AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 14, 1999
REGISTRATION NO. 333-74589
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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)
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
(317) 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
June ___, 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 We will exchange all old notes that are validly tendered and not validly
withdrawn.
o You may withdraw any old notes you tender 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 You should not be taxed on the exchange of the notes.
o The terms of the exchange notes 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. Unless the context of the prospectus
indicates otherwise, NWS refers to National Wine & Spirits, Inc.
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. The exchange notes
will not contain any exchange or
registration rights.
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.
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
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.
<PAGE>
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 you have acquired the exchange
notes 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
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
DTC and wish to participate in the
exchange offer, you may do so
through DTC'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......... You will not recognize any gain or
loss as a result of the exchange of
the old notes for the exchange
notes.
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.
<PAGE>
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.
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.
<PAGE>
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.
Covenants................................. We will issue the notes under an
indenture with Norwest Bank
Minnesota, N.A., as trustee. New
York law will govern the indenture.
The indenture will, among other
things, restrict our ability and
the ability of our subsidiaries to:
o borrow additional money;
o pay dividends or make other
restricted payments or
investments;
o create liens;
o sell 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 other lines of
business.
These covenants are subject to
important exceptions and
qualifications.
Form and Denomination..................... 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, will represent the
notes. 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,
DTC's book-entry records will
indicate beneficial ownership of
the notes. Transfers of ownership
will also take place through DTC.
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 May, 1999 Governor Ryan signed the Illinois
Wine and Spirits Industry Fair Dealing Act of 1999. The law, which is effective
immediately, prohibits a supplier, other than an Illinois winery or a winery
that has annual case sales in the State of Illinois less than 10,000 cases per
year, from canceling, failing to renew, or terminating an agreement without good
cause and, in some circumstances, without prior notification. It also provides
that a supplier may not, without good cause, fail to renew an agreement on terms
then equally available to all of its distributors or alter the terms of an
agreement from those terms then equally available to all of its distributors. It
also provides that no supplier or distributor may cancel, fail to renew, or
otherwise terminate an agreement without prior notification, except in certain
circumstances. Other states have adopted similar franchise legislation which has
generally resulted in price stabilization. We can give you no assurance that
this recent legislation will result in similar price stabilization in Illinois.
<PAGE>
Illinois Alcohol Beverage Tax Increase. In May 1999, Governor Ryan
signed the first significant tax increase on alcohol beverages in Illinois in
many years. Effective July 1, 1999, this increase will raise the general price
level of all spirits, wine, and beer in Illinois immediately. Typically, when
states or the federal government increase taxes on alcohol beverage suppliers,
distributors, and retailers add additional mark-up to the tax. Since retailers
will have to pay the new higher prices beginning July 1, we are already seeing a
significant buy-in effect in June. This buy-in should have the effect of
increasing our first quarter sales significantly and decreasing our second
quarter sales. However, we expect gross margins to improve going forward as a
result of the increased pricing.
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 have retained 125,000 cases and
279,000 cases will be distributed by others. As of June, 1999 we will no longer
distribute Bombay Gin in Indiana. The bran realignment was caused by required
divestures by suppliers related to the formation of Diageo-UDV.
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 July, 1999
we will no longer distribute Robert Mondavi wines in Indiana. Mondavi sold
approximately 57,000 cases in Indiana in 1998.
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.
Effective July, 1999, we will also represent Allied Domecq in Michigan.
During 1998, Allied Domecq represented approximately 240,000 cases in Michigan.
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 area 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.
<PAGE>
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
You should read the following summary historical financial information
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 gives 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 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.
o For pro forma interest expense, the effective interest rate on our new
credit facility is 8.25%.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS AND CASES IN THOUSANDS, EXCEPT PER CASE AMOUNT)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net product sales..... $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 535,521
Distribution fees..... -- -- 2,729 16,270 17,832
-------------- ------------- -------------- ------------- -------------
Total revenue......... 427,218
443,257 490,800 521,411 553,353
Cost of products sold. 354,478 364,792 402,072 411,734 436,734
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
Gross profit.......... 72,740 78,465 88,728 109,677 116,619
Selling, general and
administrative
expenses........... 64,431 68,925 80,299 99,118 104,634
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
Income from operations 8,309 9,540 8,429 10,559 11,985
Interest expense...... (7,341) (7,935) (8,486) (9,672) (11,037)
Gain on sale of assets 89 172 41 4,139 188
Other income.......... 1,122 1,247 1,619 2,085 341
-------------- ------------- -------------- ------------- -------------
Net income before
extraordinary item 2,179 3,024 1,603 7,111 1,477
Extraordinary item.... -- -- -- -- (318)
-------------- ------------- -------------- ------------- -------------
Net income $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 1,159
============== ============= ============== ============= =============
OTHER FINANCIAL DATA:
EBITDA (1)............ $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 20,359
EBITDA margin......... 3.0% 3.3% 2.9% 3.4% 3.7%
Cash provided (used)
by operating $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ 6,013
activities.........
Cash used by
investing (7,424) (5,077) (9,937) (9,908) (20,846)
activities........
Cash provided (used)
by financing 1,729 11,789 4,918 (1,900) 15,371
activities ........
Depreciation and
amortization....... 4,561 4,902 5,757 7,115 8,374
Capital expenditures 6,503 3,609 10,447 13,952 7,858
(2)................
Ratio of earnings to
fixed 1.3x 1.4x 1.2x 1.6x 1.1x
Charges ...........
OPERATING STATISTICS:
Product Sales
Operations
Cases shipped 6,006 6,109 6,099 6,343 6,182
(spirits and
wine)..............
Net product price per $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 75.80
case...............
Gross profit margin... 17.0% 17.7% 17.6% 18.5% 18.4%
Fee Operations
Cases shipped -- -- 396 2,545 2,731
(spirits)..........
Distribution fee per -- -- $ 6.50 $ 6.50 $ 6.50
case...............
PRO FORMA INFORMATION:
Adjusted EBITDA (1)... -- -- -- -- 20,905
Interest expense...... -- -- -- -- 11,897
Income from operations -- -- -- -- 11,985
Adjusted
EBITDA/Interest -- -- -- -- 1.7x
Expense............
Net Debt/Adjusted
EBITDA ............ -- -- -- -- 5.5x
Income from --
operations/ -- -- -- -- 1.0x
Interest Expense...
Net Debt/Income from
operations......... -- -- -- -- 9.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash............................................................................................ $ 1,908
Total assets.................................................................................... 180,376
Total debt...................................................................................... 117,222
Stockholders' equity............................................................................ 17,774
</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:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA................. $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 20,359
LIFO charge............ 145 545 1,455 570 546
========= ========= ========= ========= ==========
Adjusted EBITDA..... $ 13,015 $ 14,987 $ 15,641 $ 18,244 $ 20,905
========= ========= ========= ========= ==========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator used by
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>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Business expansion.... $3,930 $ 786 $ 5,855 $10,758 $4,856
Information systems... 1,743 1,553 2,446 1,781 1,281
Maintenance........... 830 1,270 2,146 1,413 1,721
-------- -------- --------- -------- ---------
======== ======== ========= ======== =========
$6,503 $3,609 $10,447 $13,952 $7,858
======== ======== ========= ======== =========
</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 assumes that we received the proceeds from the sale of the old
notes and our new credit facility as of April 1, 1998.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
<S> <C>
Total unsubordinated debt............................................. $116.3
Ratio of unsubordinated debt
to total capitalization............................................. 86.1%
Ratio of earnings to fixed charges.................................... 1.1x
</TABLE>
Our substantial debt could have important consequences to you as a
holder of notes, including the following:
o Our debt level could restrict our ability to obtain additional financing
for working capital, capital expenditures, acquisitions and general
corporate purposes;
o We must dedicate a significant portion of our cash flow from operations to
the repayment of the indebtedness, thereby reducing the amount of cash we
have available for other purposes; and
o The amount of our debt compared to our competitors could present us with a
competitive disadvantage.
In addition, we and our subsidiaries may 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.
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. General economic, financial,
competitive, legislative and regulatory factors that are beyond our control may
affect our ability to perform our obligations under the notes.
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.
<PAGE>
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that we will realize currently anticipated
cost savings and operating improvements on schedule or that we will obtain
future borrowings 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 March 31, 1999,
these notes and the guarantees would have been effectively subordinated to
approximately $4.7 million of secured debt and would have been equal in rank to
approximately $1.6 million of debt. As a result, upon any distribution to our
creditors or our guarantors' creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or the guarantors or our or
their property, the bankruptcy trustee will pay in full in cash the holders of
secured debt of NWS and the guarantors 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 are an S-corporation, and each of our subsidiaries have elected
qualified subchapter S subsidiary status or are 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 state income tax purposes.
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 the IRS successfully challenges this
qualification, the IRS could require us 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 negative effect on our financial
condition.
<PAGE>
THE RESTRICTIONS CONTAINED IN THE INDENTURE AND NEW CREDIT FACILITY MAY RESTRICT
OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE NOTES
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 other 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 indenture prohibits 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 BE UNABLE TO RAISE THE FUNDS NECESSARY TO FINANCE A CHANGE OF CONTROL
OFFER 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 our indenture or credit facility prohibits us 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 not have the
right to purchase 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 court may void a guarantee or subordinate claims in
respect of a guarantee 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, a court may order
that the payment 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 is
considered insolvent if:
o the sum of its debts, including contingent liabilities, were 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. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions.
