AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MAY 3, 1999.
REGISTRATION NO. 333-74589
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ----------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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NATIONAL WINE & SPIRITS, INC.
(Exact name of Registrant as
specified in its charter)
INDIANA 5182 35-2064429
- ------------------------ ---------------------------- -------------------
(State of Incorporation) (Primary S.I.C. Code Number) (I. R. S. Employer
Identification No.)
And the following additional
Registrants, each a
Subsidiary Guarantor:
INDIANA NATIONAL WINE & SPIRITS CORPORATION 35-0540650
ILLINOIS NWS, INC. 36-3784235
ILLINOIS NWS-ILLINOIS, LLC 36-4266415
MICHIGAN NWS MICHIGAN, INC. 38-3319025
- ---------------------------- -----------------------------------
(State or other jurisdiction (Exact name of Guarantor (I.R.S. Employer
of incorporation or as specified in its charter) Identification No.)
or organization)
</TABLE>
P.O. Box 1602
700 W. Morris Street
Indianapolis, Indiana 46206
(317) 636-6092
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive
office)
James E. LaCrosse
Chairman, President and Chief Executive Officer
P.O. Box 1602
700 W. Morris Street
Indianapolis, Indiana 46206
(317) 636-6092
(Name, address, including zip code, and telephone number, including area code,
of agent of service)
Copies To:
Joseph E. DeGroff
Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282-0002
(312) 236-2100
APPROXIMATE DATE OF COMMENCEMENT OF
PROPOSED SALE TO PUBLIC: As soon as practicable
after the effective date of this registration
statement.
<PAGE>
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the company shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8 (a), may
determine.
<PAGE>
Subject to Completion Dated ________, 1999
PROSPECTUS
___________, 1999.
NATIONAL WINE & SPIRITS, INC.
Exchange Offer for
$110,000,000
10.125% Senior Notes Due 2009
Guaranteed by
National Wine & Spirits Corporation
NWS, Inc.
NWS Michigan, Inc.
NWS-Illinois, LLC
Terms of the Exchange Offer
o Expires 5:00 p.m. New York City time, __________, 1999, unless extended.
o All old notes that are validly tendered and not validly withdrawn will be
exchanged.
o Tenders of old notes may be withdrawn any time prior to the expiration of
the exchange offer.
o Not subject to any condition, other than that the exchange offer does not
violate applicable law or any applicable interpretation of the Staff of the
Securities and Exchange Commission.
o We will not receive any proceeds from the exchange offer.
o The exchange of notes should not be a taxable exchange for U.S. federal
income tax purposes.
o The terms of the notes to be issued are substantially identical to the old
notes, except for transfer registrations 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
12.
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 highlights some information from this prospectus, but may not
contain all of the information that is important to you. This prospectus
includes the terms of the notes we are offering, as well as information
regarding our business and detailed financial data. We encourage you to read
this prospectus in its entirety. We have included below a list to help you
understand what we are referring to in the prospectus. Unless the context of the
prospectus indicates otherwise, the following terms have the following meanings:
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NWS...................................... After December 31, 1998, the
combined business of NWS and its
subsidiaries, NWS-Indiana,
NWS-Illinois, NWS-Michigan and
NWS-LLC.
Prior to December 31, 1998, the
combined business of NWS-Indiana,
NWS-Illinois and NWS-Michigan.
NWS-Indiana.............................. National Wine & Spirits Corporation.
NWS-Illinois............................. NWS, Inc.
NWS-Michigan............................. NWS Michigan, Inc.
NWS-LLC.................................. NWS-Illinois, LLC
Guarantors............................... NWS-Indiana, NWS-Illinois,
NWS-Michigan and NWS-LLC, each a
subsidiary of NWS.
Old Notes................................ 10.125% Senior Notes due 2009 that
were issued on January 25, 1999.
Exchange Notes........................... 10.125% Senior Notes due 2009 that
we are offering here.
Notes.................................... The old notes and the exchange
notes, collectively.
Summary of the Exchange Offer
Registration Rights Agreement............ We sold the old notes in January,
1999 to the initial purchasers in a
transaction exempt
from the registration requirements
of the Securities Act. At the same
time, NWS and the initial purchasers
entered into a registration rights
agreement which grants the holders
of the old notes exchange and
registration rights. This exchange
offer satisfies those rights which
terminate upon consummation of the
exchange offer. You will not be
entitled to any exchange or
registration rights with respect to
the exchange notes.
The Exchange Offer....................... We are offering to exchange up to
$110.0 million of exchange notes
for up to $110.0 million of the old
notes. To exchange your old notes,
you must properly tender them, and
we must accept them. We will
exchange all old notes that you
validly tender and do not validly
withdraw. We will issue registered
exchange notes at the end of the
exchange offer.
<PAGE>
Resales.................................. We believe that you can offer for
resale, resell and otherwise transfer
the exchange notes without complying
with the registration and prospectus
delivery requirements of the
Securities Act if:
o you acquire the exchange notes
in the ordinary course of your
business;
o you are not participating, do
not intend to participate,
and have no arrangement or
understanding with any person
to participate, in the
distribution of the exchange
notes; and
o you are not an "affiliate" of
NWS, as defined in Rule 405 of
of the Securities Act.
If any of these conditions are not
satisfied and you transfer any
exchange note without delivering a
proper prospectus or without
qualifying for a registration
exemption, you may incur liability
under the Securities Act. We do not
assume or indemnify you against such
liability.
Each broker-dealer acquiring
exchange notes for its own account
in exchange for old notes, which it
acquired through market-making or
other trading activities, must
acknowledge that it will deliver a
proper prospectus when any exchange
notes are transferred. A
broker-dealer may use this
prospectus for an offer to resell, a
resale or other retransfer of the
exchange notes.
Expiration Date........................... The exchange offer expires at 5:00
p.m., New York Central time,
______________, 1999, unless we
extend the expiration date.
Conditions to the Exchange Offer.......... The exchange offer is subject to
customary conditions, some of which
we may waive.
Procedures for Tendering Old
Exchange Notes....................... If you wish to accept the exchange
offer, you must complete, sign and
date the letter of transmittal in
accordance with the instructions,
and deliver the letter of transmittal,
along with the old notes and any
other required documentation, to
the exchange agent by executing the
letter of transmittal, you will
represent to us that, among other
things:
o any exchange notes you receive
will be acquired in the ordinary
course of your business,
o you have no arrangement with
any person to participate in
the distribution of the exchange
notes, and
<PAGE>
o you are not an "affiliate," as
defined in Rule 405 of the
Securities Act, of NWS or, if
you are an affiliate, you will
comply with the registration
and prospectus delivery
requirements of the Securities
Act to the extent applicable.
If you hold your old notes through
the Depository Trust Corporation and
wish to participate in the exchange
offer, you may do so through the
Depository Trust Corporation's
Automated Tender Offer Program. By
participating in the exchange offer,
you will agree to be bound by the
letter of transmittal as though you
had executed such letter of
transmittal.
Special Procedures for Beneficial
Owners............................... If you are a beneficial owner whose
old notes are registered in the name
of a broker, dealer, commercial bank,
trust company or other nominee and
wish to tender your old notes in the
exchange offer, please contact the
registered holder as soon as possible
and instruct it to tender on your
behalf and comply with our instructions
set forth elsewhere in this prospectus.
Withdrawal Rights......................... You may withdraw the tender of your
old notes at any time before 5:00 p.m.
New York City time on __________,
1999, unless we extend the date.
Federal Income Tax Considerations......... With respect to the exchange of the
old notes for the exchange notes:
o the exchange is not a taxable
exchange for U.S. federal
income tax purposes.
o you will not recognize any gain
or loss as a result of the exchange.
Use of Proceeds........................... We will not receive any proceeds from
the exchange of notes, and we will
pay the expenses of the exchange offer.
Exchange Agent............................ We have appointed Norwest Bank
Minnesota, N.A. as the exchange agent
in the exchange offer. The exchange
agent's address, and telephone and
facsimile numbers are Norwest Bank
Minnesota, N.A., Corporate Trust,
Northwest Center, 6th & Marquette,
Minneapolis, Minnesota 55479, Phone:
(612) 667-9764, Fax: (612) 667-9825
attention: Corporate Trust Services.
</TABLE>
Summary of Terms of the Notes and Guarantees
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes, except that the exchange notes will be
registered under the Securities Act. As a result, the exchange notes will not
bear legends restricting their transfer and will not contain the registration
rights and liquidated damage provisions contained in the old notes.
<PAGE>
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Issuer.................................... National Wine & Spirits, Inc.
Guarantors................................ NWS - Indiana, NWS - Illinois, NWS -
Michigan, NWS - LLC
Total Amount of Exchange Notes
Offered................................... $110,000,000 aggregate principal
amount of 10.125% senior exchange
notes due 2009.
Maturity Date............................. January 15, 2009.
Interest Rate............................. 10.125 % per year
Interest Payment Dates.................... January 15 and July 15 of each year,
beginning on July 15, 1999
Ranking................................... The notes:
o are unsecured;
o rank senior in right of payment
to all subordinated
indebtedness of NWS;
o rank equally in right of payment
with all existing and future
unsubordinated indebtedness of
NWS; and
o rank junior in right of payment
with all existing and future
secured indebtedness of NWS.
Optional Redemption....................... On or after January 15, 2004, we may
redeem some or all of the notes at
any time at the redemption prices
listed in the section "Description
of the Exchange Notes C 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
senior indebtedness. The
guarantees are joint and several.
Change of Control......................... Upon a change of control of NWS, you
will have the right to require us to
repurchase the notes at a price equal
to 101% of their total principal
amount on the date of purchase, plus
accrued and unpaid interest to the
date of repurchase.
Certain Covenants......................... We will issue the notes under an
indenture with Norwest Bank Minnesota,
N.A. The indenture will, among other
things, restrict our ability and the
ability of our subsidiaries to:
<PAGE>
o borrow additional money;
o pay dividends or make certain
other restricted payments or
investments;
o create liens;
o sell certain assets;
o enter into transactions with
affiliates;
o merge or consolidate with any
other person;
o sell all or substantially all
of our assets; and
o engage in certain lines of
business.
These covenants are subject to
important exceptions and qualifications.
Form and Denomination..................... The notes will be represented by one
or more permanent global securities
in bearer form deposited with Norwest
Bank Minnesota, N.A., as book-entry
depositary, for the benefit of DTC.
You will not receive notes in
registered form unless one of the
events set forth under the heading
"Description of the Exchange Notes -
Book-Entry; Delivery and Form"
occurs. Instead, beneficial interests
in the notes will be shown on, and
transfers of these interests will be
effected only through, records
maintained in book-entry form by DTC
with respect to its participants.
Use of Proceeds........................... We will not receive any cash proceeds
in the exchange offer.
</TABLE>
National Wine
We are one of the largest distributors of wine and spirits in the United
States. We are the largest spirits distributor in Indiana and Michigan, and one
of the largest in Illinois. Our markets include Chicago and Detroit, which are
the largest and sixth largest United States metropolitan markets for spirits.
Recent Developments
Indiana Price Increase. We announced an average $3.65 per case
across-the-board price increase on all spirits in Indiana effective January 1,
1999 for the products of most suppliers, and February 1, 1999 for the balance of
spirits suppliers. Our 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 we announced was in 1995 and
was effective. Although we can give you no assurance, we believe this price
increase will also be effective in the marketplace. If and to the extent the
increase is effective, we believe that it will have a positive effect on the
financial performance of our Indiana operation. We sold approximately 1.5
million cases of spirits in Indiana in 1998. Assuming constant volume, we
believe that the across-the-board price increase would have generated an
estimated $5.5 million of additional revenues in 1998, a significant portion of
which would represent an improvement in gross margin. Management believes that
there will be no material incremental operating expenses associated with these
revenues.
<PAGE>
Illinois Franchise Law. In December, 1998 legislation was introduced into
the Illinois general assembly which, if adopted, would limit the ability of
suppliers to terminate distributors and transfer their product lines to new
distributors. Other states have adopted similar franchise legislation which has
generally resulted in price stabilization. We can give you no assurance that the
legislation will become law.
Kentucky Distributorship. In December, 1998, we formed a new Kentucky
distributorship, Commonwealth Wine & Spirits, LLC, in partnership with two
existing Kentucky-based distributors, The Vertner Smith Company and Kentucky
Wine & Spirits. We will invest $7.5 million ($4.5 million in cash and a $3.0
million cash franchise fee), in exchange for 25% of the new company. Vertner and
Kentucky W&S equally own the remaining 75%. At December 31, 1998, we had
invested $6.0 million in this new venture. We believe that Commonwealth Wine &
Spirits, Inc. is the largest distributor of wine and spirits in Kentucky.
Although we can give you no assurance, we do not presently anticipate any
further capital requirements related to this investment.
Brand Representation. We have recently obtained additional brands in
Illinois and Michigan. In March, 1998, Sebastiani named us as its exclusive
distributor in Illinois. In 1997, Sebastiani reported total wine sales in
Illinois of 250,000 cases. In June, 1998, McCormick Distilling appointed us as
its exclusive distributor for Grand Macnish Scotch whiskey. In July, 1998,
Austin Nichols Company appointed us as its exclusive distributor in Michigan.
Austin Nichols supplies Royal Canadian and Jameson Irish whiskey, among other
brands, in Michigan. Grand Macnish and Austin Nichols had combined sales of
approximately 130,000 cases of spirits in 1997 in Michigan. In December, 1998,
we were also named the exclusive distributor by Laird & Co. in Michigan. During
1997, Laird sold approximately 200,000 cases of spirits in Michigan.
As of November, 1998, we no longer distribute J&B Scotch in Michigan. The
brand realignment was the result of certain required divestitures by suppliers
related to the formation of Diageo. In March, 1999, one of our suppliers,
Diageo-UDV, announced the sale of several non-core brands, including certain
brands we currently distribute such as Black Velvet Whiskey, Christian Brothers
Brandy and Arrow Cordials. We do not expect that Diageo's sale of these brands
will have a material effect. In March, 1999, Diageo announced the sale of
several non-core brands to other brand owners -- Canandaigua Brands, Sazerac,
Heaven Hill, and David Sherman. These brands represent approximately 357,000
cases in Michigan and 47,000 cases in Indiana. As of April, 1999, 125,000 cases
of these brands had committed to stay with us in Michigan with the balance
undecided. There can be no assurances that we will retain the undecided brands.
As of April, 1, 1999, we will no longer distribute Kenwood Wines in Illinois due
to a competing supplier's purchase of the brand. As of June, 1999, we will have
obtained the exclusive distribution rights to Wild Turkey Bourbon in Illinois.
Wild Turkey sold approximately 6,500 cases in Illinois in 1998. As of June,
1999, we will have obtained the exclusive distribution rights to Kendall-Jackson
Wines in Illinois. In 1998 Kendall-Jackson sold approximately 165,000 cases in
Illinois. As of June, 1999 we will no longer distribute Bombay Gin in Indiana.
The brand realignment was the result of certain required divestitures by
suppliers related to the formation of Diageo.
U.S. Beverage. In September, 1998, U.S. Beverage, a 50% subsidiary of
NWS-Illinois, entered into a 15-year agreement with Bass, PLC granting U.S.
Beverage the exclusive U.S. distribution rights for Hooper's Hooch flavored malt
beverage. We believe that NWS has the potential for a significant increase in
case sales in 1999 over the sales levels achieved by Bass and that the Hooper's
Hooch business should provide U.S. Beverage with the critical mass to support
its nationwide sales and marketing force.
<PAGE>
Additional Acquisition. We have entered into final negotiations for the
acquisition of R.M. Gilligan, a spirits sales brokerage in Michigan. This $1.8
million purchase will give us a significant presence in the Michigan sales arena
and the opportunity to represent Allied Domecq in Michigan. In 1997, R.M.
Gilligan had sales of $1.8 million.
Lawsuit Settlement. We settled a long running (since 1992) 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,
vitners, wholesalers, advertisers and insurers. The focus of this complaint is
an alleged conspiracy among the major manufacturers of alcohol-based beverage
products to mislead, deceive, and confuse the public regarding the use of
alcohol-based beverages. Among other remedies sought, plaintiffs seek $1 billion
in monetary damages and civil penalties. NWS was among those named even though
we do not do business in Wisconsin. We intend to defend this litigation
vigorously.
Risk Factors
See the section entitled "Risk Factors" beginning on page 12 for a
discussion of certain factors that you should consider in connection with your
investment in the exchange notes.
Summary Consolidated Financial And Other Data
The following summary historical financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this prospectus. The pro forma income statement
data and other data for the twelve months ended December 31, 1998 give effect to
the offering and our new credit facility as if they had occurred at the
beginning of the period presented.
Distribution fees include our per case distribution fee for cases of
spirits delivered in and on behalf of the State of Michigan. We do not take
title to or finance any inventory in Michigan. Please also note that we have
elected S corporation status under the Internal Revenue Code. Consequently, we
do not incur liability for federal and certain state income taxes.
The following will also assist in the review of the financial information set
forth below:
o For purposes of calculating earnings to fixed charges, earnings consist of
net income plus fixed charges. Fixed charges consist of interest expense,
amortization of debt expense and discount or premium relating to
Indebtedness and the portion of rental expense on operating leases which we
estimate to be representative of the interest factor attributable to rental
expense.
