the "Indenture"), by and among the Company, the Guarantors
named therein, and Norwest Bank, N.A., as Trustee (the "Trustee"), as
contemplated by that certain Registration Rights Agreement (the "Registration
Rights Agreement"), dated as of January 25, 1999, by and among the Company, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns &
Co. Inc. and First Chicago Capital Markets, Inc.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with rendering this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-4 (Registration NO. 333-74589) originally filed
with the Securities and Exchange Commission (the "Commission") on March 17,
1999, under the Act (such Registration Statement, as amended or supplemented,
being hereinafter referred to as the "Registration Statement"); (ii) an executed
copy of the Registration Rights Agreement; (iii) an executed copy of the
Indenture; (iv) specimens of the certificates representing the Exchange Notes
and the Guarantees included as exhibits to the Indenture; (v) the Articles of
Incorporation of the Company, as in effect on the date hereof; (vi) the Articles
of Incorporation of National Wine & Spirits Corporation, as in effect on the
date hereof; (vii) the Articles of Incorporation of NWS Michigan Inc., as in
effect on the date hereof; (viii) the Articles of Incorporation of NWS, Inc. as
in effect on the date hereof; (ix) the Articles of Organization of NWS-Illinois,
LLC, as in effect on the date hereof; (x) the By-Laws or the Operating
Agreement, as the case may be, of the Company and each of the Guarantors, as in
effect on the date hereof; (xi) certain resolutions adopted by the Board of
Directors or the Board of Managers, as the case may be, of the Company and each
of the Guarantors relating to the Exchange Offer, the issuance of the Old Notes
and the Exchange Notes, the Indenture, the Guarantees, and related matters; and
(xii) the Form T-1 of the Trustee filed as an exhibit to the Registration
Statement. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and the
Guarantors and such agreements, certificates of public officials, certificates
of officers or other representatives of the Company and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
<PAGE>
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company or the Guarantors, we have assumed that such parties had or will have
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect thereof. As to any facts material to the
opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company, the Guarantors and others.
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when (i) the Registration Statement becomes effective and the
indenture is qualified under the Trust indenture Act of 1939, as amended; (ii)
the Exchange Notes have been duly executed and authenticated in accordance with
the terms of the indenture and have been delivered upon consummation of the
Exchange Offer against receipt of Old Notes surrendered in exchange therefor in
accordance with the terms of the Exchange Offer; and (iii) the Guarantees by
each of the Guarantors have been duly executed by the respective Guarantors and
have been delivered upon consummation of the Exchange Offer in accordance with
the terms of the Exchange Offer, the Exchange Notes and the Guarantees will
constitute valid and binding obligations of the Company and the Guarantors,
respectively, except to the extent that enforcement thereof may be limited by
(1) bankruptcy, insolvency and rorganization laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
Our opinions herein are limited in all respects to the substantive law of
the State of Indiana, Illinois, Michigan and New York and the federal laws of
the United States of America, and we do not express any opinion as to, the
applicability of or the effect thereon of the laws of any other jurisdiction.
We hereby consent to the filings of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Ice Miller Donadio & Ryan
Exhibit 23.1
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Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated July 17, 1998, in the Amendment No. 2 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated May 13, 1999.
Our audit also included the financial statement schedule of National Wine &
Spirits, Inc. listed in the accompanying index to exhibits and financial
statement schedules (Item 21), as it relates to the year ended March 31, 1998.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
valuation and qualifying accounts schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the year ended March 31, 1998.
/s/ Ernst & Young LLP
Indianapolis, Indiana
May 12, 1999
Exhibit 23.2
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Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated July 17, 1998, in the Amendment No. 2 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated May 13, 1999.
Our audit also included the financial statement schedule of National Wine &
Spirits, Inc. listed in the accompanying index to exhibits and financial
statement schedules (Item 21), as it relates to the years ended March 31, 1997
and 1996. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
valuation and qualifying accounts schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set for the therein for
the years ended March 31, 1997 and 1996.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
May 12, 1999