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 list the exchange notes on any
securities exchange. In addition, changes in the overall market for high yield
securities, changes in our financial performance or prospects or in the
prospects for companies in our industry generally could make trading in the
notes more difficult and reduce the market prices quoted for the notes. As a
result, you cannot be sure that an active trading market will develop for these
notes.
<PAGE>
WE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS
Although we distribute numerous suppliers' products, the majority of
our revenue comes from a few major suppliers. The following table illustrates
1999 total revenue from the sales of our major suppliers' products:
<TABLE>
<CAPTION>
Percent of 1999
Supplier total revenue
<S> <C>
Seagram....................................................... 35.5%
Fortune Brands................................................ 16.2
Diageo-UDV.................................................... 6.6
Canandaigua................................................... 7.1
</TABLE>
We have entered into written distribution agreements with several of
our principal suppliers. Our suppliers may extend our distribution agreements
year by year. Our suppliers may also terminate these agreements 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.
Our dependence on a few major suppliers combined with the relative
strength of these suppliers 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 significant. 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 A LIMITED NUMBER OF SENIOR 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 NEGATIVELY IMPACT THE ALCOHOL BASED BEVERAGE
INDUSTRY
Federal and State Regulatory Authorities Could Revoke Our Licenses and
Permits if We Fail to Comply with Governmental Regulations. The distribution of
alcohol-based beverages is subject to extensive regulation. We are required to
comply with various laws and regulations and maintain 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.
Increased Taxation on Alcohol-Based Beverages Could Have a Negative
Impact on Our Sales or Profitability. 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 Could Have a Negative Impact on Our Business.
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 some jurisdictions,
including 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
negative impact on our business.
The Increase in Direct Shipment Programs Could Decrease Our Sales and
Profitability. 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 Facing Our Industry Could Subject Our
Suppliers to Potential Liability Which Could Have a Negative Impact on Our
Business. 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
negative impact on their business and, in turn, could also have a significant
negative impact on our business.
<PAGE>
THE COMPETITIVE NATURE OF OUR INDUSTRY AND THE STRENGTH OF OUR COMPETITORS COULD
AFFECT OUR ABILITY TO HONOR OUR OBLIGATIONS UNDER THE NOTES
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 REVENUE AND PROFITABILITY 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.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDER MAY DIFFER FROM YOUR INTERESTS
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 NEGATIVELY IMPACT 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 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. Our failure to properly
assess, remediate and plan for potential Year 2000 problems could result in
disruptions of our normal business operations.
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 significant negative 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 significantly
impact our operations, we have no means of ensuring that our customers or
suppliers will be Year 2000 ready.
<PAGE>
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 significant impact on our business.
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 a minimum
principal amount of old notes. As of the date of this prospectus, $110,000,000
aggregate principal amount of exchange notes are outstanding. 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 outstanding. 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.
After the expiration date, NWS will return to the holder any tendered
old notes that NWS did not accept for exchange.
<PAGE>
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 the 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 changes the exchange offer, or if NWS waives an important
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.
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
<PAGE>
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
Subject to the terms and conditions hereof and the letter of
transmittal, only a holder of old notes may tender such old 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 old 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 old
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.
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, we recommend 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.
<PAGE>
Any beneficial owner whose old notes are held through a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
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 old
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," within the
meaning of Rule 17AD-15 under the Exchange Act, 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.
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
The exchange agent will promptly request after the date of this
prospectus to establish an account with respect to the old 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 old notes by causing DTC to transfer such old notes into
the exchange agent's account 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.
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 old notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
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 old notes that such
participant has received and agrees to be bound by the notice of guaranteed
delivery.
<PAGE>
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,
then 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 old notes and
the principal amount of old 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 old notes, or a confirmation
of book-entry transfer of such old 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 old notes in proper form for transfer, or a
confirmation of book-entry transfer of such old 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.
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.
<PAGE>
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,
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.
<PAGE>
Further, by tendering in the exchange offer, each holder or DTC participant and
such other person that may be deemed an affiliate 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 holders
without compliance with the registration and prospectus delivery
provisions of the Securities Act; or
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.
<PAGE>
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.
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 Illinois, 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.
<PAGE>
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, and other outstanding
indebtedness of NWS. The existing credit facility was used to fund accounts
receivable, inventories, capital expenditures and acquisitions.
CAPITALIZATION
The following table reflects our capitalization as of March 31, 1999.
You should read this table 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.
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.
<PAGE>
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>
AS OF MARCH 31, 1999
-----------------------------
(IN THOUSANDS)
<S> <C>
Cash....................................................................... $ 1,908
=============================
Total debt:
Other existing unsubordinated indebtedness.............................. $ 1,572
New Credit Facility .................................................... 4,700
Notes................................................................... 110,000
Subordinated indebtedness............................................... 950
-----------------------------
Total debt .......................................................... 117,222
Stockholders' equity....................................................... 17,774
-----------------------------
Total capitalization....................................................... $ 135,115
=============================
</TABLE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the following summary historical financial information
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 gives
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 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.
o For pro forma interest expense, the effective interest rate on our new
credit facility is 8.25%.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
(DOLLARS AND CASES IN THOUSANDS, EXCEPT PER CASE AMOUNT)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net product sales..... $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 535,521
Distribution fees..... -- -- 2,729 16,270 17,832
------------- ------------- -------------- ------------- -------------
Total revenue......... 427,218 553,353
443,257 490,800 521,411
Cost of products sold. 354,478 364,792 402,072 411,734 436,734
------------- ------------- -------------- ------------- -------------
Gross profit.......... 72,740 78,465 88,728 109,677 116,619
Selling, general and
administrative
expenses........... 64,431 68,925 80,299 99,118 104,634
------------- ------------- -------------- ------------- -------------
Income from operations 8,309 9,540 8,429 10,559 11,985
Interest expense...... (7,341) (7,935) (8,486) (9,672) (11,037)
Gain on sale of assets 89 172 41 4,139 188
Other income.......... 1,122 1,247 1,619 2,085 341
------------- ------------- -------------- ------------- -------------
Net income before
extraordinary item. $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 1,477
Extraordinary item.... -- -- -- -- 318
------------- ------------- -------------- ------------- -------------
Net income............ $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 1,159
============= ============= ============== ============= =============
OTHER FINANCIAL DATA:
EBITDA (1)............ $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 20,359
EBITDA margin......... 3.0% 3.3% 2.9% 3.4% 3.7%
Cash provided (used)
by operating $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ 6,013
activities.........
Cash used by
investing (7,424) (5,077) (9,937) (9,908) (20,846)
activities........
Cash provided (used)
by financing 1,729 11,789 4,918 (1,900) 15,371
activities ........
Depreciation and
amortization....... 4,561 4,902 5,757 7,115 8,374
Capital expenditures 6,503 3,609 10,447 13,952 7,858
(2)................
Ratio of earnings to
fixed 1.3x 1.4x 1.2x 1.6x 1.1x
Charges ...........
OPERATING STATISTICS:
Product Sales
Operations
Cases shipped 6,006 6,109 6,099 6,343 6,182
(spirits and
wine)..............
Net product price per $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 75.80
case...............
Gross profit margin... 17.0% 17.7% 17.6% 18.5% 18.4%
Fee Operations
Cases shipped -- -- 396 2,545 2,731
(spirits)..........
Distribution fee per -- -- 6.50 $ 6.50 $ 6.50
case...............
PRO FORMA INFORMATION:
Adjusted EBITDA (1)... -- -- -- -- 20,905
Interest expense...... -- -- -- -- 11,897
Income from operations -- -- -- -- 11,985
Adjusted
EBITDA/Interest -- -- -- -- 1.7x
Expense............
Net Debt/Adjusted
EBITDA ............ -- -- -- -- 5.5x
Income from --
operations/ -- -- -- -- 1.0x
Interest Expense...
Net Debt/Income from
operations......... -- -- -- -- 9.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................... $ 1,489 $ 1,475 $ 3,395 $ 1,370 $ 1,908
Total assets........... 122,189 143,316 160,366 169,102 180,376
Total debt............. 71,072 86,908 99,545 102,434 117,222
Stockholders' equity... 15,363 14,209 10,470 $14,582 17,774
</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>
YEARS ENDED MARCH 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EBITDA................ $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 20,359
LIFO charge........... 145 545 1,455 570 546
========= ========= ========= ========= ==========
Adjusted EBITDA.... $ 13,015 $ 14,987 $ 15,641 $ 18,244 $ 20,905
========= ========= ========= ========= ==========
<FN>
EBITDA is presented because it is a widely accepted financial indicator
used by 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.
</FN>
</TABLE>
(2) The breakdown of our capital expenditures by significant project is set
forth below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Business expansion... $3,930 $ 786 $ 5,855 $10,758 $4,856
Information systems.. 1,743 1,553 2,446 1,781 1,281
Maintenance.......... 830 1,270 2,146 1,413 1,721
-------- -------- --------- -------- ---------
======== ======== ========= ======== =========
$6,503 $3,609 $10,447 $13,952 $7,858
======== ======== ========= ======== =========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion 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.
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, the U.S. Beverage sales operation, 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. U.S. Beverage purchases products from brewers and resells them
through distributors across the United States. In Michigan, which privatized
aspects of its 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.