For 1994, earnings were inadequate to cover fixed charges by $1,281,000.
o For pro forma interest expense, the effective interest rate on the New
Credit Facility is assumed to be 7.75%. Pro forma interest expense has been
reduced by $454,000 which represents interest expense on the shareholder
notes payable which will be set off against the interest income on the
shareholder notes receivable pursuant to the amended terms of the
shareholder notes.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
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Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31,
----------------------------------------------------------- ---------------------- ------------------
1994 1995 1996 1997 1998 1997 1998 1998
(Dollars and cases in thousands, except per case amount)
Statement of Income Data:
Net product sales...... $ 396,360 $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 401,927 $ 423,367 $ 526,581
Distribution fees...... -- -- 2,729 16,270 13,121 14,010 17,159
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Total revenue.......... 396,360 427,218 443,257 490,800 521,411 415,048 437,377 543,740
Cost of products sold.. 330,698 354,478 364,792 402,072 411,734 329,566 346,516 428,684
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Gross profit........... 65,662 72,740 78,465 88,728 109,677 85,482 90,861 115,056
Selling, general and
administrative
expenses............ 62,884 64,431 68,925 80,299 99,118 75,044 78,690 102,764
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Income from operations. 2,778 8,309 9,540 8,429 10,559 10,438 12,171 12,292
Interest expense....... (4,907) (7,341) (7,935) (8,486) (9,672) (7,325) (8,018) (10,365)
Gain on sale of assets. 176 89 172 41 4,139 4,225 97 11
Other income........... 672 1,122 1,247 1,619 2,085 938 1,336 2,483
----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------
Net income (loss)...... $ (1,281) $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 8,276 $ 5,586 $ 4,421
=========== ========== ========== ========== ========== ========== ========== ==================
Other Financial Data:
EBITDA (1)............. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
EBITDA margin.......... 1.7% 3.0% 3.3% 2.9% 3.4% 3.7% 4.2% 3.8%
Cash provided (used)
by operating
activities.......... $ (7,111) $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ (14,931) $ (6,643) $ (18,071)
Cash used by investing
activities......... (15,876) (7,424) (5,077) (9,937) (9,908) (11,003) (14,972) (13,877)
Cash provided (used)
by financing
activities ......... 21,946 1,729 11,789 4,918 (1,900) 24,463 23,462 (2,901)
Depreciation and
amortization........ 3,800 4,561 4,902 5,757 7,115 5,052 6,074 8,137
Capital expenditures
(2)................. 12,002 6,503 3,609 10,447 13,952 12,069 6,518 8,401
Ratio of earnings to
fixed charges....... N/A 1.3x 1.4x 1.2x 1.6x 2.0x 1.6x 1.4x
Operating Statistics:
Product Sales
Operations
Cases shipped (spirits
and
wine)............... N/A 6,006 6,109 6,099 6,343 5,039 5,035 6,339
Net product price per
case................ N/A $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 73.23 $ 74.62 $ 73.96
Gross profit margin.... 16.6% 17.0% 17.7% 17.6% 18.5% 18.0% 18.2% 18.6%
Fee Operations
Cases shipped (spirits) -- -- -- 396 2,545 1,990 2,124 2,679
Distribution fee per
case................ -- -- -- $ 6.50 $ 6.50 $ 6.50 $ 6.50 $ 6.50
Pro Forma Information:
Adjusted EBITDA (1).... -- -- -- -- -- -- -- 21,332
Interest expense....... -- -- -- -- -- -- -- 11,299
Adjusted
EBITDA/Interest 1.9x
Expense............. -- -- -- -- -- -- --
Net Debt/Adjusted
EBITDA ............. -- -- -- -- -- -- -- 5.8x
</TABLE>
<TABLE>
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As of December 31, 1998
-----------------------
Actual As Adjusted
(In thousands)
Balance Sheet Data:
Cash................................ $ 3,217 $ 100
Total assets........................ 202,136 202,570
Total debt.......................... 120,945 123,338
Stockholders' equity................ 25,119 23,160
</TABLE>
<PAGE>
(1) EBITDA is defined as income from operations plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO charges
plus start-up expenses (includes organizational costs, brand registration costs,
temporary employee costs, and costs for temporary warehouse facilities and
special product delivery costs for the Michigan operations and all U.S. Beverage
costs net of U.S. Beverage revenues through fiscal 1998), as follows:
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended
Years Ended March 31, December 31, December 31,
----------------------------------------------------- ------------------ ---------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
EBITDA................. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
LIFO charge............ 65 145 545 1,455 570 429 605 746
Start-up expenses...... 992 -- -- 1,157 3,320 3,163 -- 157
--------- --------- --------- --------- --------- --------- ---------- -----------
Adjusted EBITDA..... $ 7,635 $ 13,015 $ 14,987 $ 16,798 $ 21,564 $ 19,082 $ 18,850 $ 21,332
========= ========= ========= ========= ========= ========= ========== ===========
Adjusted cash provided
(used) by operating
activities ........ $(6,054) $ 6,085 $ (6,182) $ 9,551 $ 13,673 $(11,339) $ (6,038) $(17,168)
========= ========= ========= ========= ========= ========= ========== ===========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis of
debt service capability. Adjusted EBITDA is presented because we believe it may
assist in evaluating our ability to service our indebtedness, including the
exchange notes. In particular, by March 31, 1998, we had incurred substantially
all start-up expenses associated with our operations in Michigan and our U.S.
Beverage operations. We do not expect any start-up expenses in the future
regarding our Michigan or U.S. Beverage operations. 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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended
Years Ended March 31, December 31, December 31,
------------------------------------------------------ ------------------ ---------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
Business expansion.... $10,733 $3,930 $ 786 $ 5,855 $10,758 $ 9,740 $ 4,033 $ 5,051
Information systems... 403 1,743 1,553 2,446 1,781 1,225 921 1,447
Maintenance........... 866 830 1,270 2,146 1,413 1,104 1,564 1,873
--------- --------- --------- ---------- --------- --------- --------- -----------
$12,002 $6,503 $3,609 $10,447 $13,952 $12,069 $ 6,518 $ 8,401
========= ========= ========= ========== ========= ========= ========= ===========
</TABLE>
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.
<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 shows certain important
information and is presented assuming we received the proceeds from the sale of
the old notes and our new credit facility as of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
At December 31, 1998
Total unsubordinated debt.......................................... $ 122.4 million
Ratio of unsubordinated debt
to total capitalization.......................................... 83.5%
For the Twelve Months
Ended December 31, 1998
Ratio of earnings to fixed charges................................ 1.3x
</TABLE>
Our substantial debt could have the important consequences to you as a
holder of notes, including the following:
o We may be unable to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purpose;
o A significant portion of our cash flow from operations must be
dedicated to the repayment of the indebtedness, thereby reducing the
amount of cash we have available for other purposes;
o We may be disadvantaged as compared to our competitors as a result of
the significant amount of debt we now owe;
o Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we now
owe. It may also make us more vulnerable in a downturned market; and
o We may default under the financial and operating covenants contained
in the agreements governing our long term debt and bank loans.
In addition, we and our subsidiaries may be able to incur additional
indebtedness in the future. Under the Indenture, our ratio of earnings to fixed
charges is permitted to increase to 2.0 to 1.0 after the first anniversary of
the issue date, and 2.25 to 1.0 after the second anniversary. Our new credit
facility permits borrowings of up to $60.0 million. If new debt is added to our
and our subsidiaries' current debt levels, the related risks that we and they
now face could intensify.
<PAGE>
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH MAY DEPEND ON FACTORS BEYOND OUR CONTROL
Our ability to make payments on and to refinance our indebtedness,
including these notes, and to fund planned capital expenditures will depend on
our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
Because our operations are conducted through our subsidiaries, we are
dependant upon the cash flow of our subsidiaries to meet our obligations,
including obligations under the notes. Based on our subsidiaries' current level
of operations and anticipated cost savings and operating improvements, we
believe our cash flow from operations, available cash and available borrowings
under our credit facility, will be adequate to meet our future liquidity needs
for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness, including these notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
these notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our credit facility and these
notes, on a 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. As a result, upon any
distribution to our creditors or the creditors of the guarantors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or the guarantors or our or their property, the holders of secured debt of NWS
and the guarantors will be entitled to be paid in full in cash before any
payment may be made with respect to these notes or the guarantees. The
obligations under our new credit facility are secured by the accounts receivable
and inventory of NWS and all of the guarantors.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to NWS or the guarantors, holders of the notes will
participate with trade creditors and all other holders of subordinated
indebtedness of NWS and the guarantors in the assets remaining after we and the
guarantors have paid all of the secured debt. Holders of the notes may receive
less, ratably, than holders of trade payables in any such proceeding. In any of
these cases, we and the subsidiary guarantors may not have sufficient funds to
pay all of our creditors and holders of notes may receive less, ratably, than
the holders of secured debt.
At December 31, 1998, and after giving effect to the offering our new
credit facility, these notes and the guarantees would have been effectively
subordinated to approximately $12.0 million of secured debt and would have been
equal in rank to approximately $300,000 of debt.
POTENTIAL FOR TAX LIABILITY
We have elected to be treated as an S-corporation and for each of our
subsidiaries to be qualified subchapter S subsidiaries or other similar
pass-through entities for tax purposes. Accordingly, our shareholders are
directly subject to tax on their respective proportionate shares of our and our
subsidiaries' taxable income for federal and certain state income tax purposes.
<PAGE>
We believe that we qualify and will continue to qualify as an S-corporation
and that our subsidiaries have qualified and will continue to qualify as
subchapter S subsidiaries or other pass-through entities for federal and state
income tax purposes. However, if this were successfully challenged, we could be
required to pay federal and certain state income taxes (plus interest and
possibly penalties) on our past and future taxable income. While our
shareholders have agreed to indemnify us if our tax status is successfully
challenged, we can give no assurance that the resulting payment of taxes,
interest and penalties would not have a material adverse effect on our financial
condition.
RESTRICTIONS IMPOSED ON NWS BY OUR NEW CREDIT FACILITY
The indenture and our credit facility impose a number of significant
operating and financial restrictions on us and our subsidiaries. These covenants
limit our ability to, among other things:
o borrow additional money;
o pay dividends or make certain other or investments;
o sell subsidiary stock;
o enter into transactions with our affiliates;
o participate in sale-leaseback transactions;
o create liens;
o establish new lines of business;
o merge or consolidate with any other person; and
o sell all or substantially all our assets.
In addition, the Indenture prohibits certain restrictions on distributions from
our guarantors, as well as requires a guarantee from our future subsidiaries.
However, the Indenture allows NWS to make quarterly tax distributions to its
shareholders.
Our credit facility contains covenants similar to those described above. In
addition, the credit facility requires us to meet certain 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 can not ensure you that
our assets would be sufficient to repay such debt, including the exchange notes,
on an accelerated basis.
You should read the discussions under the headings "Description of the Exchange
Notes" and "Description of New Credit Facility and Other Indebtedness" for more
information.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER WHICH MAY BE REQUIRED BY THE INDENTURE
If a change of control occurs, we may be required to offer to repurchase
all of the notes then outstanding. Our credit facility prohibits us from
repurchasing any notes, with limited exceptions, and also provides that certain
change of control events constitute a default. In the event a change of control
occurs at a time when we are prohibited from purchasing the notes, we could seek
the consent of our lenders to purchase the notes or could attempt to refinance
the borrowings that contain such a prohibition. If we cannot obtain such a
consent or refinance such borrowings, we would be prohibited from purchasing the
notes. In such case, our failure to purchase tendered notes would constitute a
default under the Indenture, which, in turn, could result in amounts old 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 its obligations under the credit facility and the notes.
<PAGE>
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
o received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and
o 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, any payment by the guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets, or
o if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature, or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have incurred
debts beyond its ability to pay such debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES
While the old notes are presently eligible for trading in the PORTAL market
of the NASD by qualified institutional buyers, there is no existing market for
the exchange notes. The initial purchasers have advised us that they intend to
make a market in the exchange notes following the exchange offer, but they are
not obligated to do so, and any market-making may be stopped at any time without
notice. We do not intend to apply for a listing of the exchange notes on any
securities exchange. In addition, the liquidity of the trading market in these
notes, and the market price quoted for these notes, may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, you cannot be sure that an active trading
market will develop for these notes.
<PAGE>
DEPENDENCE ON KEY SUPPLIERS
Although we distribute numerous suppliers' products, the majority of our
revenue comes from a few major suppliers. The following table illustrates 1998
total revenue from the sales of our major suppliers' products:
<TABLE>
<CAPTION>
<S> <C>
Percent of 1998
Supplier total revenue
Seagram............................. 32.6%
Fortune Brands...................... 17.7
Diagco-UDV.......................... 7.7
Canandaigua......................... 7.4
</TABLE>
We have entered into written distribution agreements with several of our
principal suppliers which may be extended year by year but are terminable by the
suppliers upon 30 days or 60 days written notice to us. In addition, we have
informal arrangements with many of our suppliers to distribute their products by
means of purchase orders without written distribution agreements. 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.
From time to time, we and other distributors pay franchise fees to
suppliers in order to add key brands or enter new markets. We can give no
assurance that we will not pay additional franchise fees to our key suppliers in
the future, or that such fees will not be material. We can also give no
assurance that future acquisitions or mergers of suppliers will not affect our
relationships with our existing suppliers. For example, the acquisition or
merger of one of our suppliers in Illinois, Indiana or Michigan by a supplier
that has a relationship with one or more of our competitors could result in the
loss of that account in one or more of our markets. Competitors in other markets
could also enter our markets through acquisition of one or more distributors
with the expectation that suppliers would terminate their relationship with us
in order to further consolidate distributors or for other reasons. The
termination of our written or informal distribution agreements or an adverse
change in the terms of these distribution agreements could have a negative
impact on our business.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
Our success depends on the continued services of our senior management,
particularly our Chairman, President and Chief Executive Officer, James E.
LaCrosse and our Senior Vice President, Martin H. Bart. Mr. LaCrosse, Mr. Bart
and other senior management personnel have long and well-established
relationships with key suppliers and customers. Mr. Bart worked at Seagram for
37 years prior to joining our organization, and maintains a strong relationship
with Seagram, which is our largest supplier of distilled spirits. Neither Mr.
LaCrosse nor Mr. Bart has an employment agreement or non-compete agreement 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>
ADVERSE GOVERNMENT REGULATION IMPACTING THE ALCOHOL BASED BEVERAGE INDUSTRY
The distribution of alcohol-based beverages is subject to extensive
regulation. We are required to comply with various laws and regulations and
maintain certain permits and licenses to import, warehouse, transport,
distribute and sell wine and spirits. We believe that we are operating in
compliance with all federal and state laws, regulations and policy in all
material respects. However, we can give no assurance that the various
governmental regulations applicable to the alcohol-based beverage industry will
not change and become more stringent. If we fail to comply with applicable
governmental regulations or the conditions of our licenses or permits, our
licenses and permits could be revoked or suspended.
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.
The alcohol-based beverage industry has become the subject of considerable
societal and political attention in recent years due to increasing public
concern over alcohol-related societal problems, including driving while
intoxicated, underage drinking, alcoholism and health consequences from the
abuse of alcohol. Illinois has established .08% or above as the blood alcohol
level for driving under the influence of alcohol. Indiana and Michigan remain at
.10%, but several other states have recently lowered the blood alcohol levels
for driving under the influence of alcohol, and legislation has been introduced
in the United States Congress to adopt .08% as the national standard. This
federal legislation was not enacted but could be in the future. Similar measures
are likely to be introduced in Indiana and Michigan in the future. There has
also been discussion at the federal and state levels about restricting or
prohibiting print or electronic advertising or other promotional activities,
including billboard advertising and other promotions which allegedly target
youth as potential consumers of alcohol-based beverages. In certain
jurisdictions, including certain precincts in Chicago, Illinois, recent ballot
initiatives have been passed which limit the sale of alcohol at specified
locations or in specified areas. You should be aware that the passage of such
legislation could have a material adverse effect on our business.
In recent years, there has been growth in direct shipment by suppliers (for
example: "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.
The alcohol-based beverage industry also faces the possibility of class
action or other similar litigation alleging that the continued excessive use or
abuse of alcohol-based beverages has caused death or serious health problems. It
is also possible that federal or state governments could assert that the use of
alcohol-based beverages has significantly increased that portion of health care
costs paid for by the government. Litigation or assertions of this type have
adversely affected companies in the tobacco industry. Although we bottle and
blend our own private-label spirits for resale, we are not generally engaged in
the manufacture of alcohol-based beverages. It is possible, however, that our
suppliers could be named in litigation of this type which could have a material
adverse effect on their business and, in turn, could also have a material
adverse effect on our business.
EXPOSURE TO REGIONAL ECONOMIC CONDITIONS
Our business is conducted primarily in the states of Indiana, Illinois,
Michigan and Kentucky, and we are accordingly affected by the general economic
conditions in these states. We cannot assure you these states will not
experience economic downturns in the future which could have a material adverse
effect on our business. Economic downturns in the region could also have a
negative effect the industry trend toward sales of higher priced brands, which
has materially benefitted the industry in recent years.
<PAGE>
COMPETITION IN THE ALCOHOL BASED BEVERAGE DISTRIBUTION INDUSTRY
The wine and spirits wholesale distribution industry is highly competitive.
Some of our competitors have greater financial and other resources. For example,
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 adversely affect our relationship with our suppliers or our
Indiana market share. We can also give no assurance that we will be able to
compete successfully against current and future sources of competition. You
should read the discussion under the heading "Business -- Competition" for
additional information.
VOLATILITY 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. You should read the discussions under the headings "Management's
Discussion and Analysis of Financial Conditions and Results of Operations --
Quarterly Results; Seasonality" and "-- Liquidity and Capital Resources" for
additional information.
CONTROLLING STOCKHOLDER
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.
RELATIONS WITH OUR UNIONIZED WORK FORCE
As of December 31, 1998, 32.7% of our non-supervisory work force was
covered under collective bargaining agreements, and that number could increase
in the future. Although we believe that our relations with the unions are
generally good, you should be aware that a prolonged work stoppage or strike by
our unionized employees would cause a significant disruption of operations and
higher labor costs.
<PAGE>
POTENTIAL ADVERSE IMPACT RELATED TO YEAR 2000 ISSUES
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in our
supply, processing, distribution and financial chains.
We are currently assessing our exposure to potential Year 2000 issues.
Although we have not completed our assessment and remediation of our information
technology (IT) and non-IT systems, we do not expect, based on the limited
information now available, that Year 2000 issues will have a material adverse
effect on our business. We are also surveying our key customers and suppliers
regarding their preparation for the Year 2000. Although we are not presently
aware of any significant customer or supplier with a Year 2000 issue that would
materially impact our operations, we have no means of ensuring that our
customers or suppliers will be Year 2000 ready. Our failure to properly assess,
remediate and plan for potential Year 2000 problems could result in disruptions
of our normal business operations.
Due to the general uncertainty inherent in the Year 2000 issue, resulting
in part from the uncertainty of the Year 2000 readiness of our third-party
suppliers and customers, the consequences of Year 2000 failures could have a
material impact on our business. You should read the discussion under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations --Year 2000" for more information.
THE EXCHANGE OFFER
Purpose of the Exchange Offer
At the same time we issued the old notes, we agreed to file a registration
statement regarding the exchange of the old notes for notes with terms identical
in all material respects and to use our reasonable best efforts to cause that
registration statement to become effective with the SEC.
In the event that applicable interpretations of the staff of the SEC do not
permit NWS to conduct the exchange offer, or if any holders of the old notes
notify NWS that they are not eligible to participate in, or would not receive
freely tradable exchange notes in exchange for tendered old notes in, the
exchange offer, NWS will use its best efforts to cause to become effective a
shelf registration statement with respect to the resale of the old notes. NWS
also agreed to use its best efforts to keep the shelf registration statement
effective at least two years after its date of effectiveness.
Terms of the Exchange Offer
NWS is offering to exchange up to $110,000,000 total principal amount of
exchange notes for $110,000,000 of old notes. The old notes must be tendered
properly on or before 5:00 p.m. New York City time on ____________, 1999.
The exchange offer is not conditioned upon holders tendering minimum
principal amount of old notes. As of the date of this prospectus, $110,000,000
aggregate principal amount of exchange notes are old. The old notes may be
tendered only in integral multiples of $1,000.
Holders of the old notes do not have any appraisal or dissenters' rights in
the exchange offer. If holders do not tender old notes or tender old notes that
NWS does not accept, their old notes will remain old. Any old notes will be
entitled to the benefits of the Indenture but will not be entitled to any
further registration rights under the registration rights agreement, except
under limited circumstances.
<PAGE>
After the expiration date, NWS will return to the holder any tendered old
notes that NWS did not accept for exchange.
Holders exchanging old notes will not have to pay brokerage commissions or
fees or transfer taxes if they follow the instructions in the letter of
transmittal. NWS will pay the charges and expenses, other than certain taxes
described below, in the exchange offer. See "-- Fees and Expenses" for further
information regarding fees and expenses.
Neither NWS nor the board of directors of NWS recommends you to tender or
not tender old notes in the exchange offer. In addition, NWS has not authorized
anyone to make any recommendation. You must decide whether to tender in the
exchange offer and, if so, the aggregate amount of old notes to tender.
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on __________, 1999
unless we extend the exchange offer.
NWS has the right, in accordance with applicable law, at any time to:
o delay the acceptance of the old notes;
o terminate the exchange offer if NWS determines that any of the
conditions to the exchange offer have not occurred or have not
been satisfied;
o extend the expiration date of the exchange offer and keep all old
notes tendered other than those notes properly withdrawn; and
o waive any condition or amend the terms of the exchange offer.
If NWS materially changes the exchange offer, or if NWS waives a material
condition of the exchange offer, NWS will promptly distribute a prospectus
supplement to the holders of the old notes disclosing the change or waiver. NWS
will also extend the exchange offer as required by Rule l4e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
If NWS exercises any of the rights listed above, it will promptly give oral
or written notice of the action to the exchange agent and will issue a release
to an appropriate news agency. In the case of an extension, an announcement will
be made no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Interest on Exchange Notes
The exchange notes will bear interest at a rate of 10.125% per annum,
payable semi-annually, on January 15 and July 15 of each year, commencing July
15, 1999. Holders of exchange notes will receive interest on July 15, 1999 from
the date of initial issuance of the exchange notes, plus any accrued interest.
Interest on the old notes accepted for exchange will cease to accrue upon
issuance of the exchange notes.
<PAGE>
Acceptance for Exchange and Issuance of Exchange Notes
NWS will issue to the exchange agent exchange notes for old notes tendered
and accepted and not withdrawn promptly after the expiration date. The exchange
agent might not deliver the exchange notes to all tendering holders at the same
time. The timing of delivery depends upon when the exchange agent receives and
processes the required documents.
NWS will be deemed to have exchanged old notes validly tendered and not
withdrawn when NWS gives oral or written notice to the exchange agent of their
acceptance. The exchange agent is an agent for NWS for receiving tenders of old
notes, letters of transmittal and related documents. The exchange agent is also
an agent for tendering holders for receiving old notes, letters of transmittal
and related documents and transmitting exchange notes to validly tendering
holders. If for any reason, NWS (1) delays the acceptance or exchange of any old
notes (2) extends the exchange offer; or (3) is unable to accept or exchange
notes, then the exchange agent may, on behalf of NWS and subject to Rule
14e-1(c) under the Exchange Act, retain tendered notes. exchange notes retained
by the exchange agent may not be withdrawn, except according to the withdrawal
procedures outlined in the section entitled "--Withdrawal Rights" below.
In tendering old notes, you must warrant in the letter of transmittal or in
an agent's message (described below) the following:
o you have full power and authority to tender, exchange, sell, assign
and transfer old notes,
o NWS will acquire good, marketable and unencumbered title to the
tendered old notes, free and clear of all liens, restrictions, charges
and other encumbrances, and
o the old notes tendered for exchange are not subject to any adverse
claims or proxies. You also must warrant and agree that you will, upon
request, execute and deliver any additional documents requested by NWS
or the exchange agent to complete the exchange, sale, assignment, and
transfer of the old notes.
Procedures for Tendering Old Notes
Valid Tender
Only a holder of exchange notes (or, in the case of global exchange notes
held by DTC, a DTC participant listed in an official DTC proxy) may tender such
exchange notes in the exchange offer. To tender in the exchange offer, a holder
or DTC participant must complete, sign and date the letter of transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if required by the
letter of transmittal and mail or otherwise deliver such letter of transmittal
or such facsimile, together with the exchange notes and any other required
documents, to the exchange agent so as to be received by the exchange agent at
the address set forth below prior to 5:00 p.m., New York City time, on
_________, 1999. Delivery of the exchange notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the exchange agent prior to the
expiration date.
By executing the letter of transmittal, each holder or DTC participant will
make to NWS and the guarantors the representation set forth below in the second
paragraph under the heading "-- Resales of Exchange Notes."
The tender by a holder or DTC participant and the acceptance thereof by NWS
will constitute an agreement between such holder or DTC participant and NWS in
accordance with the terms and subject to the conditions set forth herein and in
the letter of transmittal.
<PAGE>
The method of delivery of notes and the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holder or DTC participant. Instead of delivery by mail, it is recommended that
holders and DTC participants use an overnight or hand delivery service, in all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No letter of transmittal or notes should be
sent to NWS. Beneficial owners may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such beneficial owners.
Any beneficial owner whose exchange notes are held through a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contract such nominee promptly and instruct such nominee to tender on
such beneficial owner's behalf. Such instructions should be given in sufficient
time to ensure that the nominee will be able to take the necessary steps to
tender such exchange notes before the expiration date.
Signature Guarantees
Signatures on the letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined later in
this paragraph) unless the exchange notes tendered pursuant thereto are
tendered:
o by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
o for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
In the letter of transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by NWS, evidence satisfactory to NWS of
their authority to so act must be submitted with the letter of transmittal.
Book-Entry Transfer; ATOP
NWS understands that the exchange agent will make a request promptly after
the date of this prospectus to establish an account with respect to the exchange
notes at DTC for the purpose of facilitating the exchange offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC may make book-entry delivery of the exchange notes by causing DTC to
transfer such exchange notes into the exchange agent's account with respect to
the exchange notes in accordance with DTC's procedures for such transfer.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the Book-Entry Facility Automated Tender Offer Program ("ATOP").
Accordingly, DTC participants listed on an official DTC proxy may electronically
transmit their acceptance of the exchange offer by causing DTC to transfer
exchange notes to the exchange agent in accordance with DTC's ATOP procedures
for transfer. DTC will then send an agent's message to the exchange agent.
<PAGE>
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgement from the
participant in DTC tendering exchange notes which are the subject of such
book-entry confirmation, that such participant has received and agrees to be
bound by terms of the letter of transmittal and that NWS and the guarantors may
enforce such agreement against the participant In the case of an agent's message
relating to guaranteed delivery, the term means a message transmitted by DTC and
received by the exchange agent which states that DTC has received an express
acknowledgement from the participant in DTC tendering exchange notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
Each DTC participant transmitting an acceptance of the exchange offer
through the ATOP procedures will be deemed to have agreed to be bound by the
terms of the letter of transmittal.
Guaranteed Delivery
If a holder wants to tender old notes in the exchange offer and (1) the
certificates for the old notes are not immediately available or all required
documents are unlikely to reach the exchange agent on or before the expiration
date, or (2) a book-entry transfer cannot be completed in time, the old notes
may be tendered if the holder complies with the following guaranteed delivery
procedures:
o the tender is made by or through an eligible institution;
o prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed Notice of
Guaranteed Delivery setting forth the name and address of the holder,
the certificate number(s) of such exchange notes and the principal
amount of exchange notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the expiration date, the letter of
transmittal (or facsimile thereof), together with the certificate(s)
representing the exchange notes (or a confirmation of book-entry
transfer of such exchange notes into the exchange agent's account at
DTC) and any other documents required by the letter of transmittal,
will be deposited by the eligible institution with the exchange agent;
and
o such properly completed and executed letter of transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered exchange notes in proper form for transfer (or a confirmation
of book-entry transfer of such exchange notes into the exchange
agent's account at DTC) and all other documents required by the letter
of transmittal, are received by the exchange agent within three New
York Stock Exchange trading days after the expiration date.
NWS' acceptance of properly tendered old notes is a binding agreement
between the tendering holder and NWS upon the terms and subject to the
conditions of the exchange offer.
<PAGE>
Determination of Validity
NWS will resolve all questions regarding the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered old notes. NWS' resolution of these questions as well as NWS'
interpretation of the terms and conditions of the exchange offer (including the
letter of transmittal) is final and binding on all parties. A tender of old
notes is invalid until all irregularities have been cured or waived. Neither
NWS, any affiliates or assigns of NWS, the exchange agent nor any other person
is under any obligation to give notice of any irregularities in tenders nor will
they be liable for failing to give any such notice. NWS reserves the absolute
right, in its sole and absolute discretion, to reject any tenders determined to
be in improper form or unlawful. NWS also reserves the absolute right to waive
any of the conditions of the exchange offer or any condition or irregularity in
the tender of old notes by any holder. NWS need not waive similar conditions or
irregularities in the case of other holders.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless waived
by NWS, the person must submit proper evidence satisfactory to NWS, in its sole
discretion, of his or her authority to so act.
A beneficial owner of old notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to participate
in the exchange offer.
Resales of Exchange Notes
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, NWS believes that exchange notes issued
pursuant to the exchange offer in exchange for old notes may be offered for
resale, resold and otherwise transferred by any owner of such exchange notes
(other than any such owner which is an "affiliate" of NWS within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
exchange notes are acquired in the ordinary course of such owner's business and
such owner does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of such
exchange notes. Any owner of exchange notes who tenders in the exchange offer
with the intention to participate, or for the purpose of participating, in a
distribution of the exchange notes may not rely on the position of the staff of
the SEC enunciated in Exxon Capital Holdings Corporation (April 13, 1988) and
Morgan Stanley & Co., Incorporated (June 5, 1991) or similar no-action letters
but rather must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K under the Securities Act. Each
broker-dealer that receives exchange notes for its own broker-dealer as a result
of market-making activities or other trading activities, may be a statutory
underwriter and must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
exchange notes.
By tendering in the exchange offer, each holder (or DTC participant, in the
case of tenders of interests in the global exchange notes held by DTC) will
represent to NWS and the guarantors that, among other things,
o the exchange notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving
such exchange notes, whether or not such person is the registered
holder or DTC participant,
<PAGE>
o neither the holder or DTC participant nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such exchange notes and
o the holder or DTC participant and such other person acknowledge that
if they participate in the exchange offer for the purpose of
distributing the exchange notes (a) they must, in the absence of an
exemption therefrom, comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any
resale of the exchange notes and cannot rely on the no-action letters
referenced above and (b) failure to comply with such requirements in
such instance could result in such holder or DTC participant or such
other person incurring liability under the Securities Act for which
such holder or DTC participant or such other person is not indemnified
by NWS or any guarantor.
Further, by tendering in the exchange offer, each holder or DTC participant and
such other person that may be deemed an "affiliate" (as defined under Rule 405
of the Securities Act) of NWS will represent to NWS and the guarantors that such
holder or DTC participant and such other person understand and acknowledge that
the exchange notes may not be offered for resale, resold or otherwise
transferred by that holder or DTC participant or such other person without
registration under the Securities Act or an exemption therefrom.
Withdrawal Rights
You can withdraw tenders of old notes at any time on or before the
expiration date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a Notice of Withdrawal to the exchange agent
on or before the expiration date. The Notice of Withdrawal must specify the name
of the person tendering the old notes to be withdrawn, the total principal
amount of old notes withdrawn, and the name of the registered holder of the old
notes if different from the person tendering the old notes. If you delivered old
notes to the exchange agent, you must submit the serial numbers of the old notes
to be withdrawn and the signature on the Notice of Withdrawal must be guaranteed
by an eligible institution, except in the case of old notes tendered for the
account of an eligible institution. If you tendered old notes as a book-entry
transfer, the Notice of Withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of old notes and you must
deliver the Notice of Withdrawal to the exchange agent by written, telegraphic,
telex or facsimile transmission. You may not rescind withdrawals of tender. Old
notes properly withdrawn may again be tendered at any time on or before the
expiration date.
We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. Neither NWS, any affiliate or assign of NWS, the exchange agent
nor any other person is under any obligation to give notice of any
irregularities in any Notice of Withdrawal, nor will they be liable for failing
to give any such notice. Withdrawn old notes will be returned to the holder
after withdrawal.
Conditions to the Exchange Offer
NWS need not exchange any old notes, may terminate the exchange offer or
may waive any conditions to the exchange offer or amend the exchange offer, if
any of the following conditions have occurred:
o the Staff of the SEC no longer allows the exchange notes to be offered
for resale, resold and otherwise transferred by certain holders
without compliance with the registration and prospectus delivery
provisions of the Securities Act; or
<PAGE>
o a governmental body passes any law, statute, rule or regulation which,
in NWS' opinion, prohibits or prevents the exchange offer; or
o the SEC or any state securities authority issues a stop order
suspending the effectiveness of the registration statement or
initiates or threatens to initiate a proceeding to suspend the
effectiveness of the registration statement; or
o NWS is unable to obtain any governmental approval that NWS believes is
necessary to complete the exchange offer.
If NWS reasonably believes that any of the above conditions has occurred,
it may (1) terminate the exchange offer, whether or not any old notes have been
accepted for exchange, (2) waive any condition to the exchange offer or (3)
amend the terms of the exchange offer in any respect. If NWS' waiver or
amendment materially changes the exchange offer, NWS will promptly disclose the
waiver or amendment through a prospectus supplement, distributed to the
registered holders of the old notes. The prospectus supplement also will extend
the exchange offer as required by Rule 14e-1 of the Exchange Act.
Exchange Agent
NWS appointed Norwest Bank Minnesota, N. A. as exchange agent for the
exchange offer. holders should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for Notice of Guaranteed Delivery to the exchange agent
addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
By Registered, Certified Mail,
Hand or Overnight Delivery: Confirm By Telephone: Facsimile Transmissions:
Norwest Bank Minnesota, N.A. (612) 667-9764 (612) 667-9825
Corporate Trust Attention: Corporate
Northwest Center Trust Services
6th & Marquette
Minneapolis, Minnesota 55479
Attention: Corporate Trust
Services
</TABLE>
If you deliver letters of transmittal and any other required documents to
an address or facsimile number other than those listed above, your tender is
invalid.
Fees and Expenses
NWS will pay all costs incidental to the exchange offer including the
reasonable and customary fees of the exchange agent for its services and
reasonable out-of-pocket expenses. NWS will also pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for
sending copies of this prospectus and related documents to holders of old notes,
and in handling or tendering for their customers.
NWS will pay the transfer taxes for the exchange of the old notes in the
exchange offer. If, however, exchange notes are delivered to or issued in the
name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of old notes in the exchange
offer, then the tendering holder will pay the transfer taxes. If a tendering
holder does not submit satisfactory evidence of payment of taxes or exemption
from taxes with the letter of transmittal, the taxes will be billed directly to
the tendering holder.
<PAGE>
NWS will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the exchange offer.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes. Accordingly, NWS will not recognize any gain or loss for accounting
purposes. NWS intends to amortize the expenses of the exchange offer and
issuance of the old notes over the term of the exchange notes.
REORGANIZATION OF THE COMPANY
Historically, NWS' operations in Indiana, Michigan and Illinois have been
conducted through wholly-owned subsidiaries for Indiana ("NWS-Indiana") and
Michigan ("NWS-Michigan") and through an affiliate for 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.
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, a new limited liability company subsidiary of NWS-Illinois was created
into which substantially all of NWS' Illinois operations were transferred
("NWS-LLC"). Currently, NWS-LLC is owned 75% by NWS-Illinois and 25% by Mr.
Bart. Allocations of profits and losses are different (currently 96% for
NWS-Illinois and 4% for Mr. Bart) given the capital investment disparity between
NWS-Illinois and Mr. Bart. The profit and loss allocations would be subject to
change in the future depending on the relative capital accounts of the members,
which in turn would affect the amount of Mr. Bart's minority interest reflected
in NWS' financial statements. NWS is substantially wholly-owned by Mr. LaCrosse
(or a trust for the benefit of his family) and Mrs. Johnston. Each of
NWS-Indiana, NWS-Illinois, NWS-Michigan and NWS-LLC is a guarantor of the notes.
The primary purpose of the reorganization was to establish a holding
company structure for NWS-Indiana and all of its significant affiliated
companies. The reorganization was accounted for as a combination of entities
under common control, similar to a pooling-of-interest. As such, the NWS
financial statements have been presented to reflect this accounting treatment.
USE OF PROCEEDS
The exchange offer will not generate cash proceeds for NWS. NWS used the
net proceeds from the sale of the old notes to repay NWS' existing credit
facility, a $15.0 million short-term bank facility, of which $7.5 million was
outstanding as of December 31, 1998, and certain other outstanding indebtedness
of NWS. The existing credit facility was used to fund accounts receivable,
inventories, capital expenditures and acquisitions.
<PAGE>
CAPITALIZATION
The table set forth below reflects as of December 31, 1998 (i) our actual,
and (ii) our capitalization as adjusted to give effect to the offering, the
application of the estimated net proceeds from the offering and the new credit
facility. This table should be read in conjunction with "Use of Proceeds,"
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this prospectus.
Of the $32.6 million of unsubordinated indebtedness as of December 31,
1998, $7.5 million had been borrowed under a credit facility which was repaid in
full with the proceeds of the January, 1999 offering. The $32.6 million also
included term debt with prepayment penalties of $0.2 million. This amount,
together with unamortized deferred financing costs of approximately $0.3
million, was recorded as a loss on extinguishment of debt at the time of
repayment.