<PAGE>
For 1999, net product sales in Indiana and Illinois were $535.5 million
compared to $505.1 million in 1998. Distribution fees for 1999 were $17.8
million compared to $16.3 million during 1998, which was NWS' first full year of
operations in Michigan. For purposes of illustrating the scale of NWS'
operations in Michigan, the total wholesale prices of products delivered by NWS
in Michigan in 1997, 1998 and 1999 were $42.9 million, $280.5 million and $305.0
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 various 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. 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. As a result, 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. As
discussed in "Recent Developments," the Illinois alcohol beverage tax, and
related price increase will also likely affect our first quarter 2000 sales and
improve our Illinois margins in the future.
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 1.4 million cases of spirits in Indiana in
fiscal 1999. Assuming constant volume, management believes that the
across-the-board price increase would have generated an estimated $5.1 million
of additional revenues in fiscal 2000, a significant portion of which would
represent an improvement in gross margin. Management believes that there will be
no significant incremental operating expenses associated with these revenues.
<PAGE>
RESULTS OF OPERATIONS
The following table includes information regarding total cases shipped
by NWS in 1997, 1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------
1997 1998 1999
------------------ ------------------ ----------
PERCENT PERCENT
CASES CASES CHANGE CASES CHANGE
(CASES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Wine (product sales operations)...... 2,838 2,981 5.0% 2,928 (1.8)%
Spirits (product sales operations)... 3,261 3,362 3.1 3,254 (3.2)
Spirits (distribution fee operations) 396 2,545 542.7 2,731 7.3
------- ------- -------- ----------
Total wine and spirits......... 6,495 8,888 36.8 8,913 0.3
Other................................ 1,691 1,971 16.6 2,270 15.2
------- ------- -------- ----------
Total.......................... 8,186 10,859 32.7% 11,183 3.0%
======= ======= ======== ==========
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1998
Revenue. NWS reported total sales in 1999 of $553.4 million compared
to $521.4 million for 1998, a gain of $31.9 million or 6.1%. Product sales in
the year ended March 31, 1999 were $535.5 million, an increase of $30.4 million,
or 6.0%, over the comparable prior year period. This increase resulted primarily
from the continued shift by consumers to more premium brands, a strong increase
at U.S. Beverage with the addition of six months of sales of Hooper's Hooch
beverage, and the addition of Sebastiani Wines in the Chicago market for the
entire year, which more than offset a slight decline in total wine and 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 year ended
March 31, 1999. In addition, U.S. Beverage contributed $9.2 million of revenue,
all of which was incremental compared to the prior year. Distribution fees
increased to $17.8 million for fiscal 1999 compared to $16.3 million for 1998, a
9.6% increase due to increased volume of existing brands and the addition of new
suppliers throughout the year. Our addition of new supplier brands in Michigan,
McCormick and Austin-Nichols, did not occur until the middle of the second
quarter of 1999 and the addition of Laird did not occur until the end of the
fourth quarter. Therefore, the additional volume is only partially reflected in
our 1999 results. The 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 our distribution fee operations. The loss
of other brands due to Diageo's divestitures did not occur until after the
fiscal year end.
<PAGE>
Gross Profit. Gross profit on NWS' total revenue increased to $116.6
million in the year ended March 31, 1999 from $109.7 million in the comparable
prior year period. This represented a 6.3% increase, due to relatively flat
gross margins on our increased product sales from 18.5% to 18.4% and the
additional volume in Michigan with no corresponding cost of products sold.
Additionally, the U.S. Beverage business contributed slightly with margins of
19.5% for the year ended March 31, 1999. As a result of this improvement and
since gross profit in Michigan is 100% of fee revenues, our overall gross profit
margin grew from 21.0% for the year ended March 31, 1998 to 21.1% for fiscal
1999. Cost of products sold included a non-cash LIFO charge of $0.5 million in
1999 compared with $0.6 million for the comparable prior year period.
Selling, General and Administrative Expenses. Overall selling, general
and administrative expenses increased $5.5 million to $104.6 million for 1999
from $99.1 million for the prior year. As a percent of total revenue, selling,
general and administrative expenses decreased from 19.0% for 1998 to $18.9% for
1999.
Selling expenses for product markets increased $5.2 million, or from
6.4% to 7.0% of total revenues, for 1999 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 $3.9 million to overall
selling, warehouse and delivery expenses during the year compared to no selling,
warehouse and delivery expenses in the prior year. Finally, in order to acquire
additional lines in Michigan, we created a sales team for the first time in that
market. This increased selling expenses by $0.4 million for the year. While
small, selling expenses are expected to grow as we continue to increase our
sales force in Michigan. The recent acquisition of R.M. Gilligan is expected to
accelerate the growth of the Michigan-based sales force.
Total administrative expenses increased by $2.1 million or 6.8% of
NWS' total revenue during 1999. 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.
Start-up expenses decreased 100%, or $3.3 million for 1999 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.
<PAGE>
Income from Operations. Operating income increased 13.5% or $1.4
million for 1999 over 1998. As a percent of total revenue, income from
operations improved from 2.0% for 1998 to 2.2% for 1999. The increased revenues
for the year and improved gross margins more than offset the increase in
selling, general and administrative expenses.
Interest Expense. Interest expense increased 14.1% to $11.0 million
during the year ended March 31, 1999. The increase was attributable to slightly
higher interest rates on our $110.0 million in senior notes sold in January,
1999, when compared to the bank debt the senior notes replaced, additional
borrowings to finance the capital expenditures needed for our Michigan
operations, an upgrade to the Chicago material handling system and our recent
Kentucky investment.
Other Income. Other income decreased by $5.7 million for 1999 compared
to the prior year, primarily due to a $4.1 million gain on the sale of certain
licensed brands, trademarks, and tradenames in Illinois in 1998. Excluding the
one-time gain, other income was down $1.6 million. This was the result of other
income of $0.6 million from a gain on Heaven Hill bulk inventories and $0.5
million in interest income during 1998. Additionally, results for 1999 include
the $0.5 million expense to resolve the Illinois driver lawsuit and $0.5 million
in reorganization costs.
Minority Investment in Kentucky Distributor. NWS' share of partnership
income in Commonwealth Wine & Spirits, LLC was approximately $0.1 million for
the year. The six-month period ended March 31, 1999 was Commonwealth's first two
quarters of operation.
Extraordinary Item. NWS recorded a loss on extinguishment of debt of
$0.3 million as a result of the $110 million senior note offering.
Net Income. For the year ended March 31, 1999, NWS reported $1.2
million in net income compared to $7.1 million for 1998. Without the one-time
gain in 1998, net income was down 61.0% or $1.8 million for 1999.
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 large portion of NWS'
revenues or greatly 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.
<PAGE>
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.
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
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.
<PAGE>
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.
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 twelve quarters in the period ended March 31, 1999. 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>
Years ended March 31,
--------------------------------------------------------------------------------------------------------------
1997 1998 1999
-------------------------------------- ----------------------------------- -----------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $119,093 $111,164 $157,056 $103,487 $130,387 $115,493 $169,168 $106,363 $135,899 $122,005 $179,473 $115,976
Operating income 1,892 950 6,544 (957) 2,714 1,008 6,716 121 3,908 503 7,760 (186)
(loss)............
EBITDA (1)........... 3,293 2,350 7,944 599 4,273 2,567 8,650 2,184 5,912 2,544 9,789 2,114
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 77,436
(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>
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
its credit facility have fluctuated significantly over the course of each year.
In fiscal 1999, NWS' minimum and maximum amount of borrowings under its prior
credit facility, which was paid off in January, 1999 with the proceeds of the
senior notes offering, at any one time was $76.1 million in April, 1998, and
$90.8 million in October, 1998. At March 31, 1999, NWS' outstanding borrowings
under its new credit facility were $4.7 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.
<PAGE>
Net cash used for investing activities during 1999 was $20.8 million,
compared to $9.9 million for the prior year, a $10.9 million increase, primarily
due to 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 1999 capital expenditures
were $7.9 million, including approximately $4.0 million to upgrade and expand
the material handling system in the Chicago warehouse. 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.
Net cash provided by operating activities was $6.0 million for 1999 as
compared to $9.8 million for 1998. The 1999 decrease was primarily the result of
a significant decrease in net income, a decrease in accounts payable and an
increase in accounts receivable.
At March 31, 1999, total assets were $180.4 million compared to $169.1
million, a $11.3 million increase from March 31, 1998. This increase in total
assets, which was a result of additional property and equipment acquisitions
supporting the Michigan and Illinois operations and our Kentucky investment,
more than offset a $3.0 million decrease in short term assets. NWS' debt
increased from $96.3 million at March 31, 1998 to $117.2 million at March 31,
1999 a $20.9 million increase, primarily due to our Kentucky investment and
increased capital expenditures.
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.
INFLATION
Inflation has not had a significant impact on NWS' operations but there
can be no assurance that inflation will not have a negative 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. NWS' 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.
<PAGE>
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 various 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, we will install a new receiver unit which
is Year 2000 ready as a temporary measure, if necessary. Lead time for backup
equipment is approximately 20 days. For Michigan, Year 2000 certified software
patches have been ordered but have not been installed. Installation 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 significant 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 negative impact on NWS.