Total borrowings of up to $60.0 million are available on a revolving basis
under our new credit facility. See "Description of New Credit Facility and Other
Indebtedness." 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources."
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. See "Certain Transactions."
<TABLE>
<CAPTION>
<S> <C> <C>
As of December 31, 1998
-------------------------
Actual As Adjusted
(In thousands)
Cash............................................... $ 3,217 $ 100
========= =========
Total debt:
Existing Credit Facility........................ $ 87,390 $ --
Other existing unsubordinated indebtedness...... 32,605 296
New Credit Facility ............................ -- 12,092
Notes........................................... -- 110,000
Subordinated indebtedness....................... 950 950
--------- ---------
Total debt .................................. 120,945 123,338
Stockholders' equity............................... 25,119 23,160
========= =========
Total capitalization............................... $ 146,064 $ 146,498
========= =========
</TABLE>
<PAGE>
The adjustments to stockholders' equity are shown in the table below (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity at December 31, 1998............................... $ 25,119
Dividends paid prior to the initial offering............................ (1,800)
Stockholder contributions made prior to the initial offering............ 300
Unamortized deferred financing costs written off........................ (279)
Prepayment penalties.................................................... (180)
------------
Stockholders' equity at December 31, 1998, as adjusted.................. $ 23,160
------------
</TABLE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary historical financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere herein. The pro forma income statement data and other
data for the twelve months ended December 31, 1998 give effect to the initial
offering and the new credit facility as if they had occurred at the beginning of
the period presented.
Distribution fees include our per case distribution fee for cases of
spirits delivered in and on behalf of the State of Michigan. We do not take
title to or finance any inventory in Michigan. Please also note that we have
elected "S" corporation status under the Internal Revenue Code and consequently,
we do not incur liability for federal and certain state income taxes.
The following will also assist in the review of the following financial
information:
o For purposes of calculating earnings to fixed charges, earnings consist of
net income plus fixed charges. Fixed charges consist of interest expense,
amortization of debt expense and discount or premium relating to
Indebtedness and the portion of rental expense on operating leases which we
estimate to be representative of the interest factor attributable to rental
expense.
For 1994, earnings were inadequate to cover fixed charges by $1,281,000.
o For pro forma interest expense, the effective interest rate on new credit
facility is assumed to be 7.75%. Pro forma interest expense has been
reduced by $454,000 which represents interest expense on the shareholder
notes payable which will be set off against the interest income on the
shareholder notes receivable pursuant to the amended terms of the
shareholder notes.
o Net debt represents total debt less cash. Our indebtedness fluctuates with
our seasonal working capital requirements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve
Ended Months
Years Ended March 31, December 31, Ended
December
31,
------------------------------------------------------------- -------------------------- -----------
1994 1995 1996 1997 1998 1997 1998 1998
(Dollars and cases in thousands, except per case amount)
Statement of Income Data:
Net product sales....... $ 396,360 $ 427,218 $ 443,257 $ 488,071 $ 505,141 $ 401,927 $ 423,367 $ 526,581
Distribution fees ...... -- -- -- 2,729 16,270 13,121 14,010 17,159
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Total revenue........... 396,360 427,218 443,257 490,800 521,411 415,048 437,377 543,740
Cost of products sold... 330,698 354,478 364,792 402,072 411,734 329,566 346,516 428,684
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Gross profit............ 65,662 72,740 78,465 88,728 109,677 85,482 90,861 115,056
Selling, general and
administrative
expenses............. 62,884 64,431 68,925 80,299 99,118 75,044 78,690 102,764
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Income from operations.. 2,778 8,309 9,540 8,429 10,559 10,438 12,171 12,292
Interest expense........ (4,907) (7,341) (7,935) (8,486) (9,672) (7,325) (8,018) (10,365)
Gain on sale of assets.. 176 89 172 41 4,139 4,225 97 11
Other income............ 672 1,122 1,247 1,619 2,085 938 1,336 2,483
----------- ----------- ----------- ---------- --------- ------------ ----------- -----------
Net income (loss) ...... $ (1,281) $ 2,179 $ 3,024 $ 1,603 $ 7,111 $ 8,276 $ 5,586 $ 4,421
=========== =========== =========== ========== ========= ============ =========== ===========
Other Financial Data:
EBITDA (1).............. $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $ 18,245 $ 20,429
EBITDA margin........... 1.7% 3.0% 3.3% 2.9% 3.4% 3.7% 4.2% 3.8%
Cash provided (used) by
operating activities. $ (7,111) $ 5,940 $ (6,727) $ 6,939 $ 9,783 $ (14,931) $ (6,643) $ (18,071)
Cash used by investing
activities.......... (15,876) (7,424) (5,077) (9,937) (9,908) (11,003) (14,972) (13,877)
Cash provided (used) by
financing activities 21,946 1,729 11,789 4,918 (1,900) 24,463 23,462 (2,901)
Depreciation and 3,800 4,561 4,902 5,757 7,115 5,052 6,074 8,137
amortization.........
Capital expenditures (2) 12,002 6,503 3,609 10,447 13,952 12,069 6,518 8,401
Ratio of earnings to
fixed charges........ N/A 1.3x 1.4x 1.2x 1.6x 2.0x 1.6x 1.4x
Operating Statistics:
Product Sales Operations
Cases shipped (spirits
and wine)............ N/A 6,006 6,109 6,099 6,343 5,039 5,035 6,339
Net product price per
case................. N/A $ 61.07 $ 62.87 $ 69.95 $ 72.86 $ 73.23 $ 74.62 $ 73.96
Gross profit margin..... 16.6% 17.0% 17.7% 17.6% 18.5% 18.0% 18.2% 18.6%
Fee Operations
Cases shipped (spirits). -- -- -- 396 2,545 1,990 2,124 2,679
Distribution fee per case -- -- -- $ 6.50 $ 6.50 $ 6.50 $ 6.50 $ 6.50
Pro Forma Information:
Adjusted EBITDA (1)..... -- -- -- -- -- -- -- 21,322
Interest expense........ -- -- -- -- -- -- -- 11,299
Adjusted EBITDA/Interest
Expense.............. -- -- -- -- -- -- -- 1.9x
Net Debt/Adjusted
EBITDA............... -- -- -- -- -- -- -- 5.8x
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
As of March 31, As of December 31,
----------------------------------------------------------- ----------------------------
Balance Sheet Data: 1994 1995 1996 1997 1998 1997 1998
(In thousands)
Cash.................... $ 1,244 $ 1,489 $ 1,475 $ 3,395 $ 1,370 $ 2,924 $ 3,217
Total assets............ 120,824 122,189 143,316 160,366 169,102 188,383 202,136
Total debt.............. 70,373 71,072 86,908 99,545 102,434 126,504 120,945
Stockholders' equity.... 12,909 15,363 14,209 10,470 14,582 17,253 25,119
</TABLE>
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(1) EBITDA is defined as income from operations plus depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus non-cash LIFO charges
plus start-up expenses (includes organizational costs, brand registration costs,
temporary employee costs, and costs for temporary warehouse facilities and
special product delivery costs for the Michigan operations and all U.S. Beverage
costs net of U.S. Beverage revenues through fiscal 1998), as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31, 1998
------------------------------------------------------- ---------------- ----------------
1994 1995 1996 1997 1998 1997 1998
(In thousands)
EBITDA................... $ 6,578 $ 12,870 $ 14,442 $ 14,186 $ 17,674 $ 15,490 $18,245 $ 20,429
LIFO charge.............. 65 145 545 1,455 570 429 605 746
Start-up expenses........ 992 -- -- 1,157 3,320 3,163 -- 157
----------- ---------- --------- --------- --------- ---------- --------- -----------
Adjusted EBITDA....... $ 7,635 $ 13,015 $ 14,987 $ 16,798 $ 21,564 $ 19,082 $18,850 $ 21,332
=========== ========== ========= ========= ========= ========== ========= ===========
Adjusted cash provided
(used) by
operating
activities ...... $(6,054) $ 6,085 $ (6,182) $ 9,551 $ 13,673 $(11,339) $(6,038) $(17,168)
=========== ========== ========= ========= ========= ========== ========= ===========
</TABLE>
EBITDA is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies
on the basis of debt service capability. Adjusted EBITDA is presented
because management believes it may assist in evaluating our ability to
service our Indebtedness, including the exchange notes. In particular,
by March 31, 1998, we had incurred substantially all start-up expenses
associated with our operations in Michigan and our U.S. Beverage
operations. Management does not expect any start-up expenses in the
future regarding our Michigan or U.S. Beverage operations. EBITDA and
Adjusted EBITDA are not intended to represent cash flows for the
periods presented, nor have they been presented as an alternative to
operating income as an indicator of operating performance and should
not be considered in isolation or as a substitute for measures of
performance and cash flow prepared in accordance with generally
accepted accounting principles. The EBITDA and Adjusted EBITDA
information selected above may not be comparable to similarly titled
measures used by other companies.
(2) The breakdown of capital expenditures for NWS by significant project is set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Twelve Months
Ended Ended December
Years Ended March 31, December 31, 31,
--------------------------------------------------- ----------------- ----------------
1994 1995 1996 1997 1998 1997 1998 1998
(In thousands)
Business expansion........ $10,733 $3,930 $ 786 $ 5,855 $ 10,758 $ 9,740 $ 4,033 $ 5,051
Information systems....... 403 1,743 1,553 2,446 1,781 1,225 921 1,447
Maintenance............... 866 830 1,270 2,146 1,413 1,104 1,564 1,873
-------- ------- --------- --------- --------- --------- --------- ------------
$12,002 $6,503 $ 3,609 $ 10,447 $ 13,952 $ 12,069 $ 6,518 $ 8,401
======== ======= ========= ========= ========= ========= ========= ============
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial and Other Data" and NWS' historical consolidated
financial statements and the accompanying notes included elsewhere in this
prospectus. Unless otherwise indicated, all references to years are to NWS'
fiscal year ended March 31.
<PAGE>
Overview
NWS is one of the largest distributors of wine and spirits in the United
States. Substantially all of NWS' current operations are in Illinois, Indiana
and Michigan. NWS' reported revenues include net product sales in Indiana and
Illinois, and distribution fees in Michigan. In Indiana and Illinois, NWS' net
product sales are comprised of sales to retail customers of wine and spirits
products and, to a much lesser extent, beer, water and other related products.
NWS purchases these products from suppliers and resells them to customers at
more than 24,000 retail locations in Indiana and Illinois through NWS'
approximately 600 person sales organization. In Michigan, which privatized
certain aspects of the wholesale distribution of spirits in 1997, NWS serves as
an "authorized distribution agent" for the state and collects a flat $6.50 per
case delivery fee set by the state and paid by suppliers for each case of
spirits delivered to approximately 12,000 locations throughout Michigan. NWS
does not take title to or finance any inventory in Michigan and operates with a
relatively small sales force.
For 1998, net product sales in Indiana and Illinois were $505.1 million
compared to $488.1 million in 1997. Distribution fees for 1998, which was NWS'
first full year of operations in Michigan, were $16.3 million compared to $2.7
million during 1997. For purposes of illustrating the scale of NWS' operations
in Michigan, the total wholesale prices of products delivered by NWS in Michigan
in 1997 and 1998 were $42.9 million and $280.5 million, respectively, based on
the fixed wholesale prices of the spirits delivered by NWS. NWS' gross profit
includes the gross margin on product sales in Indiana and Illinois and 100% of
NWS' distribution fees in Michigan since NWS does not take title to inventory in
Michigan. NWS' selling, general and administrative expenses reflect
administrative expenses and the costs of logistics and warehousing in all
markets, and selling expenses that relate almost exclusively to product sales in
Illinois, Indiana or through U.S. Beverage.
During 1997 and 1998, selling, general and administrative expenses included
certain start-up expenses related to NWS' new operations in Michigan and its
specialty and craft beer marketing business (U.S. Beverage). Management believes
that these start-up expenses are one-time costs directly related to the
commencement of these business operations that will not impact operating
performance or cash flow on an ongoing basis. NWS anticipates no additional
start-up costs in Michigan and expects that business to be solidly profitable
for the first time in 1999. Management believes U.S. Beverage should achieve
operating profitability in 2000 as a result of the addition of exclusive U.S.
distribution rights to the Hooper's Hooch flavored malt beverage acquired in
September, 1998 from Bass, PLC. See "Prospectus Summary -- Recent Developments."
With the inclusion of NWS' distribution fees in Michigan, comparisons of
consolidated sales, gross profit and selling, general and administrative
expenses between years are difficult. For example, because 100% of the
distribution fees are included in gross profit, increases in distribution fees
as a percentage of total sales tend to increase overall gross margin. By
contrast, logistical and warehousing expenses are a far higher percentage of
distribution fee business in Michigan than they are of the product sales in
Illinois and Indiana so that increases in the distribution fee business have
increased selling, general and administrative expenses as a percentage of
revenue and decreased operating margins. Now that NWS' business in Michigan has
completed its start-up phase and fee revenue is becoming more consistent as a
percentage of total revenue, there should be less impact on period to period
margin comparisons in the future. NWS has been able to expand its business
through distribution fees in Michigan without the need for corresponding growth
in, or financing of, working capital and sales force.
NWS' results of operations are typically highly seasonal as the result of a
number of factors, particularly the Christmas season. The third quarter ending
December 31, for example, represents the largest portion of NWS' annual net
income. The fourth quarter is usually not profitable, and the first and second
quarters are typically marginally profitable or slightly unprofitable after
interest expense. NWS' accounts receivable balance at December 31, is
historically between $50.0 and $60.0 million, due largely to seasonality.
<PAGE>
NWS announced an average $3.65 per case across-the-board price increase on
all spirits in Indiana to become effective January 1, 1999 for the products of
most suppliers, and February 1, 1999 for the balance of spirits suppliers. This
increase caused retail customers to purchase additional case volume in December,
1998 before the increase took effect; therefore, NWS shipped more volume in
December, 1998 relative to previous years, with potential reductions in volume
in the quarter ending March 31, 1999. NWS' single spirits competitor in Indiana,
Olinger Distributing, followed by announcing its own set of across-the-board
price increases. The last across-the-board price increase announced by NWS was
in 1995 and was effective. Although there can be no assurance, NWS believes this
price increase will also be effective in the marketplace. If and to the extent
the increase is effective, management believes that it will have a positive
effect on the financial performance of NWS' Indiana operation. NWS sold
approximately 1.5 million cases of spirits in Indiana in fiscal 1998. Assuming
constant volume, management believes that the across-the-board price increase
would have generated an estimated $5.5 million of additional revenues in fiscal
1998, a significant portion of which would represent an improvement in gross
margin. Management believes that there will be no material incremental operating
expenses associated with these revenues. See "Prospectus -- Recent Developments
- -- Indiana Price Increase."
Results of Operations
The following table includes information regarding total cases shipped by
NWS in 1996, 1997, 1998 and for the nine months ended December 31, 1997 compared
with the nine months ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
Years ended March 31, December 31,
-------------------------------------------------- --------------------------------
1996 1997 1998 1997 1998
-------- ------------------- ------------------- --------- ---------------------
Percent Percent Percent
Cases Cases Change Cases Change Cases Cases Change
Cases in thousands)
Wine (product sales operations)...... 2,775 2,838 2.3% 2,981 5.0% 2,340 2,419 3.4%
Spirits (product sales operations)... 3,334 3,261 (2.2) 3,362 3.1 2,699 2,616 (3.1)
Spirits (distribution fee operations) -- 396 -- 2,545 542.7 1,990 2,124 6.7
------ -------- -------- --------- ---------
Total wine and spirits......... 6,109 6,495 6.3 8,888 36.8 7,029 7,159 1.8
Other................................ 1,480 1,691 14.3 1,971 16.6 1,557 1,704 9.4
------ -------- -------- --------- ---------
Total.......................... 7,589 8,186 7.9% 10,859 32.7% 8,586 8,863 3.2%
====== ======== ======== ========= =========
</TABLE>
Nine Months Ended December 31, 1998 Compared with Nine Months Ended December 31,
1997
Revenue. NWS reported product sales in the nine months ended December 31,
1998 of $423.4 million, an increase of $21.4 million, or 5.3%, over the
comparable prior year period. This increase resulted primarily from the
continued shift by consumers to more premium brands, and the addition of
Sebastiani Wines in the Chicago market, which more than offset a slight decline
in total spirits cases sold. Contributing to the decline in the sale of spirits
cases was the additional customer purchases of spirits cases in the fourth
quarter of fiscal 1998 in advance of an announced price increase on certain key
brands. This increased case sales in fiscal 1998 and decreased case sales in the
nine months ended December 31, 1998. In addition, U.S. Beverage contributed $5.7
million of revenue, all of which was incremental compared to the prior year.
Distribution fees increased 6.8% for the nine month period to $14.0 million on
increased volume of existing brands and the addition of new suppliers. NWS'
recent addition of certain new supplier brands in Michigan (McCormick and
Austin-Nichols) did not occur until the middle of the second quarter of 1999
and, therefore, is only partially reflected in NWS' 1999 nine month results. The
recent loss of the J&B brand in Michigan (due to supplier realignment) did not
occur until November, but management does not expect it to have a material
impact on the distribution fee operations of NWS.
<PAGE>
Gross Profit. Gross profit on NWS' total revenue increased to $90.9 million
in the nine months ended December 31, 1998 from $85.5 million in the comparable
prior year period. This represented a 6.3% increase, due to improving gross
margins on NWS' product sales for the nine months from 18.0% to 18.2% and the
additional volume in Michigan with no corresponding cost of products sold. Gross
margins on product sales continued to benefit slightly from the continuing shift
in product mix to higher profit premium brands and from gradual reductions in
trade discounts in the competitive Chicago market. Additionally, the U.S.
Beverage business contributed slightly with margins of 18.1% for the nine months
ended December 31, 1998. As a result of this improvement and since gross profit
in Michigan is 100% of fee revenues, NWS' overall gross profit margin grew from
20.6% in the nine months ended December 31, 1997 to 20.8% for the nine-month
period ended December 31, 1998. Cost of products sold included a non-cash LIFO
charge of $0.6 million in the nine months ended December 31, 1998 compared with
$0.5 million for the comparable prior year period. Interim LIFO calculations are
based on management's estimates of expected year-end inventory levels and costs.
Over the past five years, LIFO adjustments have ranged between $0.1 and $1.5
million per year.
Selling, General and Administrative Expenses. Overall, operating expenses
increased $3.6 million to $78.7 million for the nine months ended December 31,
1998 from $75.0 million for the comparable period ended December 31, 1997. As a
percent of total revenue, selling, general and administrative expenses decreased
from 18.1% for the nine-month period ended December 31, 1997 to 18.0% for the
comparable current year period.
Selling expenses for product markets increased $4.7 million, or from 6.1%
to 6.9% of total revenues, for the nine-month period ended December 31, 1998,
primarily as a result of increased manpower to support the Illinois and Indiana
product markets, including additional sales staff in Illinois to support the
newly acquired Sebastiani brand line. Additionally, U.S. Beverage contributed
$2.6 million to overall selling, warehouse and delivery expenses during the
current nine-month period compared to no selling, warehouse and delivery
expenses in the prior year. Finally, in order to acquire additional lines in
Michigan, NWS created a sales team for the first time in that market. This
increased selling expenses by $0.2 million for the nine-month period ended
December 31, 1998. While small, selling expenses are expected to grow slightly
as NWS continues to increase its sales force in Michigan.
Total administrative expenses increased slightly by $0.6 million or 2.6%
over NWS' nine-month period ended December 31, 1997, which is down as a
percentage of total revenue from 5.2% to 5.1%. The increase in administrative
expenses was primarily a result of the installation of new computer systems in
Indiana and from general employee benefit cost increases across NWS.
Start-up expenses decreased 100%, or $3.2 million for the nine months ended
December 31, 1998, as U.S. Beverage moved out of its start-up phase and incurred
ongoing operating expenses, and NWS-Michigan completed its start-up in fiscal
1998.
Income from Operations. Operating income increased 16.6% or $1.7 million
for the nine months ended December 31, 1998. As a percent of total revenue,
income from operations improved from 2.5% for the nine month period ended
December 31, 1997 to 2.8% for the current year period. The increased revenues
for the nine month period ended December 31, 1998 and improved gross margins
more than offset the increase in operating expenses, and the increase in LIFO
reserve during the period.
Interest Expense. Interest expense increased 9.5% to $8.0 million during
the nine months ended December 31, 1998. The increase was attributable to
additional borrowings to finance the capital expenditures needed for NWS'
Michigan operations as well as an upgrade to the Chicago material handling
system and to finance NWS' Kentucky acquisition. This more than offset a
decrease in NWS' cost of borrowing as a result of the Federal Reserve's interest
rate cuts which directly impact NWS' interest expenses under its bank loans
during the third quarter.
<PAGE>
Other Income. Other income decreased by $3.7 million in the nine-month
period ended December 31, 1998, compared to the prior year period, due to a $4.1
million gain on the sale of certain licensed brands, trademarks, and tradenames
in Illinois in fiscal 1998. Excluding the one-time gain, other income increased
due to NWS' share of income in Commonwealth Wine & Spirits, LLC.
Net Income. For its nine-month period ended December 31, 1998, NWS reported
$5.6 million in net income compared to $8.3 million for the nine months ended
December 31, 1997 primarily due to the $4.1 million gain on the sale of certain
assets during the fiscal 1998 nine month period. Without the one-time gain, net
income for NWS was up 33.8% or $1.4 million for the nine months ended December
31, 1998.
Fiscal 1998 Compared with Fiscal 1997
Revenue. NWS reported product sales in 1998 of $505.1 million, an increase
of $17.1 million, or 3.5%, from 1997 product sales of $488.1 million, primarily
from volume gains on existing brands. Product sales also benefited from consumer
shifts to higher priced brands. Cases of spirits and wine delivered increased
3.1% and 5.0%, respectively, from 1997 to 1998. Distribution fees in Michigan
increased from $2.7 million in 1997 to $16.3 million in 1998, as NWS completed
its first full year of operations in Michigan. The complete year of Michigan
business was the leading contributor to growth in total case volume for NWS from
8.2 million cases in 1997 to 10.9 million cases in 1998, an increase of 32.7%.
NWS' beer, water and other products have experienced significant shipment growth
but have not yet represented a material portion of NWS' revenues or materially
impacted operating performance.
Gross Profit. Gross profit on NWS' total revenue increased to $109.7
million in 1998 from $88.7 million in 1997, a 23.6% increase, due to an
improvement in gross margins on product sales from 17.6% to 18.5% and the
increase in Michigan distribution fees which have no corresponding cost of
products sold. The gross margin improvement on product sales was primarily due
to reduced trade discounts and the continuation of a shift towards premium,
higher-margin wine and spirits brands. As a result of this improvement, and
because gross profit in Michigan is 100% of fee revenues, NWS' overall gross
profit margin grew from 18.1% to 21.0%. Cost of products sold included a
non-cash LIFO charge of $0.6 million in 1998 and $1.5 million in 1997.
Selling, General and Administrative Expenses. Between 1997 and 1998 total
selling, general and administrative expenses, including start-up expenses
related to NWS' Michigan and U.S. Beverage operations, increased to $99.1
million, or 19.0% of total revenue, from $80.3 million, or 16.4% of total
revenue, primarily because of increased warehouse and delivery expenses relating
to the growth of the Michigan business, increased administrative expenses and
the start-up expenses. Management does not believe that a year to year
comparison of selling, general and administrative expenses as a percentage of
revenue is particularly meaningful due to the impact on the comparison of the
Michigan operation, which generates relatively low distribution fee revenues as
discussed above, resulting in proportionately higher warehouse, delivery and
administrative expenses. Warehouse and delivery expenses for Indiana and
Illinois remained fairly constant from 1997 to 1998. Warehouse and delivery
expenses were $11.2 million in Michigan in 1998 compared to $2.1 million in
1997.
Selling expenses increased $1.4 million or 4.6%, which is flat as a
percentage of total revenue compared to 1997. The increase in selling expenses
was primarily related to higher commission expenses on higher revenues in
Indiana.
Administrative expenses increased by $5.3 million, or 21.4%, primarily as a
result of approximately $4.0 million in additional administrative costs related
to a full year of operations in Michigan, including accounting and computer
services, customer support personnel and miscellaneous administrative costs.
For 1998, NWS also incurred start-up costs of $3.3 million, a $2.2 million
increase from 1997. The $3.3 million of start-up costs consisted of $1.2 million
related to NWS' Michigan operations and $2.1 million related to U.S. Beverage.
The Michigan start-up expenses included temporary employees, temporary warehouse
facilities and special product delivery costs incurred while NWS' new Michigan
distribution network was being put into place. U.S. Beverage's start-up expenses
in 1998 of $2.1 million included brand registration costs and other expenses,
net of revenue, related to the establishment of the 32-state U.S. Beverage
distribution network. Start-up expenses in Michigan and U.S. Beverage were
substantially completed in 1998.
<PAGE>
Income from Operations. Operating income increased $2.1 million, or 25.3%,
to $10.6 million in 1998 over 1997. NWS' increases in selling, general and
administrative expenses, start-up expenses, a small operating loss in Michigan's
first full year and the U.S. Beverage losses were more than offset by increased
revenues and improved gross margins in wine and spirits product sales. As a
percent of total revenue, income from operations improved from 1.7% in 1997 to
2.0% in 1998. Without start-up expenses, NWS' 1998 operating income would have
been $13.9 million, or 2.7% of total revenue, compared to $9.6 million in 1997,
or 2.0% of total revenue.
Interest Expense. Interest expense in 1998 was $9.7 million, an increase of
$1.2 million over 1997. The increase was primarily due to additional debt
incurred to finance capital expenditures for NWS' Michigan operations. Interest
expense included $0.5 million related to subordinated stockholder notes of which
$0.3 million was accrued and not paid in cash.
Other Income. Other income included a $4.1 million gain on the sale of
certain non-core private label brands in Illinois in 1998. Of the total sale
price, $3.0 million was paid in cash to NWS in 1998, with the balance of $2.2
million being due in monthly installments through 2004. Interest, rental and
other income primarily includes rental income on surplus property currently for
sale in Illinois and interest income from Mr. LaCrosse and Mrs. Johnston on
their notes payable to NWS, a portion of which was accrued and not received in
cash.
Net Income. Net income was $7.1 million in 1998, compared to $1.6 million
in 1997. Net income for 1998 without start-up expenses and the gain on sale of
assets would have been $6.4 million. As an S corporation, NWS does not pay
corporate level income tax.
Fiscal 1997 Compared with Fiscal 1996
Revenue. NWS' net product sales in 1997 increased to $488.1 million, an
increase of $44.8 million, or 10.1% from 1996 product sales of $443.3 million,
primarily as a result of (i) wine and spirits products sales which benefited
from price increases and the continued shift to higher priced brands by
consumers which resulted in an 11.3% increase in the average price per case
delivered; and (ii) a significant increase in product sales in Illinois where
wine cases increased 6.9% over 1996, which more than offset a volume decline in
Indiana. NWS began its Michigan operations in 1997, which contributed $2.7
million of distribution fees during two months of sales. Primarily due to the
Michigan start-up and the Illinois operations, total case volume increased from
7.6 million to 8.2 million, or by 7.9%.
Gross Profit. Gross profit on product sales increased from $78.5 million in
1996 to $88.7 million in 1997, a $10.3 million or 13.1% increase. The increase
was primarily the result of management in Illinois focusing on reducing customer
discounting in the competitive Chicago market. Michigan distribution fees
contributed $2.7 million in gross profit from its first two months of operation
since these fees have no corresponding cost of goods sold. Cost of products sold
included a non-cash LIFO charge of $1.5 million in 1997 and $0.5 million in
1996.
Selling, General and Administrative Expenses. Between 1996 and 1997, total
selling, general and administrative expenses increased to $80.3 million, or
16.4% of total revenue from $68.9 million, or 15.6% of total revenue.
Warehouse and delivery expenses increased 18.8% to $23.5 million in 1997
from $19.8 million in 1996. This increase was primarily the result of the new
operations in Michigan which accounted for $2.1 million of the increase,
approximately $1.0 million of which was start-up expense.
<PAGE>
Selling expenses increased 17.9% to $30.9 million from 1996 to 1997. This
increase was driven primarily by expansion of the wine sales force in Illinois
to accommodate new suppliers and by additional expenses incurred as suppliers
continued to seek more distributor support for sales and service functions
previously performed by the suppliers.
Administrative expenses increased by 7.9%, or $1.8 million, primarily due
to commencement of operations in Michigan in 1997.
Income from Operations. Operating income decreased from $9.5 million in
1996 to $8.4 million in 1997 as the increase in gross profit was offset by the
increase in selling, general and administrative expenses, including start-up
expenses for Michigan. Without start-up expenses, NWS' 1997 operating income
would have been $9.6 million.
Interest Expense. Interest expense increased from $7.9 million in 1996 to
$8.5 million in 1997 as NWS had increased borrowings to support the additional
working capital requirements associated with the increase in product sales in
Indiana and Illinois and capital expenditures associated with NWS' Michigan
start-up.
Net Income. Net income decreased to $1.6 million in 1997 compared to $3.0
million in 1996 primarily due to the significant non-cash LIFO charge and
start-up costs associated with NWS' Michigan operations.
Quarterly Results of Operations; Seasonality
NWS' revenues are influenced by a number of factors, particularly the
Christmas holiday season, which tend to result in seasonally high levels of
volume and profitability in NWS' fiscal third quarter with seasonal losses in
NWS' fiscal fourth quarter.
The following table presents unaudited quarterly financial information for
each of the eleven quarters in the period ended December 31, 1998. In the
opinion of NWS' management, this information has been prepared on the same basis
as the consolidated historical financial statements appearing elsewhere in this
prospectus and includes all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial results set forth herein.
Results of operations for any quarter are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended March 31,
----------------------------------------------------------------------------------------------------------------
1997 1998 1999
---------------------------------------- --------------------------------------- ----------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Revenues........... $ 119,093 $ 111,164 $ 157,056 $ 103,487 $ 130,387 $ 115,493 $169,168 $ 106,363 $135,899 $ 122,005 $ 179,473
Operating income 1,892 950 6,544 (957) 2,714 1,008 6,716 121 3,908 503 7,760
(loss)..........
EBITDA (1)......... 3,293 2,350 7,944 599 4,273 2,567 8,650 2,184 5,912 2,544 9,789
Operating working
capital 74,435 74,602 88,247 75,579 76,594 78,717 100,243 74,326 76,963 78,491 91,381
(end of
period) (2)....
<FN>
- -----------
(1) See Note 1 to "Selected Consolidated Financial and Other Data" for a
definition of EBITDA and other information regarding EBITDA.
(2) Operating working capital is defined as the sum of accounts receivable and
inventory less accounts payable.
</FN>
</TABLE>
<PAGE>
Liquidity and Capital Resources
NWS' primary cash requirements have been to fund accounts receivable and
inventories in Indiana and Illinois and to fund capital expenditures and
acquisitions. NWS has historically satisfied its cash requirements principally
through cash flow from operations, trade terms and bank borrowings.
As indicated above, NWS' business is highly seasonal. NWS' operating
working capital fluctuates with seasonal trends as illustrated in the quarterly
table above. As a result, NWS' working capital requirements and borrowings under
NWS' credit facility have fluctuated significantly over the course of each year.
In 1998, the minimum and maximum amount of borrowings under the existing credit
facility at any one time were $66.7 million (in March, 1998), and $94.4 million
(in November, 1997). The average month-end borrowings in 1998 were $78.2
million. Working capital also fluctuates with some suppliers' desired shipping
patterns, which tend to produce increased orders and inventory at the end of
such suppliers' fiscal periods.
Effective January 25, 1999, NWS completed an offering of $110.0 million of
senior notes due 2009. Concurrently with the offering of the senior notes, NWS
entered into a new $60.0 million credit facility secured by the accounts
receivable and inventory of the guarantors. With proceeds from the senior notes
offering and borrowings under the new credit facility, NWS retired substantially
all of its bank revolving and term indebtedness.
Consistent with historical seasonality, for the nine months ended December
31, 1998, NWS used $6.6 million in net cash from operating activities, primarily
to finance increased accounts receivable. Accounts receivables also increased
due to the product buy-in which occured in late December, 1998.
Net cash used for investing activities during the first nine months of 1999
was $15.0 million, primarily for NWS' Kentucky investment and for an upgrade and
expansion of the Chicago material handling system and for converting the Indiana
operation to a new corporate-wide management information system.
Total assets increased to $202.1 million at December 31, 1998, a $33.0
million increase from March 31, 1998 as a result of additional property and
equipment supporting the Michigan operation and the seasonal increase in
inventories as well as the equity investment in Kentucky. At the same time, debt
increased from $96.3 million at March 31, 1998 to $120.9 million at December 31,
primarily to help fund the Kentucky investment and growth in inventory and
capital expenditures for the first nine months of 1999.
Net cash provided by operating activities was $9.8 million for 1998 as
compared to $6.9 million for 1997. The 1998 increase was primarily the result of
significant improvement in net income, increased depreciation expense, an
increase in accounts payable and a decrease in accounts receivable.
Net cash used by investing activities was $9.9 million in both 1998 and
1997 primarily as a result of capital expenditures in Michigan. Total 1999
capital expenditures are expected to be approximately $7.5 million, including
approximately $4.0 million to upgrade and expand the material handling system in
the Chicago warehouse, $3.5 million of which is already committed. Consistent
with management's strategy of focusing on core logistics and value added
services, NWS sold non-core private label brands during 1998 for $4.1 million
(after disposal costs), of which $3.0 million was cash.
At March 31, 1998, total assets were $169.1 million compared to $160.4
million, a $8.7 million increase from March 31, 1997, primarily due to increases
in inventories and additional property and equipment. NWS' debt also increased
from $94.1 million at March 31, 1997 to $96.3 million, a $2.2 million increase,
at March 31, 1998 as a result of increased investments in inventory, property
and equipment.
NWS believes that the net proceeds received from the offering of the senior
notes, together with cash flow from operations and existing capital resources,
including cash and borrowings available under NWS' new credit facility, will be
sufficient to satisfy NWS' anticipated working capital and debt service
requirements and expansion plans.
<PAGE>
Inflation
Inflation has not had a significant impact on NWS' operations but there can
be no assurance that inflation will not have a material adverse effect on NWS'
financial condition, results of operations or debt service capabilities in the
future.
Year 2000
NWS is currently assessing its exposure to potential Year 2000 issues
within its businesses. Phases within the process include assessment, remediation
and contingency planning. NWS has established its assessment phase to include
information technology (IT), non-information technology (non-IT), and -- to the
extent reasonably practicable -- customer and supplier readiness. NTS' IT
systems include the following:
o Order entry;
o Inventory control;
o Order processing;
o Accounts receivable;
o Accounts payable;
o General ledger;
o Purchasing;
o Sales reporting;
o Electronic date interchange;
o Electronic mail;
o Manufacturing and bottling;
o Governmental reporting; and
o Operating systems.
NWS' non-IT systems include the following:
o Building security;
o HVAC/climate control;
o Office equipment;
o Material handling systems;
o Utilities; and
o Suppliers and customers.
NWS has completed 100% of the assessment work on its internal IT systems,
and approximately 98% on its non-IT systems (assessment on utilities pending
publication of June, 1994 government reports). Through the assessment process,
NWS identified certain financial systems that were not Year 2000 ready. NWS
replaced these systems with new Year 2000 compliant systems which went into
effect on April 1, 1999. NWS plans to complete all of its assessment and
remediation of its IT and non-IT systems by October, 1999.
NWS' material systems, including its corporate wide area network (WAN),
reporting systems and databases, are Year 2000 compliant. However, the following
systems are not currently Year 2000 ready:
o Remote order entry units used by salespersons;
o MPE/iX operating system controls in the Detroit, Michigan warehouse;
and
o Material handling system controls in the Detroit, Michigan warehouse.
NWS expects to complete its Year 2000 upgrade of the Michigan operating
system and material handling system on or before August, 1999. However, failure
by NWS' suppliers and service providers to provide the necessary software could
result in the upgrade being delayed. 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 ($1.0
million in sales from November, 1997 to October, 1998) and all of its case goods
suppliers, and has conducted follow-up phone interviews with its key suppliers
regarding their Year 2000 compliance. Although all suppliers and material
customers have been contacted regarding their Year 2000 assessment, NWS does not
expect to receive information from many of them. However, NWS' customer and
supplier base is so broad that isolated Year 2000 problems should not have a
material adverse effect on NWS' business. In addition, NWS maintains internal
inventory levels at approximately 30-60 days which provides a cushion in the
event a significant supplier experiences Year 2000 problems. At this stage of
its inquiry, NWS currently is not aware of any significant customer or supplier
with a Year 2000 issue that would materially impact NWS' operations or financial
condition. However, NWS is necessarily relying on the accuracy of information
from customers and suppliers, does not expect to receive information from many
of them, and has no means of ensuring that customers or suppliers will be Year
2000 ready. NWS has not conducted any independent verification and validation
process to assure the reliability of its customers or suppliers regarding their
Year 2000 readiness disclosure statements. The inability of one or more of these
entities to be prepared could have a material adverse effect on NWS.