<PAGE>
At March, 1999, 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 2000 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 errors 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 significant negative 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 significant
negative effect on NWS. 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 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 its 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.
<PAGE>
BUSINESS
GENERAL
NWS is one of the largest distributors of wine and spirits in the
United States. NWS 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.
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 1995 to 1999, NWS' total revenue increased steadily from $427.2
million to $553.4 million, representing a compound annual growth rate of 6.7%,
while NWS' EBITDA increased from $12.9 million to $20.4 million, representing a
compound annual growth rate of 12.1%. 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 some 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 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. 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.
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.
<PAGE>
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 6.4% of NWS'
1999 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 $26.4 million in material handling
systems and $8.8 million in information systems. NWS has also recently
implemented supplier and customer ordering via electronic data interchange and
on-line reporting systems used by 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 seven
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.
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.
<PAGE>
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.
NWS recently obtained additional brands in Illinois and Michigan. In
March, 1998, Sebastiani named NWS 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 NWS as its exclusive distributor for
Grand Macnish Scotch whiskey. In July, 1998, Austin Nichols Company appointed
NWS 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, Laird & Co. named NWS as its
exclusive distributor in Michigan. During 1997, Laird sold approximately 200,000
cases of spirits in Michigan.
As of November, 1998, NWS no longer distributes J&B Scotch in Michigan.
The loss of this brand 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, including:
(1) suppliers sometimes encourage the consolidation of distributors in
order to reduce costs and improve efficiency;
(2) most distributors are family businesses, and acquisition
opportunities can develop as owners approach retirement age
without a definite succession plan; and
(3) 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.
<PAGE>
As an example of this strategy, in December, 1998, NWS 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. NWS invested $7.5 million ($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%. NWS believes that Commonwealth Wine
& Spirits, Inc. is the largest distributor of wine and spirits in Kentucky.
Although there can be no assurance, NWS does 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 has made it the leading spirits
distributor in Michigan, the first control state to privatize 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.
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 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
WINE SPIRITS OTHER
------------------------------ ------------------------------- ---------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales....... $117,014 $125,861 $143,339 $336,280 $342,594 $355,807 $34,777 $36,686 $36,375
Distribution fees... -- -- -- 2,729 16,270 17,832 -- -- --
Percentage of total
Company revenue... 23.8% 24.1% 25.9% 69.1% 68.8% 67.5% 7.1% 7.1% 6.6%
</TABLE>
<PAGE>
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, 1998 and 1999 was $42.9 million, $280.5 million and $305.2
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%, 79.3% and 78.6% of NWS' total revenues
in 1997, 1998 and 1999, respectively.
NWS' products include the following brands, among many others:
<TABLE>
<CAPTION>
PRODUCT TYPE ................................... BRAND NAMES
<S> <C> <C>
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
Specialty Spirits: Arrow Cordials DeKuyper Cordials
Bailey's Irish Cream Jagermeister
Campari TGI Friday's
Wine: Almaden Inglenook
Banfi Perrier Jouet
Beringer Sebastiani
Caymus Stags Leap
Chateau Lafite Sterling
Rothschild Sutter Home
Gundlach Bundschu Veuve Clicquot
Specialty Beer: Goose Island Rogue Ales
Grolsch Sierra Nevada
Petes Wicked Ale
Non-Alcohol: Cameron Springs Perrier
Evian Stewart's
</TABLE>
<PAGE>
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.
The following chart summarizes 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 1999
revenues.
<TABLE>
<CAPTION>
LENGTH OF
STATE RANK COMPANY PERCENTAGE OF
SUPPLIER (BY U.S. RANK)(1) (CALENDAR 1997) RELATIONSHIP COMPANY 1999
---------------
IN IL MI (IN YEARS)(2) TOTAL REVENUES REPRESENTATIVE BRANDS
<S> <C> <C> <C> <C> <C> <C>
1. Diageo-UDV (3)......... 3 * 1 25 6.6% Smirnoff and Jose Cuervo
2. Seagram................ 2 2 3 25 35.5 Absolut and Crown Royal
3. Fortune Brands......... 1 6 2 23 16.2 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>
LENGTH OF
COMPANY
U.S. STATE REPRESENTATION RELATIONSHIP (IN
SUPPLIER/WINERY RANK(1) IN IL(2) YEARS)(3) REPRESENTATIVE BRANDS
- ------------------------ -------- ------ ------ ---------------- ----------------------------
<S> <C> <C> <C> <C> <C>
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
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 does not represent the entire brand portfolio in Illinois.
(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,
NWS conducts related beverage operations through a division, Cameron Springs
Water Company, and through NWS' U.S. Beverage operations. Although not material
to NWS' financial results, 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. Management believes 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 6.4% of NWS' 1999 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 following table summarizes NWS' customer base:
PERCENTAGE OF COMPANY 1999
TYPE OF CUSTOMER REVENUE REPRESENTATIVE CUSTOMERS
----------------------------------------- ----------------------------- -----------------------------------------------
<S> <C> <C>
OFF-PREMISE
Package Stores.................... 40.7% Gold Standard and Cap'n Cork
Grocery stores, drug stores and mass Kroger, Dominicks, Marsh, American Stores
merchandisers.................. 25.7 (Osco), Walgreens, CVS, Sam's Club, Meijer
Other............................. 5.1 7-Eleven, White Hen, Village Pantry
-------------
Percent of total............... 71.5%
=============
=============
ON-PREMISE
Restaurants and Bars.............. 18.2% 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............... 28.5%
=============
</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 0.10% 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 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 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 expedites
order entry and provides 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.
The following chart lists NWS' warehouses and delivery, production and
office facilities:
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 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 Leased 230,000 Master Warehouse/Office
(Brownstown)
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
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.
<PAGE>
COMPETITION
The wine and spirits wholesale distribution business is highly
competitive. The principal competitive factors 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 by acquiring 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.
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, it is extremely rare for organizations not already engaged as wine
and spirits distributors to enter other markets. New distributors typically
enter existing markets through acquisition.
EMPLOYEES
As of March 31, 1999, NWS had approximately 1,550 employees.
Approximately 142 employees in Michigan and 418 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:
<PAGE>
(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 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.
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.
<PAGE>
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 significant negative impact on
NWS' financial condition.
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 hazardous substances on such properties. These laws
often impose joint and several liability 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 negatively impact 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 a few of its 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 information concerning the directors and
executive officers of NWS who have agreed to serve, subject to the completion of
regulatory filings:
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.................... 55 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.......... 63 Director
Catherine LaCrosse Wallentine. 32 Director
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.
<PAGE>
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-Indiana since 1976, and a
Director of NWS since December, 1998. Mrs. Johnston served as Secretary of NWS
from 1976 to 1998.
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.
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
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 1999:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION(1)
<S> <C> <C> <C> <C> <C>
James E. LaCrosse 1999 $ 383,115 $ -- $ 5,132 (2) $ 240,414 (3)
Chairman, President and CEO
J. Smoke Wallin 1999 162,000 26,000 5,363 (4) 8,100
Executive Vice President, Chief Financial
Officer and Secretary
James Beck 1999 139,192 150,000 1,831 (4) 7,972
President, NWS-Indiana
Mitchell Stoltz 1999 165,000 30,000 4,429 (5) 7,803
President, NWS-Illinois
Richard Paladino
President, NWS-Michigan 1999 125,000 -- -- 6,129
<FN>
- -----------
(1) Includes employer 401(k) Plan contributions in the following amounts: Mr. LaCrosse, $6,414; Mr. Wallin, $8,100; Mr. Beck,
$7,972; Mr. Stoltz, $7,803; and Mr. Paladino, $6,129.
(2) Consists of $3,405 representing personal use of a company supplied automobile and $1,728 representing payments by NWS for
medical insurance premiums.
(3) Includes $234,000 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) Consists of $829 representing personal use of a company supplied automobile, and $3,600 representing payments by NWS of
country club dues.
</FN>
</TABLE>
RELATED 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 March
31, 1999, total indebtedness of Mr. LaCrosse and Mrs. Johnston to NWS-Indiana
was $10.0 million. The indebtedness, which is presently due upon demand, bears
interest at the prime lending rate of NWS' principal lending institution, which
was 8.25% at March 31, 1999. 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 March 31, 1999, NWS-Illinois was indebted to Mr.
LaCrosse and Mrs. Johnston in the amount of $4.6 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 the prime lending rate
of NWS' principal lending institution, which was 8.25% at March 31, 1999. 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 various 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. 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 similar pass-through entities for tax purposes. NWS-Indiana,
NWS-Illinois and their respective subsidiaries have not been subject to tax on
their respective net taxable incomes, and their respective shareholders 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, the LaCrosse Family Trust, 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 1997, 1998 and 1999 were $6.1 million, $2.8 million and $3.2 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 various conditions and limitations.
NWS-Illinois also paid a company owned by Mr. Bart $0.2 million during
1999 for 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 various 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 Mrs.
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. Johnston.
Premiums paid by NWS were $320,000 in 1999, and $264,000 for the years ended
March 31, 1998 and 1997. 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:
(1) by each person known by NWS to beneficially own 5% or more of NWS'
voting common stock, and
(2) by all executive officers and directors of NWS as a group.
<PAGE>
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.
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
The stockholders of NWS have entered into stockholder agreements with
each other and NWS. Such agreements contain restrictions relating to transfers
of stock and provide for 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 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 description summarizes NWS' new credit facility and
indebtedness expected to be outstanding immediately following the exchange
offer.