<PAGE>
At December, 1998, NWS has incurred less than $25,000 in costs directly
associated with the remediation of its systems, and an additional $70,000
remains in the fiscal 1999 budget for Year 2000 issues. NWS does not track
internal costs incurred by its IT group in connection with the Year 2000 project
because they are primarily payroll costs that are not allocated among Year 2000
and other projects. Management does not believe that future Year 2000 assessment
and remediation costs will be material, and intends to fund any necessary
assessment and remediation costs from its existing resources as budgeted. These
costs do not include the cost of upgrading or replacing systems for other
business reasons. Such actions usually provide the additional benefit of making
the system Year 2000 compliant.
In the event of a complete failure of its information technology systems
due to an extended power grid failure, NWS believes that there is a potential
loss of sales estimated to be $1.0 million. However, the more likely costs will
be associated with minor Year 2000 errors such as incorrect sorting of shipments
or processing customer orders. The primary costs of such an event would be (1)
increased time delays in processing and shipping orders, and (2) increased
personnel to manually process the information. NWS believes that the increased
costs associated with such personnel would not have a material adverse effect on
its operations or financial condition.
Management does not presently expect, based on the information now
available, that the direct impact of Year 2000 issues will have a material
adverse effect on NWS. Certain contingency plans are in place and others will be
developed if additional new systems are required following the identification of
any material Year 2000 risks or uncertainties. However, the failure of NWS to
properly assess, remediate and plan for potential Year 2000 problems could
result in disruptions of normal business operations.
Environmental Matters
NWS currently owns and leases a number of properties, and historically it
has owned and/or leased others. Under applicable environmental laws, NWS may be
responsible for remediation of environmental conditions relating to the presence
of certain hazardous substances on such properties. The liability imposed by
such laws is often joint and several without regard for whether the property
owner or operator knew of, or was responsible for, the presence of such
hazardous substances. In addition, the presence of such hazardous substances, or
the failure to properly remediate such substances, may adversely affect the
property owner's ability to borrow using the real estate as collateral and to
transfer its interest in the real estate. Although NWS is not aware of the
presence of hazardous substances requiring remediation, there can be no
assurance that releases unknown to NWS have not occurred. Except for blending
and bottling of a few of NWS' private label brands, NWS does not manufacture any
of the wine or spirit products it sells and believes that it has conducted its
business in substantial compliance with applicable environmental laws and
regulations.
BUSINESS
General
NWS is one of the largest distributors of wine and spirits in the United
States, and is the largest distributor of spirits in Indiana (54% market share)
and Michigan (59% market share) and one of the largest in Illinois (32% market
share). NWS' markets include Chicago and Detroit, which are the largest and the
sixth largest metropolitan markets for spirits in the United States,
respectively.
<PAGE>
NWS is the exclusive distributor in two or more of its markets for many of
the world's leading suppliers of brand name domestic and imported spirits,
including Diageo-UDV (formed through the merger of United Distillers (Guinness)
and International Distillers and Vintners (Grand Metropolitan)), Fortune Brands
and Seagram. NSW' 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 (Riunite and other Italian and Chilean wines);
o Canandaigua (Inglenook and Almaden wines);
o Seagram (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.
<PAGE>
From 1994 to 1998, NWS' total revenue increased steadily from $396.4
million to $521.4 million, representing a compound annual growth rate ("CAGR")
of 7.1%, while NWS' EBITDA increased from $6.6 million to $17.7 million,
representing a CAGR of 28.0%. NWS achieved this performance by successfully
integrating several strategic acquisitions since 1992, actively developing new
geographic market areas, pursuing new supplier and brand relationships,
implementing advanced product handling technology and proprietary information
systems, and providing high levels of supplier and customer service.
Under the three-tier regulatory framework established by federal and state
law, suppliers of alcohol-based beverages (Tier One) are generally prohibited
from selling their products directly to retail outlets or consumers (Tier
Three), effectively requiring suppliers to use distributors such as NWS (Tier
Two). This regulatory framework effectively insulates distributors from vertical
competition from suppliers or retail customers. In certain states (including
Michigan), state law has historically mandated the state to act as the exclusive
wholesale distributor and/or retailer of alcohol-based beverages ("control
states"). In 1996, Michigan became the first control state to privatize certain
aspects of the wholesale distribution of spirits, and NWS has become the leading
distributor of spirits in that state.
Industry Overview
The United States alcohol-based beverage industry generated total annual
retail sales of more than $104.0 billion in 1997. Sales of wine and spirits, in
which NWS primarily competes, accounted for approximately 13% and 32%,
respectively, or an estimated $47.1 billion of total retail sales in 1997. In
the United States spirits market, total revenues on a per case basis have
increased since 1994, more than offsetting a general decline in the volume of
spirits sold. Over the past five years, the dollar amount reported from the sale
of spirits has increased from $29.9 billion to $33.6 billion. These increases
are attributable to brand name price increases which have generally been passed
on to retail consumers, and the general trend in consumer taste to higher
quality and higher priced products. Wine consumption has increased nationally
and in Indiana, Illinois and Michigan since 1993 and management believes the
demand for high quality wine will continue to grow. Similar to the trend in the
spirits industry, consumers have been purchasing higher quality and more
expensive wines.
Since the repeal of Prohibition in 1933, the sale of spirits, wine and beer
has been regulated by the federal and state governments. State regulatory
frameworks fall into three types: control, open and open-franchise. In nearly
all circumstances, suppliers may not legally sell directly to retailers. In the
18 control states, the state controls either the distribution, the retail sale
or both. Michigan remains a control state, but privatized certain aspects of its
wholesale distribution of spirits in 1996. In open states (including Indiana and
Illinois), the distributors and retailers are privately owned businesses. In the
open-franchise states, there are laws and regulations which restrict the
suppliers' ability to change distributors. See "-- Regulatory Considerations."
Given the three tier regulatory structure, the wine and spirits
distribution industry varies greatly from distribution businesses serving other
industries such as food, drugs, non-alcohol-based beverages and paper products.
Margins in these other industries are often much lower, as suppliers can compete
with or bypass distributors. Some distributors in other industries are also more
sensitive to economic cycles relative to NWS and its competitors.
Competitive Strengths
Market Leadership. NWS is the largest distributor of spirits in Indiana and
Michigan and one of the largest in Illinois. NWS' market leadership reflects its
strong relationships with both suppliers and customers and provides NWS with
numerous advantages over smaller distributors, including significant economies
of scale and increased purchasing power. NWS maintains and seeks to enhance its
market leadership by providing high levels of service to its suppliers and
customers and through its investments in technology and information systems.
<PAGE>
Strong Supplier Relationships. NWS' success is due in part to its
long-standing relationships with its major wine and spirits suppliers, many of
which extend back more than 20 years. The strength of these relationships was
recently demonstrated when each of NWS' three largest suppliers (Seagram,
Fortune Brands and Diageo-UDV) selected NWS over numerous competitors to be its
exclusive distributor of spirits in Michigan. In Indiana and Michigan, NWS is
the exclusive distributor of seven out of the top ten brands of spirits sold in
the United States, including Absolut, Jim Beam, Jose Cuervo, Popov, Seagram's
Gin, Seagram's 7 Crown and Smirnoff. In Illinois, NWS is the exclusive
distributor of four out of the top ten U.S. brands. NWS also represents a
significant share of each of its major suppliers' total United States business.
In calendar 1997, NWS distributed approximately 16% of all cases of spirits sold
in the United States by Seagram, and 11% of all cases of spirits sold by Fortune
Brands.
Stable Industry and Diversified Customer Base. Total wine and spirits
industry revenues have grown relatively steadily over the past 25 years, even
during periods of economic decline. NWS offers products to over 36,000 retail
locations and no single customer or chain represented more than 6.3% of NWS'
1998 total revenue. Moreover, the three-tier regulatory framework established by
federal and state law generally prohibits vertical integration by suppliers and
retailers and thereby enhances the stability of the wine and spirits
distribution industry. NWS believes that the nature of the wine and spirits
distribution industry and NWS' diverse customer base provide it with increased
stability and predictability of cash flow relative to distributors in many other
industries.
Customer Service Focus. NWS' commitment to highly effective customer
service has also been a major factor in its historical success. Management
emphasizes on-time delivery (next or second day), product availability, the
ability to accept last-minute orders and special orders for low volume or
unusual items, and reliability on a long-term basis. NWS provides numerous
value-added services to its customers, including category management, customized
advertising and point-of-sale materials, customized packaging and on-line
electronic ordering. Management believes that highly effective customer service
strengthens customer relationships, thereby improving product positioning and
sell-through to the consumer.
Advanced Infrastructure, Distribution Network and Information Systems. NWS
maintains an extensive distribution network consisting of master warehouses,
hyper-terminals and cross-docking facilities strategically located across
Indiana, Illinois and Michigan and a fleet of approximately 350 delivery
vehicles. This distribution system generates significant operating leverage by
enabling NWS to deliver hundreds of suppliers' products from each master
warehouse and optimize delivery routes by maximizing the density of customer
locations served from each facility. In addition, NWS has made significant
investments over the past five years to improve its logistics, sales and
marketing operations, including approximately $32.1 million in material handling
systems and $7.9 million in information systems. NWS has also recently
implemented supplier and customer ordering via electronic data interchange
("EDI") and on-line reporting systems used by certain suppliers to track sales.
In addition to enhancing supplier and customer relationships, the implementation
of these systems has improved NWS' efficiency and enabled NWS to remain a low
cost provider.
Experienced Management Team. The seven individuals who comprise NWS' senior
management team have an average of over 23 years of experience in the
alcohol-based beverage industry and 12 years of experience with NWS. In
addition, NWS' senior management team has successfully integrated six
acquisitions since 1992. Management's experience and expertise have enabled NWS
to establish and maintain long-term relationships with both suppliers and
customers and take advantage of consolidation and privatization opportunities.
<PAGE>
Operating Strategy
Continue to Maximize Operating Leverage. As the largest or one of the
largest wine and spirits distributors in each of its markets, NWS continuously
seeks to minimize its operating costs by leveraging its resources in the areas
of warehousing, transportation, general and administrative functions and
information systems to create economies of scale. The fixed nature of many of
these costs enables NWS to generate a higher level of profitability on
incremental increases in volume and price. In addition, NWS' facilities in
Illinois and Michigan have additional capacity, which positions NWS to take
advantage of future expansion opportunities in these markets with relatively low
capital expenditures.
Growth Through Addition of New Brands. Long-term relationships are critical
to maintaining supplier and brand continuity with distributors. Although brand
movements among distributors are relatively rare as the result of these
relationships, consolidation of distributors or suppliers can affect existing
relationships and present NWS with opportunities to add brands affected by the
consolidation. For example, NWS believes that Diageo-UDV (formed through the
merger of Guinness and Grand Metropolitan), 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.
Selectively Pursue Strategic Acquisitions and Joint Ventures. NWS plans to
continue to strengthen its competitive position by selectively acquiring other
distributors and entering into strategic joint ventures both in its current
markets and in contiguous markets. These strategic opportunities may arise for
several reasons. First, suppliers sometimes encourage the consolidation of
distributors in order to reduce costs and improve efficiency. Second, most
distributors are family businesses, and acquisition opportunities can develop as
owners approach retirement age without a definite succession plan. Third, many
distributors lack the resources and supplier support to meet the demands of
large suppliers, including expanding outside of their brand lines or geographic
markets. Management believes NWS' reputation with suppliers and customers, as
well as its financial position, market share and established infrastructure,
make NWS an attractive buyer of, or strategic partner for, other distributors.
As an example of this strategy, NWS has purchased a 25% interest in a Kentucky
distributorship. See "Prospectus Summary -- Recent Developments."
Continue to Invest in Logistics Technology and Information Systems. The
wine and spirits distribution industry is a relatively mature industry which is
not extensively automated. Many of NWS' competitors continue to rely primarily
on manual processes and limited technology. NWS plans to expand on its recent
investments in sales and logistics technology and sales and marketing
information systems to further reduce costs and improve service to its customers
and suppliers.
Capitalize on Further Privatizations. NWS' established reputation and
relationships with its major suppliers enabled it to become the leading spirits
distributor in Michigan, the first control state to privatize certain aspects of
its wholesale spirits distribution business. NWS believes that other control
states may choose to privatize all or part of their wholesale distribution
business, which may allow NWS to expand its geographic markets without acquiring
or merging with existing distributors. Should any such privatization
opportunities arise, particularly in the central United States, NWS plans to
selectively pursue such opportunities by leveraging its experience in Michigan,
its strong relationships with suppliers and its distribution expertise.
<PAGE>
Suppliers and Products
NWS represents many of the largest suppliers of wine and spirits in the
United States, and offers hundreds of brands and more than 12,000 individual
products. The breakdown of sales among wine, spirits and other products
distributed by NWS in 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wine Spirits Other
------------------------------ --------------------------------- ----------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
(Dollars in thousands)
Product sales...... $92,463 $117,014 $125,861 $322,535 $336,280 $342,594 $28,259 $34,777 $36,686
Distribution fees.. -- -- -- -- 2,729 16,270 -- -- --
Percentage of total
Company revenue.. 20.9% 23.8% 24.1% 72.7% 69.1% 68.8% 6.4% 7.1% 7.1%
</TABLE>
In Michigan, spirits distributors have exclusive relationships with
suppliers by law, and receive distribution fees from suppliers as set by the
state, rather than purchasing from the suppliers for resale to customers. This
arrangement has the effect of understating the importance of spirits in NWS'
overall product mix. For purposes of illustrating the scale of NWS' operations
in Michigan, the total wholesale prices of products delivered by NWS for
Michigan in 1997 and 1998 was $42.9 million and $280.5 million, respectively,
based on the fixed wholesale prices of the spirits delivered by NWS. If these
amounts would have been included in revenues, sales of spirits would have
represented 71.4% and 79.3% of NWS' total revenues in 1997 and 1998,
respectively. NWS' products include the following brands, among many others:
<TABLE>
<CAPTION>
<S> <C> <C>
Product Type Brand Names
Vodka: Absolut Popov
Cristall Smirnoff
Ketel One Stolichnaya
Bourbon and Blended Whiskey: Black Velvet Seven Crown
Crown Royal Wild Turkey
Jim Beam Windsor Canadian
Seagram's V.O.
Scotch and Single Malt Whiskey: Chivas Regal Glenlivet
Grant's Isle of Jura
Balvenie J&B Rare
Bowmore Springbank
Glenfiddich
Gin: Bombay Gilbey's
Boodles Seagram's
Rum: Captain Morgan Myers
Malibu Ronrico
Tequila: Herradura Patron
Jose Cuervo
Cognacs/Brandy: Christian Brothers Martell
Hine Remy Martin
<PAGE>
Specialty Spirits: Arrow Cordials DeKuyper Cordials
Bailey's Irish Cream Jagermeister
Campari TGI Friday's
Wine: Almaden Perrier Jouet
Banfi Robert Mondavi
Beringer Sebastiani
Caymus Stags Leap
Chateau Lafite Sterling
Rothschild Sutter Home
Gundlach Bundschu Veuve Clicquot
Inglenook
Opus One
Specialty Beer: Goose Island Rogue Ales
Grolsch Sierra Nevada
Petes Wicked Ale
Non-Alcohol: Cameron Springs Perrier
Evian Stewart's
</TABLE>
NWS has entered into written distribution agreements with several of its
principal suppliers which generally may be extended on an annual basis but are
terminable upon 30 days or 60 days written notice to NWS. In addition, NWS has
informal arrangements with many of its suppliers whereby NWS distributes the
suppliers' products pursuant to purchase orders without written distribution
agreements. Although the written agreements provide NWS with the non-exclusive
right to distribute the suppliers' products in a particular state, in practice
the suppliers have generally selected a distributor to be the exclusive
distributor of specified products in each state. In each of Indiana, Illinois
and Michigan, NWS is presently acting as the exclusive distributor with respect
to virtually all of the products it distributes in that state.
Set forth below is certain information about the leading spirits suppliers
in the United States, their rank in Indiana, Illinois and Michigan, the length
of NWS' relationship with those suppliers and their impact on 1998 Company
revenues.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Length of
State Rank Company Percentage of
(calendar 1997) Relationship Company 1998
Supplier (by U.S. Rank)(1) IN IL MI (in years)(2) Total Revenues Representative Brands
- -------------------------- -- -- -- ------------- -------------- ---------------------
1. Diageo-UDV (3)......... 3 * 1 25 7.7% Smirnoff and Jose Cuervo
2. Seagram................ 2 2 3 25 32.6 Absolut and Crown Royal
3. Fortune Brands......... 1 6 2 23 17.7 Jim Beam
<FN>
- -----------
(1) Based on calendar 1997 industry sales information.
(2) All of the relationships expressed in this column represent the duration of
NWS' relationship with the suppliers or their predecessors in the Indiana
market.
(3) Diageo-UDV represents that portion of Diageo PLC formed by merger between
United Distillers (Guinness) and International Distillers & Vintners (Grand
Metropolitan). NWS does not represent Diageo's interest in the Schieffelin
& Somerset joint venture which remains a separate organization.
* Not represented by NWS in the referenced state.
</FN>
</TABLE>
<PAGE>
Top United States wine brands and wineries represented by NWS include
Beringer, Canandaigua, Inglenook, Robert Mondavi and Sebastiani. NWS currently
does not distribute wine in Michigan. Major wine producers served by NWS in
Indiana and Illinois include:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Length of
State Representation Company
-------------------- Relationship
Supplier/Winery U.S. Rank(1) IN IN(2) (in years)(3) Representative Brands
- ------------------------ ------------ -- ----- ------------- ---------------------
Canandaigua Brands...... 2 X X 25 Inglenook and Paul Masson
Sebastiani Vineyards.... 5 X X 15 Sebastiani and Vendange
Sutter Home Winery...... 6 X 5 Sutter Home
Robert Mondavi.......... 7 X 24 Robert Mondavi and Opus One
Banfi Vintners.......... 8 X 25 Riunite and Concha y Toro
Beringer Wine Estates... 10 X X 24 Beringer and Meridian
Seagram................. 11 X X 25 Sterling and Mumm
<FN>
- -----------
(1) Source: 1997 Wine Market Impact Databank Review and Forecast.