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.
<PAGE>
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.
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:
<PAGE>
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 transactions with affiliates and otherwise restrict
corporate activities.
The new credit facility also limits NWS' ability to repurchase the 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.
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 various 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 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 March 31, 1999, 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 March 31, 1999 and matures on April 1,
2000. NWS-Illinois has unsecured notes payable to James E. LaCrosse and Norma
Johnston in the amount of $4.6 million at March 31, 1999. All of these notes are
subordinated to the 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 terms used in this description under
the subheading "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 the 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 March 31, 1999, NWS and
its subsidiaries would have had approximately $116.3 million of outstanding
unsubordinated indebtedness excluding the guarantees of which approximately $4.7
million would have been secured indebtedness.
The following description summarizes 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 guarantors.
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 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 March 31, 1999, the guarantors had approximately $1.6 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 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
on the 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
those 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 some 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
time 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:
YEAR PERCENTAGE
2004.......................................................... 105.0625%
2005.......................................................... 103.3750%
2006.......................................................... 101.6875%
2007 and thereafter........................................... 100.0000%
<PAGE>
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
deem 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 there is a change of control, 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. A, "change of control" means:
(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 James E. LaCrosse or
his Related Parties;
(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, other than James E. LaCrosse and his
Related Parties, becomes the "beneficial owner", as 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;
<PAGE>
(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 notes to require NWS to repurchase such
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.
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.
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.
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 this covenant.
<PAGE>
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 prohibits 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 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.
However, NWS may do the following without complying with clause (3)
above:
(1) sell its Cameron Springs bottled water business for fair
market value, 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.
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
<PAGE>
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.
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.
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;
<PAGE>
(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, as defined in Rule 16a1-(e)
under the Exchange Act, 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
(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
<PAGE>
(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 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:
o the cash return of capital with respect to such
Restricted Investment, less the cost of disposition,
if any, and
o 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) above;
(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.
<PAGE>
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.
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 (collectively,
"incur"), with respect to any indebtedness, including any 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;
<PAGE>
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
o $30.0 million, or
o 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 any
existing indebtedness;
(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
Indebtedness, 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;
<PAGE>
(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
o 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
o 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
o 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, including interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements,
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
(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.
<PAGE>
At March 31, 1999, the Borrowing Base was approximately $76.6 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 "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, and
o incur a Lien to secure such indebtedness pursuant to the
"Liens" covenant;
(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,
of such property; and
(3) the transfer of such property is permitted by the "Asset
Sales" covenant, and NWS or such Restricted Subsidiaries
applies the proceeds of such transaction in compliance with
such covenant.
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.
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:
<PAGE>
(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 owed 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 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;
(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
<PAGE>
(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, 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 with 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
<PAGE>
(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 James E. LaCrosse, 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
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
"--Asset Sales" covenant; and
(3) after giving effect to such disposition, such Controlled
Subsidiary remains a Controlled Subsidiary.
In addition, NWS will not permit any of its Controlled Subsidiaries 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.
<PAGE>
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.
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;
<PAGE>
(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 or
(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 failure to
make a payment 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 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 guarantee; and
(8) various events of bankruptcy or insolvency with respect to
NWS or any of its significant subsidiaries, as that term is
defined in Article 1, Rule 1-02 of Regulation S-X under the
Exchange Act.
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 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 various 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.
<PAGE>
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.
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 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 NWS elects such Covenant Defeasance, some
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 counsel 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.
<PAGE>
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 notes then outstanding, including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, 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.
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,
<PAGE>
(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.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of NWS, the indenture limits its
rights to obtain payment of claims in some cases, or to realize on 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
various 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.
DEFINITIONS
Set forth below are various 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.
"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 "Restricted Payments" covenant;
(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
(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.
<PAGE>
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.
"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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Shareholder 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.
"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
<PAGE>
(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 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
(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:
<PAGE>
(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 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.
"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 Facility Intercompany Indebtedness" means intercompany
indebtedness of NWS' Subsidiaries.
<PAGE>
"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 "--Certain Covenants--Restricted Payments" covenant.
"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.
"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, including any
interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, but excluding
amortization of debt issuance costs and excluding non-cash
interest accrued or accruing for such period on any
NWS-Illinois Shareholder Subordinated 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.
<PAGE>
"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;
(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.
"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."
"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.
<PAGE>
"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
(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.
"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-Illinois Shareholder Subordinated 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.
"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;
<PAGE>
(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.
"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
<PAGE>
(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;
(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;
<PAGE>
(10) Liens incurred in the ordinary course of business of NWS or any of
its subsidiaries 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;
<PAGE>
(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;
(3) if the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is
subordinated in right of payment to, the notes on terms at least
as favorable to the holders of notes as those contained in the
documentation governing the indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(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.
"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,
<PAGE>
(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
(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 various 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 James E. LaCrosse; 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 James E. LaCrosse 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.
<PAGE>
"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.
"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 of the old notes 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.
<PAGE>
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;
(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.
<PAGE>
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.
"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:
(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.
<PAGE>
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 limited
circumstances. Beneficial interests in the global notes may be exchanged for
notes in certificated form in 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, referred to as "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 various 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, referred to as "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, and each is 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 specified
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.
<PAGE>
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.
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 which are 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.
<PAGE>
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.
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 a
registration rights agreement on January 25, 1999. Pursuant to this agreement,
NWS and the guarantors agreed to file 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.
<PAGE>
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 of its affiliates 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 information for inclusion in the shelf registration
statement.
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.
<PAGE>
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 specific 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.
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.
<PAGE>
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 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, if the Internal
Revenue Service successfully challenges the pass-through status of NWS or any of
its subsidiaries, the Internal Revenue Service could require NWS to pay federal
and 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 negative impact on NWS' earnings.
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.
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 U.S. 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 discussed herein under
"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.
<PAGE>
REDEMPTION, SALE OR OTHER DISPOSITION OF 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.
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.
<PAGE>
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 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.
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 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 referred to in clause (1) above together with a
copy of such owner's statement.
<PAGE>
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 various payments made to, and to the proceeds of sales before
maturity by, 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 some 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 various
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 procedures applicable to the foreign office of a U.S.
broker or foreign brokers with various 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.
<PAGE>
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon
for NWS by Ice Miller Donadio & Ryan, Indianapolis, Indiana.
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, 1995
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 1999, and for the years then ended, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, and for the year 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. 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
PAGE
NATIONAL WINE & SPIRITS, INC.
<S> <C>
Reports of Independent Auditors..................................................................................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999........................................................... F-4
Consolidated Statements of Income for the years ended March 31, 1997, 1998 and 1999................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1997, 1998 and 1999................... F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1998 and 1999............................. F-7
Notes to Consolidated Financial Statements.......................................................................... F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated balance sheets of National Wine &
Spirits, Inc. as of March 31, 1998 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated statements of income,
stockholders' equity and cash flows of National Wine & Spirits, Inc. for the
year ended March 31, 1997 were audited by other auditors whose report dated June
18, 1997, expressed an unqualified opinion on those statements.