(2) NWS represents certain brands in Illinois but not the entire brand
portfolio.
(3) All of the relationships expressed in this column represent the duration of
NWS' relationship with the suppliers or their predecessors in the Indiana
market.
</FN>
</TABLE>
Related Operations
In addition to its core alcohol-based beverage distribution operations,
although not material to NWS' financial results, NWS conducts related beverage
operations through a division, Cameron Springs Water Company ("Cameron
Springs"), and through NWS' U.S. Beverage operations. Cameron Springs is a
leading supplier of bottled water in Indiana, serving over 9,000 residential and
commercial customers. U.S. Beverage commenced operations as a division of NWS in
March, 1997 to market and sell imported, specialty and microbrewed beers and
specialty malt products nationally. The brand distribution contracts related to
the U.S. Beverage operations are held by an entity which is 50% owned by
NWS-Illinois. In select markets, NWS sells and distributes premium cigars
primarily as a complement to NWS' distribution of fine wines and spirits.
Customers
Most states (including Indiana, Illinois and Michigan) require wine and
spirits retailers to purchase alcohol-based beverages from licensed
distributors. Suppliers in these states may not legally sell directly to retail
customers. NWS' customers fall into two broad categories depending on where the
alcohol-based beverage ultimately will be consumed: on-premise and off-premise.
Off-premise customers include package liquor stores, grocery stores, drug stores
and mass merchandisers. On-premise customers include hotels, restaurants and
bars, and similar establishments. NWS currently serves over 36,000 retail
locations in Indiana, Illinois and Michigan. No single customer represented more
than 6.3% of NWS' 1998 net sales. As is customary in the industry, NWS' products
are generally purchased under standard purchase orders and not under long-term
supply contracts. As a result, backlog is not meaningful in the wholesale
distribution industry.
<PAGE>
The table below summarizes NWS' customer base:
<TABLE>
<CAPTION>
<S> <C> <C>
Percentage of Company 1998
Type of Customer Revenue Representative Customers
- ----------------------------------------- -------------------------------- --------------------------------------------------
Off-Premise
Package Stores.................... 42.6% Gold Standard and Cap'n Cork
Grocery stores, drug stores and mass 24.7 Kroger, Dominicks, Marsh, American Stores
merchandisers.................. (Osco), Walgreens, CVS, Sam's Club, Meijer
Other............................. 4.3 7-Eleven, White Hen, Village Pantry
-------------
Percent of total............... 71.6%
=============
On-Premise
Restaurants and Bars.............. 18.0% Charlie Trotter's, Hard Rock Cafe, House of
Blues, Morton's, Planet Hollywood, Ruth's Chris
Hotels............................ 1.7 Four Seasons, Hyatt, Hilton
Other............................. 8.7 Crooked Stick Golf Course, the United Center,
American Legion
-------------
Percent of total............... 28.4%
=============
</TABLE>
Management believes that the number and diversity of NWS' customers and the
nature of NWS' business strengthens NWS' liquidity. The prompt payment of NWS'
invoices is governed by law in all states in which NWS operates. Indiana has a
15 day credit law beyond which retail customers cannot buy alcohol-based
beverages from any distributor in the market. Illinois has a similar 30 day
credit law. Typically, NWS' bad debt expenses are incurred less than 30 days
after shipment since the credit laws prohibit extension of terms. Average bad
debt expense for the past five years has been less than 0.12% of revenue.
Marketing and Sales
Supplier and Customer Services. NWS' marketing and sales programs add value
for suppliers and customers beyond storage and distribution. Through its
approximately 600-person marketing and sales force, NWS acts as the field
marketing and merchandising arm of its suppliers by maintaining regular contact
with NWS' off-premise and on-premise customers. NWS customizes national
marketing programs developed by its suppliers for specific retail locations in
seeking to derive maximum benefit for the supplier and customer at each specific
retail location. NWS provides its customers with a wide variety of services,
including conducting promotional events, building product displays, designing
shelf sets, cross-marketing between off-premise and on-premise locations, and
(in Michigan) accounts receivable collection. Management believes that NWS is a
market leader in developing and implementing marketing programs to improve
alcohol-based beverage sales for both suppliers and customers.
Marketing and Sales Teams. NWS divides its marketing and sales forces by
product brands and geographic region. Field sales representatives provide the
primary source of contact with the customer's retail locations. Brand managers,
who concentrate on a small number of suppliers and brands, are responsible for
product pricing, promotion and all other marketing and sales activity related to
their brands. NWS recently formed a National Accounts Division which is
responsible for customers with a national profile. Sales and marketing personnel
are compensated under various compensation plans which typically combine base
pay with a productivity bonus. Members of senior management also are very active
in maintaining supplier and customer relationships with incentive compensation
based on subsidiary, division or Company-wide performance.
Sales and Marketing Information Systems. NWS' management information
systems are very important to NWS' sales and marketing efforts. See
"--Management Information Systems." Through its proprietary information systems,
NWS seeks to offer improved levels of service to suppliers and customers through
prompt and accurate product deliveries, demographic information regarding the
purchase and sale of alcohol-based beverages and other important sales and
consumption information. Retail locations can utilize this information to make
decisions regarding product placement in the wine and spirits sections of their
stores, while suppliers can utilize this information to quickly analyze
sell-through by product in a particular customer location.
<PAGE>
Warehousing and Distribution
NWS utilizes a series of four master warehouses, three hyper-terminals and
five cross-docking facilities strategically located throughout Indiana, Illinois
and Michigan to store and ship its products pending sale to customers. NWS uses
common carriers to transport products from suppliers to its master warehouses.
Master warehouses located in Chicago, Indianapolis and Detroit (Brownstown)
serve as the primary storage facilities for NWS' inventory. A smaller master
warehouse is located in Champaign, Illinois. Upon receipt of the product at one
of the master warehouses, the products are inspected and stored on pallets or in
racks. Temperature-sensitive products (such as fine wines) are stored in
temperature-controlled areas of the warehouses. Hyper-terminals located in
Peoria, Illinois, South Bend, Indiana and Grand Rapids, Michigan stock only high
volume products and provide an extension of the master warehouses. See
"--Facilities" for a listing of the warehouse facilities and hyper-terminals of
NWS. 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
(Brownstown) master warehouse feeding the Grand Rapids hyper-terminal and the
cross-docking facilities located in Escanaba, Saginaw and Traverse City. The
Illinois distribution network is separated into the metropolitan Chicago area,
and all other service areas. The Chicago area is serviced out of the Chicago
master warehouse, while the downstate areas are serviced by the smaller
Champaign master warehouse, the Peoria hyper-terminal and the Belleville
cross-docking facility.
Management Information Systems
NWS employs customized management information systems that have enabled it
to more efficiently utilize its material handling and distribution system. NWS'
information systems help streamline its distribution network from receipt of
order through final delivery by calculating and implementing efficient product
selection, optimizing delivery routes to meet specific delivery times, and
allocating the proper types and volume of products on specific delivery trucks.
These information systems, when used in connection with NWS' material handling
systems, have allowed NWS to more efficiently manage its inventory and minimize
its handling costs per case primarily by reducing labor costs.
NWS' commitment to technology has also advanced its sales and marketing
initiatives. NWS' sales force is equipped with laptop computers which allow NWS
to expedite order entry and provide instant feedback to customers regarding
order activity. NWS provides its customers and suppliers with the ability to
directly enter and track orders via electronic data interchange ("EDI"). 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
(Brownstown) 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 (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 is a listing of NWS' warehouses and delivery, production and
office facilities:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total
Owned/ Square
Location Leased Feet Principal Function
Indiana Indianapolis Owned 265,000 Master Warehouse/Office
South Bend Owned 76,800 Hyper-Terminal/Office
Evansville Owned 5,800 Cross-Docking Facility
Evansville Owned 2,400 Office
Ft. Wayne Leased 5,500 Office
Merrillville Leased 2,600 Office
Indianapolis Owned 3,500 Office (Cameron Springs)
Indianapolis Owned 15,000 Production Plant (Cameron Springs)
Illinois Chicago (1) Owned 650,000 Master Warehouse/Office
Champaign Leased 50,000 Master Warehouse/Office
Peoria Leased 35,000 Hyper-Terminal/Office
Belleville Leased 16,000 Cross-Docking Facility/Office
Rockford Leased 5,000 Office
Springfield Leased 1,000 Office
Michigan Detroit (Brownstown) Leased 230,000 Master Warehouse/Office
Grand Rapids Leased 100,000 Hyper-Terminal/Office
Escanaba Leased 7,500 Cross-Docking Facility/Office
Saginaw Leased 1,000 Cross-Docking Facility
Traverse City Leased 5,000 Cross-Docking Facility
<FN>
- -----------
(1) Excludes one of NWS' Chicago properties which consists of approximately
240,000 square feet and which is in the process of being sold by NWS.
The property presently is leased to an unrelated third party.
</FN>
</TABLE>
NWS' lease agreements for the Detroit master warehouse and the Grand Rapids
hyper-terminal each have a ten-year term (expiring April 20, 2007 and January
31, 2007, respectively) and provide NWS with an option to purchase.
Competition
The wine and spirits wholesale distribution business is highly competitive.
The principal competitive factors in NWS' business include service, breadth and
availability of product brands offered and, to a lesser extent, price.
Distributors compete for new suppliers or brands based on reputation, market
share, access to customers and ability to satisfy supplier demands. Given its
size, supplier relationships, distribution networks and low operating costs, NWS
is well positioned to compete in Indiana, Illinois and Michigan. NWS' primary
competition in Illinois includes Romano Brothers and Judge & Dolph. Romano
Brothers has recently joined with Glazer's Wholesale Distributing of Dallas,
Texas to enter the Indiana market through the acquisition of a controlling
interest in Olinger Distributing, the second largest Indiana distributor and the
only meaningful Indiana competitor. None of the ten largest United States
distributors competes with NWS in Michigan.
<PAGE>
There are significant barriers to entry into the wholesale wine and spirits
distribution business. These barriers include established supplier-distributor
relationships, specialized distribution equipment (material handling systems and
delivery vehicles) and important industry knowledge regarding pricing, inventory
management and distribution logistics. Historically, entry by organizations not
already engaged as wine and spirits distributors in other markets has been
extremely rare. The entrance of new distributors into existing markets typically
takes place through acquisition.
Employees
As of December 31, 1998, NWS had 1,517 employees. Approximately 135
employees in Michigan and 400 employees in Illinois are represented by labor
unions. In Illinois, NWS has relationships with three unions:
(1) Teamsters Union Local 744 (expiring March 2, 2002);
(2) Liquor and Allied Workers Union Local 3 (annual agreements); and
(3) Teamsters, Chauffeurs & Helpers Union Local 50 (expiring August 31,
2001).
In Michigan, NWS has relationships with three unions:
(1) Teamsters Union Local 337 (expiring March 2, 2001);
(2) Teamsters Union Local 299 (expiring March 2, 2001); and
(3) Teamsters Union Local 486 (expiring March 2, 2001).
Employees of NWS in Indiana are not represented by any labor unions.
NWS has not experienced any work stoppages in more than 15 years as a
result of labor disputes and considers its employee relations to be good.
Regulatory Considerations
The manufacturing, importation, distribution and sale of alcohol-based
beverages is subject to regulation by the federal government through the
Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms ("ATF"), as
well as by state and local regulatory agencies. Suppliers, distributors and
customers must be properly licensed in order to sell alcohol-based beverages.
In most states, the alcohol-based beverage industry operates within
what is commonly referred to as a three-tier system of distribution. The three
tiers are identified as follows:
(1) Tier One is comprised of suppliers which produce alcohol-based
beverages and/or importers of alcohol-based beverages;
(2) Tier Two is comprised of distributors, such as NWS; and
(3) Tier Three is comprised of retail licensees.
Under this system, suppliers sell to distributors, distributors sell to
retailers, and retailers sell to consumers. Suppliers may not sell to retailers
or consumers and distributors may not sell directly to consumers. Most states
prohibit suppliers or distributors from having an interest in retail licensees.
NWS directly and through its affiliates holds federal basic permits and state
permits/licenses as a distributor and importer. Also, NWS-Illinois holds
out-of-state shipper permits that allow it to ship certain products from one
state to a licensed distributor in any one of the other states.
NWS is required to have each of its officers, directors and principal
stockholders (owning 5% or more of the issued and old stock) qualified by
federal and state governmental agencies to have an interest in a licensed
company. NWS' officers, directors and principal stockholders have been, or are
in the process of being, deemed to be qualified parties by ATF and state
regulatory agencies.
<PAGE>
Suppliers (Tier One) and retail licensees selling directly to consumers
(Tier Three) are more heavily regulated than distributors (Tier Two) by
governmental authorities. Distributors like NWS face scrutiny in a number of
important areas, including initial licensing or permitting and sales and
marketing activities with or on behalf of retail customers. The distributors may
not give or transfer anything of value to their customers in exchange for
business or other consideration. The definition of "value" differs from state to
state. NWS participates in significant promotional activities for suppliers and
customers. Suppliers also are increasingly asking distributors to be responsible
for activities and related costs formerly undertaken by suppliers as suppliers
pursue ways to reduce their operating costs. These increased demands will likely
challenge distributors, including NWS, which desire to meet the wishes of their
suppliers and customers. As a result, NWS regularly provides training and
education programming for its sales and marketing personnel.
NWS believes that it is in compliance with applicable regulations in all
material respects. Consistent with industry practice, the sales and marketing
activities permitted by distributors for the benefit of Tier One suppliers are
generally regulated by state licensing authorities, many of which regularly
advise distributor representatives of activities that would not be the subject
of enforcement action for failure to comply with all regulations they
administer. NWS relies on such enforcement guidance, which is subject to change
at the discretion of the regulatory authorities, in determining the scope of its
permitted sales and marketing activities.
As part of its regulatory compliance program, NWS is in frequent contact
with regulatory agencies so that NWS can:
(1) be kept current on regulatory developments affecting NWS;
(2) obtain answers from the agencies to questions from Company personnel
regarding compliance issues; and
(3) encourage enforcement of applicable laws and regulations on a
consistent basis throughout its markets.
NWS believes that prompt and consistent enforcement by the regulatory agencies
is important and benefits NWS.
Certain Legal Matters
NWS is involved in litigation from time to time in the ordinary course of
its business. NWS is a party to a lawsuit brought by several drivers of
NWS-Illinois who allege age discrimination and workers' compensation retaliation
and claim back pay and front pay damages of $1.9 million and $1.0 million,
respectively, and the costs of the action. In April 1999, NWS settled this
lawsuit for approximately $475,000 (inclusive of all costs including attorney
fees), payable over five years. Documentation of this settlement has not been
completed or approved. NWS does not believe that an adverse judgment in any
other matter to which NWS is a party would have a material adverse effect on
NWS' results of operation, financial condition or debt service capabilities.
Environmental Matters
NWS currently owns and/or leases a number of properties, and historically
it has owned and/or leased others. Under applicable environmental laws, NWS may
be responsible for remediation of environmental conditions relating to the
presence of certain hazardous substances on such properties. The liability
imposed by such laws is often joint and several without regard for whether the
property owner or operator knew of, or was responsible for, the presence of such
hazardous substances. In addition, the presence of such hazardous substances, or
the failure to properly remediate such substances, may adversely affect the
property owner's ability to borrow using the real estate as collateral and to
transfer its interest in the real estate. Although NWS is not aware of the
presence of hazardous substances requiring remediation, there can be no
assurance that releases unknown to NWS have not occurred. Except for blending
and bottling of a few of NWS' private label brands, NWS does not manufacture any
of the wine or spirit products it sells and believes that it has conducted its
business in substantial compliance with applicable environmental laws and
regulations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the directors
and executive officers of NWS who have agreed to serve, subject to the
completion of regulatory filings:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
James E. LaCrosse............. 66 Chairman, President, Chief Executive Officer and Director
Martin H. Bart................ 66 Sr. Vice President and Director
J. Smoke Wallin............... 32 Executive Vice President, Chief Financial Officer, Secretary
and Director
James Beck.................... 54 President, NWS-Indiana and Director
Mitchell Stoltz............... 45 President, NWS-Illinois and Director
Richard P. Paladino........... 53 President, NWS-Michigan and Director
Richard Quinn................. 64 President, Cameron Springs Division and Director
Norma M. Johnston............. 70 Director
Patricia J. LaCrosse.......... 62 Director
Catherine LaCrosse Wallentine. 31 Director
</TABLE>
James E. LaCrosse has served as Chairman, President, Chief Executive
Officer and a Director of NWS since December, 1998. Previously, Mr. LaCrosse
served as Chairman and Director of NWS since its formation in 1973, and prior to
1973 was employed by various companies in a financial capacity. Mr. LaCrosse
received an M.B.A. from Harvard University in 1961 and a B.A. in economics from
Wesleyan University in 1957.
Martin H. Bart has served as Senior Vice President and a Director of NWS
since December, 1998. Previously Mr. Bart served as Vice Chairman of NWS from
1995 to 1998. Prior to joining NWS, Mr. Bart served in various positions with
the Joseph E. Seagram & Son Company from 1956 to 1993, and retired as Executive
Vice President of Sales and Marketing. Mr. Bart received a B.A. in economics
from Long Island University in 1955.
J. Smoke Wallin has served as Executive Vice President, Chief Financial
Officer, Secretary and a Director of NWS since December, 1998. Previously, Mr.
Wallin was Executive Vice President, Corporate Group of NWS from 1993 to 1998.
Mr. Wallin began his career at NWS in 1988 and has served in various positions
including Chief Information Officer and Brand Manager. Mr. Wallin received an
M.B.A. in Finance from Vanderbilt University-Owen School of Management in 1993
and a B.S. in economics from Cornell University in 1989. Mr. Wallin is Mr.
LaCrosse's son-in-law.
James Beck has served as President of NWS-Indiana since 1992. Mr. Beck
joined NWS in 1972, and has served in various positions, including Executive
Vice President of Sales for 14 years prior to being named President of
NWS-Indiana. Mr. Beck has been a Director of NWS since December, 1998. Mr. Beck
received a B.S. in Business from Ball State University in 1968.