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 1998 and 1999 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 1999, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Indianapolis, Indiana
May 28, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated statement of income,
stockholders' equity and cash flows of National Wine & Spirits, Inc. for the
year ended March 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 results of operations and cash flows of
National Wine & Spirits, Inc. for the year ended March 31, 1997 in conformity
with generally accepted accounting principles.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
June 18, 1997
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31,
-----------------------------
1998 1999
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 1,370,000 $ 1,908,000
Accounts receivable, less allowance for doubtful accounts of
$926,000 in 1997, $900,000 in 1998 and $1.298 in 1999........... 31,313,000 37,042,000
Inventories........................................................ 76,734,000 67,961,000
Prepaid expenses and other......................................... 4,933,000 4,776,000
------------ -------------
Total current assets.................................................. 114,350,000 111,687,000
Property and equipment, net........................................... 48,565,000 49,307,000
Other assets:
Notes receivable................................................... 1,772,000 1,486,000
Cash surrender value of life insurance, net of loans............... 1,396,000 1,849,000
Investment in Kentucky Distributor................................. -- 7,438,000
Intangible assets, net of amortization............................. 2,487,000 8,080,000
Deferred pension costs............................................. 362,000 387,000
Deposits and other................................................. 170,000 142,000
------------ -------------
Total other assets.................................................... 6,187,000 19,382,000
------------ -------------
Total assets.......................................................... $169,102,000 180,376,000
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $33,721,000 $ 27,567,000
Accrued payroll and payroll taxes.................................. 5,034,000 5,912,000
Excise taxes payable............................................... 5,883,000 4,055,000
Other accrued expenses and taxes................................... 7,086,000 7,459,000
Notes payable to stockholders...................................... 6,135,000
Current maturities of long-term debt............................... 6,200,000 1,050,000
------------ -------------
Total current liabilities............................................. 64,059,000 46,043,000
Deferred pension liability............................................ 362,000 387,000
Long-term debt........................................................ 90,099,000 116,172,000
------------ -------------
Total liabilities..................................................... 154,520,00 162,602,000
Stockholders' equity:
Voting common stock, $.01 par value................................ 1,000 1,000
Nonvoting common stock $.01 par value.............................. 53,000 53,000
Additional paid-in capital......................................... 23,202,000 25,009,000
Retained earnings (deficit)........................................ 1,929,000 (1,883,000)
------------ -------------
25,185,000 23,180,000
Notes receivable from stockholders................................. (10,603,000) (5,406,000)
------------ -------------
Total stockholders' equity............................................ 14,582,000 17,774,000
------------ -------------
Total liabilities and stockholders' equity............................ $169,102,000 $180,376,000
============ =============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31,
---------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Net product sales........................... $ 488,071,000 $ 505,141,000 $ 535,521,000
Distribution fees........................... 2,729,000 16,270,000 17,832,000
-------------- -------------- --------------
Total revenue............................ 490,800,000 521,411,000 553,353,000
Cost of products sold....................... 402,072,000 411,734,000 436,734,000
-------------- -------------- --------------
Gross profit............................. 88,728,000 109,677,000 116,619,000
Selling, general and administrative expenses:
Warehouse and delivery................ 23,489,000 33,428,000 34,594,000
Selling............................... 30,906,000 32,328,000 37,944,000
Administrative........................ 24,747,000 30,042,000 32,096,000
Start-up costs........................ 1,157,000 3,320,000 --
-------------- -------------- --------------
80,299,000 99,118,000 104,634,000
-------------- -------------- --------------
Income from operations...................... 8,429,000 10,559,000 11,985,000
Interest expense:
Related parties.......................... (338,000) (507,000) (461,000)
Third parties............................ (8,148,000) (9,165,000) (10,576,000)
-------------- -------------- --------------
(8,486,000) (9,672,000) (11,037,000)
Other income:
Equity in earnings of Kentucky distributor 120,000
-- --
Gain on sale of assets................... 41,000 4,139,000 188,000
Interest income.......................... 1,003,000 1,246,000 977,000
Rental and other income (expense)........ 616,000 839,000 (756,000)
-------------- -------------- --------------
Total other income.......................... 1,660,000 6,224,000 529,000
-------------- -------------- --------------
Net income before extraordinary item........ 1,603,000 7,111,,000 1,477,000
-------------- -------------- --------------
Extraordinary item:
Loss on extinguishment of debt........... -- -- (318,000)
-------------- -------------- --------------
Net income.................................. $ 1,603,000 $ $7,111,000 1,159,000
============== ============== ==============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
$0.01 PAR VALUE ACCUMULATED NOTES
COMMON STOCK ADDITIONAL RETAINED OTHER RECEIVABLE TOTAL
---------------- PAID-IN EARNINGS COMPREHENSIVE FROM STOCKHOLDERS'
CAPITAL (DEFICIT) INCOME (LOSS) STOCKHOLDERS EQUITY
VOTING NONVOTING
------ --------- ----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996........... 1,000 49,000 21,714,000 2,117,000 (216,000) (9,457,000) 14,208,000
Comprehensive income:
Net income.................... -- -- -- 1,603,000 -- -- 1,603,000
Increase in unrecognized net
pension loss................ -- -- -- -- (222,000) -- (222,000)
Total comprehensive income....... -- -- -- -- -- -- 1,381,000
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (534,000) (534,000)
Distributions to stockholders.... -- -- -- (6,077,000) -- -- (6,077,000)
Capital contributions............ -- -- 1,488,000 -- -- -- 1,488,000
Issuance of 408,554 shares of NWS,
Inc. nonvoting common stock... -- 4,000 -- -- -- -- 4,000
------ --------- ----------- ---------- -------------- ------------ ------------
Balance at March 31, 1997........... 1,000 53,000 23,202,000 (2,357,000) (438,000) (9,991,000) 10,470,000
Comprehensive income:
Net income.................... -- -- -- 7,111,000 -- -- 7,111,000
Decrease in unrecognized net
pension loss............... -- -- -- -- 438,000 -- 438,000
Total comprehensive income....... -- -- -- -- -- -- 7,549,000
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (612,000) (612,000)
Distributions to stockholders.... -- -- -- (2,825,000) -- -- (2,825,000)
------ --------- ----------- ---------- -------------- ------------ ------------
Balance at March 31, 1998........... 1,000 53,000 23,202,000 1,929,000 -- (10,603,000) 14,582,000
Net income....................... -- -- -- 1,159,000 -- -- 1,159,000
Decrease in notes receivable from
stockholders.................. -- -- -- -- -- 5,197,000 5,197,000
Distributions to stockholders.... -- -- -- (4,971,000) -- -- (4,971,000)
Conversion of notes payable to
stockholders equity........ -- -- $1,807,000 -- -- -- 1,807,000
------ --------- ----------- ---------- -------------- ------------ ------------
Balance at March 31, 1999 $1,000 $ 53,000 $25,009,000 $(1,883,000)$ -- $(5,406,000) $17,774,000
====== ========= =========== ========== ============== ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
----------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Operating activities:
Net income................................... $ 1,603,000 $ 7,111,000 $ 1,159,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment.. 4,613,000 5,872,000 6,967,000
Gain on sale of assets.................. (41,000) (4,139,000) (188,000)
Amortization of intangible assets....... 1,144,000 1,243,000 1,407,000
Equity earnings in Kentucky distributor. (120,000)
- -
Loss on extinguishment of debt.......... 318,000
- -
Changes in operating assets and liabilities:
Accounts receivable.................. (568,000) 3,427,000 (5,729,000)
Inventories.......................... (1,191,000) (4,656,000) 8,773,000
Prepaid expenses and other........... (1,692,000) (810,000) 157,000
Accounts payable..................... 864,000 2,482,000 (6,154,000)
Accrued expenses and taxes........... 2,207,000 (747,000) (577,000)
---------------- --------------- ----------------
Net cash provided by operating activities....... 6,939,000 9,783,000 6,013,000
Investing activities:
Purchase of property and equipment........... (10,447,000) (13,952,000) (7,858,000)
Investment in Kentucky distributor........... (7,500,000)
- -
Proceeds from sales of property and equipment 88,000 253,000 338,000
Payment for supplier's net assets............ (181,000)
- -
Proceeds from sale of assets................. 3,000,000 -
-
Intangible assets............................ (947,000) (730,000) (5,869,000)
Deposits and other........................... (58,000) 1,766,000 28,000
Increase in cash surrender value of
insurance.................................. (16,000) (492,000) (453,000)
Decrease in notes receivable from supplier... 1,590,000
- -
Increase in receivable from affiliate........
- - -
Distributions from Kentucky distributor...... - - 182,000
Collections on notes receivable.............. 34,000 247,000 286,000
---------------- --------------- ----------------
Net cash used by investing activities........... (9,937,000) (9,908,000) (20,846,000)
Financing activities:
Net borrowings (repayments) on lines of credit 1,414,000 (3,078,000) (62,010,000)
Proceeds from senior notes issuance.......... 110,000,000
- -
Proceeds of long-term debt................... 13,811,000 11,257,000 7,500,000
Principal payments on long-term debt......... (7,302,000) (5,975,000) (36,017,000)
Proceeds of borrowings from stockholder...... 2,919,000 685,000 241,000
Issuance of NWS, Inc. common stock........... 4,000
- -
Additional paid-in capital................... 1,488,000
- -
Notes receivable from stockholders and others (646,000) (1,964,000) 628,000
Distributions to stockholders................ (6,770,000) (2,825,000) (4,971,000)
---------------- --------------- ----------------
Net cash provided (used) by financing activities 4,918,000 (1,900,000) 15,371,000
---------------- --------------- ----------------
Net increase (decrease) in cash................. 1,920,000 (2,025,000) 538,000
Cash, beginning of period....................... 1,475,000 3,395,000 1,370,000
---------------- --------------- ----------------
Cash, end of period............................. $ 3,395,000 $ 1,370,000 $ 1,908,000
================ =============== ================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
National Wine & Spirits, Inc.
Notes To Consolidated Financial Statements
March 31, 1999
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). 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, NWS-LLC 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 is a wholesale distributor of liquor
throughout Michigan. 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.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's 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 amounts approximate fair value. Long-term
notes receivable and payable, except for the Company's senior notes payable,
have primarily variable interest rates, thus their carrying amounts approximate
fair value. The fixed interest rate on the senior notes payable approximates
fair value.
<PAGE>
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Substantially all inventory is stated at cost, determined by the last-in,
first-out (LIFO) method, which is less than market.
Bulk whiskey represents the Company's interest in certain whiskey inventory
which is 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 whisky represented
approximately $4,200,000 and $1,692,000 of the total inventory balance at March
31, 1998 and 1999, respectively. The bulk whiskey was 100% financed by the
Company.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
was $2,712,000, $2,087,000 and $3,224,000 for the years ended March 31, 1997,
1998 and 1999, respectively.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at cost and are depreciated using primarily
the straight-line method over their expected useful lives as follows:
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
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 the terms of the agreements or their estimated useful
lives which range from two to ten years. Accumulated amortization related to
these assets was $3,311,000 and $1,852,000 at March 31, 1998 and 1999,
respectively.
<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 an S corporation under the applicable provisions of the Internal
Revenue Code. NWS' income is taxable directly to its stockholders.
SEGMENT REPORTING
Effective April 1, 1998, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131). Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See Note 10.
COMPREHENSIVE INCOME
During the year ended March 31, 1998, the Company 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 the
Company, comprehensive income is equal to net income plus the change in
unrecognized net pension gain or loss, if any. The Company has elected to report
comprehensive income in the consolidated statements of stockholders' equity. The
Company's prior year's financial statements have been reclassified for
comparative reporting purposes, however, there was no change in the net income
previously reported for the year ended March 31, 1997.
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 for 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.
2. INVESTMENT IN KENTUCKY DISTRIBUTORSHIP
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
invested $7.5 million ($4.5 million in cash and a $3 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%. NWSC has accounted for its investment in
Commonwealth Wine & Spirits, LLC using the equity method.
The Company received distributions of $182,000 from Commonwealth Wine & Spirits,
LLC in 1999.
<PAGE>
3. INVENTORY
<TABLE>
<CAPTION>
Inventory at March 31 is comprised of the following:
1998 1999
-------------------- --------------------
<S> <C> <C>
Inventory at FIFO $ 83,734,000 $ 75,507,000
Less: LIFO reserve 7,000,000 7,546,000
-------------------- --------------------
$ 76,734,000 $ 67,961,000
==================== ====================
<FN>
If the Company had used the FIFO inventory method, net income would have been $1,455,000, $570,000 and $546,000 greater for the
years ended March 31, 1997, 1998 and 1999, respectively.
</FN>
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment at March 31 is comprised of the following:
1998 1999
-------------------- --------------------
<S> <C> <C>
Land and improvements $ 1,421,000 $ 1,421,000
Buildings and improvements 27,233,000 27,709,000
Furniture and equipment 14,307,000 15,032,000
Warehouse equipment 23,580,000 27,298,000
Automobiles and trucks 8,069,000 8,311,000
-------------------- --------------------
74,610,000 79,771,000
Less: Accumulated depreciation 26,045,000 30,464,000
-------------------- --------------------
$ 48,565,000 $ 49,307,000
==================== ====================
</TABLE>
<PAGE>
5. DEBT
<TABLE>
<CAPTION>
Long-term debt at March 31, 1998 and 1999 is comprised of the following:
1998 1999
------------------- -------------------
<S> <C> <C>
Senior notes payable (A) $ $110,000,000
-
Bank revolving line of credit (B) - 4,700,000
Term loan payable in annual installments of $300,000 in 1999 and
$500,000 in 2000 and 2001, including interest - 1,300,000
Non-competition agreement payable to a former stockholder in annual
installments of $300,000, from April 1 1995 through April 1, 2000. The
obligation is secured by proceeds of life insurance from NWSC's majority
stockholder.
900,000 600,000
Subordinated promissory note payable to an 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.
350,000 350,000
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. 372,000 272,000
Bank revolving line of credit. Repaid January 1999. 43,518,000 -
Bank revolving line of credit. Repaid January 1999. 23,193,000 -
Term loans payable. Repaid January 1999. 8,536,000 -
Term loan payable. Repaid January 1999 6,000,000 -
Term loans payable. Repaid January 1999. 5,974,000 -
Mortgage notes payable. Repaid January 1999. 4,091,000 -
Term loans payable. Repaid January 1999. 2,113,000 -
Promissory note payable to the State of Illinois. Repaid January 1999.
568,000 -
Bank home equity line of credit. Repaid January 1999 500,000 -
Bank mortgage note payable. Repaid January 1999. 162,000 -
Other 22,000 -
------------------- -------------------
96,299,000 117,222,000
Less: current maturities 6,200,000 1,050,000
------------------- -------------------
$ 90,099,000 $ 116,172,000
=================== ===================
</TABLE>
<PAGE>
5. DEBT (CONTINUED)
(A) On January 25, 1999, the Company issued $110,000,000 of unsecured senior
notes with a maturity of January 15, 2009. Interest on the senior notes is
10.125% and is payable semiannually. 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
users of the financial statements.
The Company used the net proceeds of the senior notes (approximately $106.9
million) to repay its outstanding bank and other debt and amounts outstanding
under its revolving credit facilities. The early extinguishment of the bank debt
and revolving credit facilities resulted in an extraordinary charge of $318,000.
The bond indenture includes certain restrictions and requires the Company to
maintain certain financial ratios. In addition, the indenture restricts the
ability of the Company and its subsidiaries to incur additional indebtedness,
pay dividends, engage in mergers or consolidations, make capital expenditures
and otherwise restrict corporate activities.
On or after January 15, 2004, the Company may redeem some or all of the senior
notes at any time at stated redemption prices plus accrued interest and
liquidated damages. Notwithstanding the foregoing, during the first 36 months
after January, 20, 1999, the Company may redeem up to 33% of the aggregate
principal amount of the senior notes at a redemption price of 110.125%, plus
accrued interest and liquidated damages, with the net cash proceeds of one or
more public offerings of common stock of the Company.
(B) On January 25, 1999, the Company entered into a credit agreement that
provides a revolving line of credit for borrowings of up to $60 million through
January 25, 2004. Line of credit borrowings are limited by eligible accounts
receivable plus eligible inventories. The credit agreement permits the Company
to elect an interest rate based upon the Eurodollar rate or the higher of the
prime lending rate or the federal funds effective rate plus 0.5%. At March 31,
1999, $4,700,000 of outstanding borrowings bear interest at the prime lending
rate (8.25% at March 31, 1999). The Company also pays a commitment fee ranging
from .25% to 0.5% of the undrawn portion of its line of credit.
<PAGE>
5. DEBT (CONTINUED)
Credit borrowings are secured by the accounts receivable and inventory of the
Company and its subsidiaries and are guaranteed by NWS's subsidiaries.
Additionally, NWSI had a supplier letter of credit of which $560,000 was
outstanding at March 31, 1999. In addition, the agreement restricts the ability
of the Company and its subsidiaries to incur additional indebtedness, pay
dividends, engage in merger or consolidations, or make capital expenditures and
otherwise restricts certain corporate activities.
Principal payments on debt at March 31, 1999 are as follows:
2000 $ 1,050,000
2001 900,000
2002 572,000
2003 -
2004 4,700,000
Thereafter 110,000,000
--------------------------
$ 117,222,000
==========================
In September 1998, the Company guaranteed a $1.3 million obligation of a related
entity which remains outstanding at March 31, 1999.
Cash paid for interest was $8,445,000, $9,643,000 and $9,780,000 for the years
ended March 31, 1997, 1998 and 1999, respectively.
<PAGE>
6. COMMON STOCK
The Company has two authorized classes of capital stock: voting $0.01 par value
common shares and nonvoting $0.01 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.
Common stock at March 31, 1998 and 1999 is comprised of the following:
NUMBER OF SHARES
AUTHORIZED ISSUED OUTSTANDING AMOUNT
------------- ---------------------- --------------------- -----------
Voting 200,000 104,250 104,250 $ 1,000
Nonvoting 20,000,000 5,226,001 5,226,001 53,000
7. 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, 1999 are as follows:
2000 $ 2,905,000
2001 2,529,000
2002 2,425,000
2003 2,382,000
2004 2,380,000
Thereafter 3,738,000
--------------------------
$ 16,359,000
==========================
Rent expense was $2,114,000, $3,732,000 and $3,738,000 for the years ended March
31, 1997, 1998 and 1999, respectively.
The Company has committed to purchase warehouse equipment of approximately
$700,000.
<PAGE>
8. PENSION PLANS
The Company sponsors a multiple-employer defined benefit pension plan covering
substantially all of its 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 $171,000, $224,000 and
$347,000, during the years ended March 31, 1997, 1998 and 1999, respectively.
The components of net periodic pension cost of the defined benefit plan are as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1997 1998 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 146,000 $ 114,000 $ 262,000
Interest on projected benefit obligation 171,000 196,000 224,000
Actual return on plan assets (121,000) (624,000) (464,000)
Amortization of unrecognized net transition asset
19,000 19,000 20,000
Amortization of loss 15,000 8,000 -
Amortization of prior service cost 19,000 19,000 35,000
Difference between expected and actual return on plan
assets (20,000) 471,000 247,000
----------------- ----------------- ----------------
Net periodic pension cost $ 229,000 $ 203,000 $ 324,000
================= ================= ================
<FN>
The change in the projected benefit obligation, plan assets, funded status and
amounts recognized in the accompanying consolidated balance sheets at March 31,
1998 and 1999 for the defined benefit pension plan are as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
1998 1999
--------------------- --------------------
<S> <C> <C>
Change in projected benefit obligation:
Benefit obligation at beginning of the year $ 2,981,000 $ 3,277,000
Service cost 114,000 262,000
Interest cost 196,000 224,000
Actuarial changes 125,000 156,000
Benefits paid (139,000) (168,000)
--------------------- --------------------
Benefit obligation at end of the year $ 3,277,000 $ 3,751,000
===================== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8. PENSION PLANS (CONTINUED)
1998 1999
--------------------- --------------------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $ 1,877,000 $ 2,662,000
Actual return on plan assets 625,000 464,000
Company contributions 299,000 221,000
Benefits paid (139,000) (168,000)
--------------------- --------------------
Fair value of plan assets at end of year $ 2,622,000 $ 3,179,000
===================== ====================
Funded status of the plan (underfunded) $ (615,000) $ (572,000)
Unrecognized net actuarial gain (88,000) (289,000)
Unrecognized prior service cost 456,000 531,000
Unrecognized transition obligation 165,000 146,000
--------------------- --------------------
Accrued benefit cost $ (82,000) $ (184,000)
===================== ====================
Weighted-average assumptions
Discount rate 6.75% 6.75%
Expected return on plan assets 8.0% 8.0%
Balance Sheet Classification:
Current accrued liability $ 82,000 $ 184,000
Noncurrent deferred additional liability 362,000 387,000
--------------------- --------------------
Minimum liability $ 444,000 $ 571,000
===================== ====================
Deferred pension costs (intangible asset) $ 362,000 $ 387,000
===================== ====================
<FN>
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 $773,000, $942,000 and $1,044,000 for the years ended
March 31, 1997, 1998 and 1999, respectively.
</FN>
</TABLE>
<PAGE>
8. PENSION PLANS (CONTINUED)
NWSI contributes to union-sponsored multi-employer pension plans which provide
for contributions based on a specified rate per labor hour. Union employees
constitute approximately 59% of NWSI's workforce. Contributions charged to
expense were $509,000, $565,000 and $602,000, for the years ended Mach 31, 1997,
1998 and 1999, 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 multi-employer 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.
9. RELATED PARTY TRANSACTIONS
NWSI had notes receivable from two stockholders totaling $10,603,000 and
$9,975,000 at March 31, 1998 and 1999, respectively. The notes earn interest at
the Company's effective borrowing rate on its revolving line of credit. Interest
income earned was $870,000, $893,000 and $880,000 during the years ended March
31, 1997, 1998 and 1999, 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.
Effective July 31, 1998, the Company and two of 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 March 31, 1999, 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. The total of the subordinated
notes payable was $6,135,000 and $4,569,000 at March 31, 1998 and 1999,
respectively. These notes earn interest at the effective borrowing rate on the
Company's revolving line of credit.
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.
The Company paid $170,000 for consulting fees to a minority stockholder of
NWS-LLC in each of the years ended March 31, 1998 and 1999.
<PAGE>
9. 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 NWS-Illinois. On December 20, 1996, NWS-Illinois
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.
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 from supplier (1,933,000)
-----------------------
Net assets acquired $ 181,000
=======================
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 $5,250,000 less $1,179,000 in 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 and 1999,
the note receivable balance was $2,045,000 and $1,759,000, respectively.
Transactions with CRI not disclosed elsewhere in the financial statements for
the year ended March 31, 1997 were as follows (none in 1998 and 1999):
Sales $ 715,000
Purchases of inventory 19,721,000
Purchase discounts 113,000
Administrative and data processing charged to CRI 169,000
Operational items paid by NWS-Illinois 17,326,000
Rent expense charged to CRI 88,000
<PAGE>
10. SEGMENT REPORTING
The Company's reportable segments are business units that engage in products
sales and all other activities. The majority of the all other activities relate
to distribution fee operations. The Company evaluates performance and allocates
resources based on these segments. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues from external customers
Product sales $ 488,071,000 $ 505,141,000 $ 535,521,000
All other 2,729,000 16,270,000 17,832,000
Interest expense
Product sales 8,328,000 8,480,000 9,778,000
All other 158,000 1,192,000 1,259,000
Depreciation expense
Product sales 4,461,000 4,750,000 5,020,000
All other 152,000 1,122,000 1,947,000
Amortization expense
Product sales 1,144,000 1,224,000 1,320,000
All other - 19,000 87,000
Equity in earnings of Kentucky distributor
Product sales - - 120,000
All other - - -
Loss on extinguishment of debt
Product sales - - 172,000
All other - - 146,000
Segment profit (loss)
Product sales 2,745,000 8,506,000 938,000
All other (1,142,000) (1,395,000) 221,000
Segment assets
Product sales 152,575,000 155,351,000 168,581,000
All other 7,791,000 13,751,000 11,795,000
Expenditures on long-lived assets
Product sales 8,755,000 5,190,000 7,798,000
All other 1,692,000 8,762,000 60,000
</TABLE>
<PAGE>
11. CONCENTRATION OF RISK
Purchases from international suppliers amounted to approximately 62%, 65% and
58% of all revenues in the years ended March 31, 1997, 1998 and 1999,
respectively.
12. 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.
The Company settled a lawsuit in April 1999 brought by several drivers of NWSI
for $475,000. The settlement released the Company from all claims, including
legal fees.
13. SUBSEQUENT EVENTS-UNAUDITED
On April 30, 1999, NWS purchased the stock of a wholesale distributor of liquor
located in Michigan for $1,800,000.
<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
Related Transactions...................................................................................................... 54
Principal Stockholders.................................................................................................... 55
Description of New Credit Facility and Other Indebtedness................................................................. 56
Description of the Exchange Notes......................................................................................... 58
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
<TABLE>
<CAPTION>
(a) Exhibits
<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.
<PAGE>
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
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
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
<FN>
* Previously filed
* * Filed herewith
(b) Financial Statement Schedules
</FN>
</TABLE>
<PAGE>
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;
(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 June 14, 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 14th day of June, 1999 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/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 June 14, 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 14th day of June, 1999 by the following persons
in the capacities indicated:
SIGNATURE TITLE
/s/ JAMES E. LACROSSE Chairman (Principal Executive Officer)
James E. LaCrosse
/s/ J. SMOKE WALLIN Secretary and Treasurer (Principal
J. Smoke Wallin Financial and Accounting Officer)
/s/ NORMA M. JOHNSTON* Director/Manager
Norma M. Johnston
/s/ PATRICIA J. LACROSSE* Director/Manager
Patricia J. LaCrosse
*By: /s/ J. SMOKE WALLIN
ATTORNEY-IN-FACT
Exhibit 5
Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana, 46282
June 14, 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 reorganization 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 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
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 May 28, 1999, in the Amendment No. 3 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated June 14, 1999.
Our audits 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, 1999
and 1998. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. 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 years ended March 31, 1999 and 1998.
/s/ Ernst & Young LLP
Indianapolis, Indiana
June 10, 1999
EXHIBIT 23.2
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. 3 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated June 14, 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, 1997.
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 year ended March 31, 1997.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
June 10, 1999
POWER OF ATTORNEY
We, the undersigned directors, managers and officers of National Wine
& Spirits Corporation, NWS, Inc., NWS Illinois, LLC and NWS-Michigan, Inc., do
hereby constitute and appoint J. Smoke Wallin our true and lawful attorney and
agent, to do any and all acts and things in our name and on our behalf in our
capacities as directors, managers and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorney and agent may deem necessary or advisable to enable said companies
to comply with the Securities Act of 1933 and any rules, regulations and
requirements of the Securities and Exchange Commission in connection with this
Registration Statement, including specifically, but not without limitation,
power and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 14 day of June, 1999 by the
following persons in the capacities indicated:
SIGNATURE TITLE
/s/James E. LaCrosse Chairman (Principal Executive Officer)
James E. LaCrosse
/s/ J. Smoke Wallin Secretary and Treasurer (Principal Financial
J. Smoke Wallin and Accounting Officer)
/s/ Norma M. Johnston Director/Manager
Norma M. Johnston
/s/ Patricia J. LaCrosse Director/Manager
Patricia J. LaCrosse
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001081971
<NAME> NATIONAL WINE & SPIRITS INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,908
<SECURITIES> 0
<RECEIVABLES> 38,340
<ALLOWANCES> 1,298
<INVENTORY> 67,961
<CURRENT-ASSETS> 111,687
<PP&E> 79,771
<DEPRECIATION> 30,464
<TOTAL-ASSETS> 180,376
<CURRENT-LIABILITIES> 46,043
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 17,720
<TOTAL-LIABILITY-AND-EQUITY> 180,376
<SALES> 535,521
<TOTAL-REVENUES> 553,353
<CGS> 436,734
<TOTAL-COSTS> 541,368
<OTHER-EXPENSES> (529)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,037
<INCOME-PRETAX> 1,477
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 318
<CHANGES> 0
<NET-INCOME> 1,159
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE>
<CAPTION>
(B) FINANCIAL STATEMENT SCHEDULES
II. VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------------------- ----------------- -------------- -------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1999 Deducted from asset account:
Allowance for doubtful accounts $ 900,000 $ 504,000 $ - $ 106,000 $ 1,298,000
LIFO reserve 7,000,000 546,000 - - 7,546,000
================= ============== ============== ================ ===============
Total $ 7,900,000 $ 1,050,000 $ - $ 106,000 $ 8,844,000
================= ============== ============== ================ ===============
Year ended March 31, 1998 Deducted from assets account:
Allowance for doubtful accounts $ 926,000 $ 601,000 $ - $ 627,000 (1) $ 900,000
LIFO reserve 7,000,000
6,430,000 570,000 - -
----------------- -------------- -------------- ---------------- ---------------
Total $ 7,356,000 $ 1,171,000 $ - $ 627,000 $ 7,900,000
================= ============== ============== ================ ===============
Year ended March 31, 1997 Deducted from assets account:
Allowance for doubtful accounts $ 800,000 $ 571,000 $ - $ 445,000 (1) $ 926,000
LIFO reserve 6,430,000
4,975,000 1,455,000 - -
----------------- -------------- -------------- ---------------- ---------------
Total $ 5,775,000 $ 2,026,000 $ - $ 445,000 $ 7,356,000
================= ============== ============== ================ ===============
<FN>
(1) Uncollectible accounts written off, net of recoveries.
</FN>
</TABLE>