Mitchell Stoltz has served as President of NWS-Illinois since 1995. Prior
to becoming President, Mr. Stoltz served as Executive Vice President of Sales
and Marketing for NWS-Illinois. Prior to joining NWS in 1992, Mr. Stoltz served
as Vice President and General Manager for Magnolia Marketing Company and as
President for Admiral Wine Company. Mr. Stoltz has been a Director of NWS since
December, 1998. Mr. Stoltz received an M.M. from Northwestern University Kellogg
Graduate School of Management in 1985 and a B.A. in Business from Notre Dame
University in 1976.
Richard P. Paladino has served as President of NWS-Michigan since 1997, and
a Director of NWS since December, 1998. Prior to joining NWS, Mr. Paladino
served as Vice President, Finance and Operations of United Beverage Company from
1984 to 1994. Mr. Paladino received a B.S. in Accounting from Notre Dame
University in 1967.
Richard Quinn has served as President of Cameron Springs Company since
1990. Mr. Quinn has been a Director of NWS since December, 1998. Mr. Quinn
received his A.B. in English Literature from Brown University in 1959.
Norma M. Johnston has been a Director of NWS since 1976, and a Director of
NWS since December, 1998. Mrs. Johnston served as Secretary of NWS from 1976 to
1998.
<PAGE>
Patricia J. LaCrosse has been a Director of NWS since its formation in
1973. Mrs. LaCrosse received a B.A. from the University of Michigan in 1957.
Mrs. LaCrosse is Mr. LaCrosse's spouse.
Catherine LaCrosse Wallentine has served as District Sales Manager of
NWS-Illinois since January, 1997, and Director of NWS since December, 1998. Ms.
LaCrosse-Wallentine joined NWS in 1994 and has served in various sales and
marketing positions. Ms. LaCrosse-Wallentine received a B.A. in history from
Indiana University in 1990. Ms. LaCrosse-Wallentine is Mr. LaCrosse's daughter.
Compensation of Directors
Directors of NWS have in the past received $3,000 per year for serving as
directors. After the exchange offer, employees of NWS who are also directors of
NWS will not receive any fees or compensation for their services as directors.
NWS will reimburse directors for their expenses incurred in connection with
their activities as directors. Not later than July 31, 1999, NWS intends to
elect up to four independent directors to its Board of Directors and will, at
that time, modify its director compensation policy.
Executive Compensation
The following table sets forth the compensation paid by NWS to James E.
LaCrosse, Chief Executive Officer, and to each of the four most highly
compensated executive officers of NWS for 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Annual Compensation
-----------------------------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation(1)
James E. LaCrosse 1998 $407,000 $ -- $40,442(2) $238,000(3)
Chairman, President and CEO
J. Smoke Wallin 1998 113,423 26,000 1,620(4) 5,671
Executive Vice President, Chief Financial
Officer and Secretary
James Beck 1998 135,063 150,000 971(4) 6,753
President, NWS-Indiana
Mitchell Stoltz 1998 164,135 30,000 3,600(5) 8,225
President, NWS-Illinois
Richard Paladino 1998 125,000 -- -- 1,442
President, NWS-Michigan
<FN>
- -----------
(1) Includes employer 401(k) Plan contributions in the following amounts: Mr.
LaCrosse, $8,000; Mr. Wallin, $5,671; Mr. Beck, $6,753; Mr. Stoltz, $8,225;
and Mr. Paladino, $1,442.
(2) Consists of $4,123 representing personal use of a company supplied
automobile, $5,873 representing payments by NWS for medical insurance
premiums, and $30,446 representing payment by NWS for medical expenses
incurred by one of Mr. LaCrosse's family members.
(3) Includes $230,000 of life insurance premiums paid by NWS on behalf of Mr.
LaCrosse and for the benefit of the LaCrosse family trust for estate
planning purposes. NWS expects the premiums paid on behalf of Mr. LaCrosse
in the future will remain at their current annual rate. Upon the death of
Mr. LaCrosse or termination of the life insurance policies, NWS is entitled
to repayment out of the proceeds of the policies of all premiums paid on
behalf of Mr. LaCrosse for the benefit of the LaCrosse family trust since
the inception of the policy in 1994.
(4) Represents personal use of a company supplied automobile.
(5) Represents payments by NWS of country club dues.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
From time to time, NWS-Indiana has loaned money to its principal
shareholders, James E. LaCrosse and Norma M. Johnston, the primary purpose of
which was to provide the necessary funds to finance start-up expenses and
working capital needs of NWS-Illinois, an affiliated company owned prior to the
reorganization by Mr. LaCrosse, Mrs. Johnston and Martin H. Bart. As of December
31, 1998, total indebtedness of Mr. LaCrosse and Mrs. Johnston to NWS-Indiana
was $10.1 million. The indebtedness, which is presently due upon demand, bears
interest at the prime lending rate of NWS' principal lending institution (7.75%
at December 31, 1998). The proceeds of the loans were provided by Mr. LaCrosse
and Mrs. Johnston to NWS-Illinois in the form of loans or additional capital
contributions. As of December 31, 1998, NWS-Illinois was indebted to Mr.
LaCrosse and Mrs. Johnston in the amount of $4.4 million. This indebtedness to
Mr. LaCrosse and Mrs. Johnston, which matures in 2009, is subordinated to the
notes and the new credit facility, and bears interest at 7.75% (prime rate at
December 31, 1998). The obligations of NWS-Illinois under the subordinated
shareholder notes are expressly subject to timely payment by Mr. LaCrosse and
Mrs. Johnston of their obligations under their notes to NWS-Indiana.
<PAGE>
On July 27, 1998, Mr. LaCrosse transferred substantially all of his
non-voting stock to a family trust for estate-planning purposes. As a part of
this transfer and in addition to normal distributions for tax purposes, NWS
expects that Mr. LaCrosse will cause NWS to make special distributions to Mr.
LaCrosse, the trust and Mrs. Johnston, subject to the terms and conditions
contained in the Indenture (including the limitation on restricted payments) and
the new credit facility. The special distributions will be subject to, among
other conditions, payments to NWS-Indiana by Mr. LaCrosse and Mrs. Johnston of
amounts not less than the special distributions under the terms of the notes of
Mr. LaCrosse and Mrs. Johnston to NWS-Illinois. The terms of the new credit
facility allows, subject to certain conditions and limitations, the special
distributions.
NWS-Indiana and NWS-Illinois have operated as S corporations under the
Code, and their respective subsidiaries have all operated as qualified
subchapter S subsidiaries under the Code or other similarly taxed pass-through
entities (the "S Corp. Businesses"). NWS has elected or will elect to be treated
as an S corporation under the Code and for each of its subsidiaries to be
qualified subchapter S subsidiaries under the Code or similar pass-through
entities for tax purposes. The S Corp. Businesses have not been subject to tax
on their respective net taxable incomes, and the shareholders of the S Corp.
Businesses have been directly subject to tax on their respective proportionate
shares of such net taxable income. NWS-Indiana and NWS-Illinois have
historically made cash distributions to Mr. LaCrosse, Mrs. Johnston and Mr. Bart
in amounts equal to or greater than their respective tax obligations related to
the S Corp. Businesses. The aggregate amount of these distributions during 1996,
1997 and 1998 were $7.8 million, $6.1 million and $2.8 million, respectively.
The terms of the Indenture and the new credit facility permit NWS to make
distributions to shareholders with respect to their tax liabilities subject to
certain conditions and limitations. See "Description of the Exchange Notes --
Certain Covenants -- Restricted Payments."
NWS-Illinois also paid a company owned by Mr. Bart $0.2 million during 1998
for certain consulting services provided by Mr. Bart to NWS-Illinois. During
1998, NWS-Indiana entered into a five year non-compete agreement with James
Beck, president of NWS-Indiana and a Director of NWS, under which Mr. Beck was
paid $0.3 million by NWS. NWS-Indiana obtained certain inventory and other
property related to the wholesale cigar distribution business previously
operated by Mr. Beck.
NWS pays "split-dollar" insurance premiums on seven insurance policies with
a fair value of $14.0 million on the lives of Mr. LaCrosse and Ms. Johnston. See
"Management -- Executive Compensation." NWS is entitled to receive reimbursement
for all premiums paid out of the proceeds of these policies upon the death of
Mr. LaCrosse and Ms. Johnson. Premiums paid by NWS were $264,000 for the years
ended March 31, 1998 and 1997 and $357,000 for the year ended March 31, 1996.
The LaCrosse Family Trust is the beneficiary of those policies.
PRINCIPAL STOCKHOLDERS
NWS has two authorized classes of capital stock, voting common stock and
non-voting common stock. The following table sets forth the beneficial ownership
following the reorganization of NWS' voting common stock by each person known by
NWS to (i) beneficially own 5% or more of NWS' voting common stock, and (ii) by
all executive officers and directors of NWS as a group. Except for Mr. LaCrosse
and Mrs. Johnston, who have sole voting and investment power with respect to
their voting common stock, no other executive officer or director owns any
shares of NWS' voting common stock.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Number of
Shares Percent
James E. LaCrosse
700 West Morris Street
Indianapolis, Indiana 46225.................... 86,520 83%
Norma M. Johnston
700 West Morris Street
Indianapolis, Indiana 46225.................... 18,000 17
All executive officers and directors as a group
(9 persons).................................... 104,520 100
</TABLE>
The stockholders of NWS have entered into stockholder agreements with each
other and NWS. Such agreements contain certain restrictions relating to
transfers of stock and provide for certain rights to purchase and sell stock of
each corporation, among other matters. In particular, the stockholder agreement
with NWS governs the transferability of Mrs. Johnston's stock in NWS. The
LaCrosse family is obligated to purchase Mrs. Johnston's stock at her death or
during her lifetime should she decide to sell. NWS becomes obligated to purchase
only if the LaCrosse family refuses or fails to purchase. The LaCrosse family
and NWS also have the right to purchase Mrs. Johnston's stock at the death of
Mr. LaCrosse. Any obligation of NWS to purchase the stock owned by Mrs. Johnston
is subject to the terms of the Indenture governing the notes and the new credit
facility. No right to purchase stock owned by Mr. LaCrosse or a trust for the
benefit of his family exists in favor of Mrs. Johnston.
The stockholders have also agreed not to take any action or effect any
transfer that would cause NWS or any of its subsidiaries to fail to qualify as
an S corporation or other pass-through entity for federal income tax purposes.
In addition, the stockholders have entered into a Tax Indemnification Agreement
whereby they have agreed to indemnify NWS and its subsidiaries for any loss that
may arise in the event NWS or any of its subsidiaries should fail to maintain
its Pass-Through Status.
The LaCrosse family and NWS own life insurance policies on behalf of Mrs.
Johnston in face amount of $4.0 million and $0.5 million, respectively.
DESCRIPTION OF CREDIT FACILITY AND OTHER INDEBTEDNESS
The following sets forth information concerning NWS' new credit facility
and indebtedness expected to be outstanding immediately following the exchange
offer. For purposes of this section, the term "Closing Date" refers to January
25, 1999.
New Credit Facility
General. In January, 1999, NWS entered into a new credit facility with NBD
Bank, on behalf of itself and as agent for a syndicate of other lenders. The new
credit facility provides for revolving loans to NWS and the issuance of letters
of credit for the account of NWS in an aggregate principal and stated amount at
any time not to exceed $60 million, of which not more than $5 million may be
represented by letters of credit.
Loans under the new credit facility are available at any time within five
years after the Closing Date. Letters of credit under the new credit facility
will be available at any time on and after the Closing Date. The obligations of
NWS under the new credit facility will be guaranteed by the guarantors. See
"Description of the Exchange Notes --Certain Definitions."
<PAGE>
Interest Rates and Commitment Fees. At NWS' option, the interest rates per
annum applicable to the new revolving credit facility are either the Base Rate
(as defined) or the Eurodollar Rate (as defined) 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 (a) NBD's prime rate and (b)
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 (i) 80% accounts receivable and 60% inventory; (ii) 75% accounts
receivable and 55% inventory; and (iii) 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 (as defined) then in
effect with respect to the Eurodollar Rate loans under the new credit facility.
A fronting fee equal to 0.25% per annum on the face amount of each letter of
credit is also payable annually in advance to NBD Bank for its own account. NWS
pays a per annum commitment fee ranging from 0.25% to 0.50% on the undrawn
portion of the commitments in respect of the new revolving credit facility. This
commitment fee which initially is 0.50% on the undrawn portion is subject to
adjustment after three months following the Closing Date based on the ratio of
NWS' EBITDA to net interest expense.
Collateral. The new credit facility is secured by first priority security
interests in all the accounts receivable and inventories of NWS, NWS-Indiana,
NWS-Illinois, NWS-Michigan and NWS-LLC, as well as a pledge of intercompany
notes evidencing loans from NWS to its subsidiaries. These intercompany notes
are also secured by a second priority security interest in the accounts
receivable and inventories of the subsidiaries and are limited in aggregate
amount to the balance at any time outstanding under the new credit facility. The
terms of the pledge agreement and other related security documents in favor of
the banks under the new credit facility related to the intercompany indebtedness
expressly limit the collateral to the underlying accounts receivable and
inventory.
Covenants. The new credit facility contains a number of significant
covenants that, among other things, restricts the ability of NWS and the
guarantors to do the following:
o dispose of assets;
o incur additional indebtedness;
o pay dividends;
o create liens on assets;
o make investments or acquisitions;
o engage in mergers or consolidations;
o make capital expenditures;
o or engage in certain transactions with affiliates and
otherwise restrict corporate activities.
The new credit facility also limits NWS' ability to repurchase the exchange
notes in the event of a change of control. In addition, under the new credit
facility NWS is required to comply with a minimum EBITDA interest coverage ratio
of not less than 1.5 to 1.0 increasing on March 31, 2000 to 1.75 to 1.0 and a
funded debt maximum of 7.5 to 1.0 decreasing on September 30, 1999 to 6.5 to
1.0.
<PAGE>
Events of Default. Events of default under the new credit facility include
the following:
o nonpayment of principal when due;
o nonpayment of interest, fees or other amounts after a
grace period of five days;
o material inaccuracy of representations and warranties;
o violation of covenants (subject, in the case of certain
covenants, to customary grace periods);
o cross-default;
o bankruptcy events;
o certain ERISA events;
o material judgments;
o actual or asserted invalidity of any material provision
of any guarantee or security document, or any security
interest; and
o a change of control.
Upon the occurrence of an event of default, NBD Bank may, in its capacity as
administrative agent, accelerate payments due under the new credit facility.
Other Indebtedness
NWS is obligated under certain loans from third parties and shareholders of
NWS. NWS' master warehouse in Indianapolis, Indiana has been financed with
proceeds from industrial revenue bonds with favorable rates. The bonds had a
principal balance of $0.3 million at December 31, 1998, mature in 2003 and are
secured by the Indianapolis master warehouse. NWS is also obligated to a former
employee in the principal amount of $0.4 million which matures on June 30, 1999
and under an unsecured non-compete agreement with a former stockholder which had
a principal balance of $0.6 million at December 31, 1998 and matures on April 1,
2000. NWS-Illinois has unsecured notes payable to James E. LaCrosse and Norma
Johnston in the amount of $4.4 million at December 31, 1998. See "Certain
Transactions." All of these notes are subordinated to the exchange notes and the
new credit facility. The notes due Mr. LaCrosse and Mrs. Johnston will accrue
interest at NBD's prime rate, will mature in 2009 and may be prepaid at any time
by NWS-Illinois, subject to the limitations contained in the Indenture and the
new credit facility.
DESCRIPTION OF THE EXCHANGE NOTES
General
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions". In this description, "NWS" refers
only to National Wine & Spirits, Inc.
<PAGE>
NWS will issue the exchange notes under an Indenture (the "Indenture")
dated January 25, 1999 among itself, the Guarantors and Norwest Bank Minnesota,
N.A., as trustee (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 December 31, 1998, on a pro forma basis after
giving effect to the January, 1999 offering and the New Credit Facility and the
application of the net proceeds therefrom, NWS and its Subsidiaries would have
had approximately $122.4 million of outstanding unsubordinated Indebtedness
(excluding the Guarantees), of which $12.4 million would have been secured
Indebtedness.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of these notes. We have filed copies of the Indenture as an exhibit to
the Registration Statement which includes this Prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These Notes:
o are general unsecured Obligations of NWS;
o are subordinated in right of payment to all existing and future
secured debt of the NWS;
o are senior in right of payment to any existing and future
subordinate debt of NWS; and
o are unconditionally guaranteed by the Guaranators.
Because the operations of NWS are conducted through its Subsidiaries it is
dependent upon the cash flow of its Subsidiaries to meet its Obligations,
including its Obligations under the exchange notes. As of the date of the
Indenture, all of NWS' Subsidiaries will be Restricted Subsidiaries. However,
under certain circumstances, NWS will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants contained in the Indenture.
The Guarantees
These notes are guaranteed by the following Subsidiaries of NWS:
NWS - Indiana
NWS - Illinois
NWS - Michigan
NWS - LLC
The guarantees of these notes:
o are general unsecured Obligations of each Guarantor;
o are subordinated to all existing and future secured Indebtedness
of each Guarantor, including Guarantees under the New Credit
Facility, which will be secured by the Guarantors' inventory and
accounts receivable and the pledge of certain intercompany notes
evidencing Credit Facility Intercompany Indebtedness, which notes
are also secured by a second priority security interest in all
the accounts receivable and inventories of the Guarantors and
which are at all times limited in aggregate amount to the balance
at any time outstanding under the New Credit Facility; and
<PAGE>
o are senior in right of payment to any existing and future
subordinate Indebtedness of each Guarantor.
As of December 31, 1998, assuming NWS had completed the offering and the
New Credit Facility and applied the proceeds as intended, the Guarantors would
have had approximately $0.3 million of outstanding unsubordinated Indebtedness
in addition to their Guarantees of the exchange notes and the guarantees of the
New Credit Facility.
Principal, Maturity and Interest
NWS will issue notes with a maximum aggregate principal amount of $110.0
million and will mature on January 15, 2009. NWS will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on January 15, 2009.
Interest on the notes will accrue at the rate of 10.125% per annum and will
be payable semi-annually in arrears on January 15 and July 15, commencing on
July 15, 1999, NWS will make each interest payment to the holders of record
immediately preceding December 31 and June 30.
Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to NWS, NWS will make all
principal, premium and interest payments on those notes in accordance with
instructions. All other payments on these notes will be made at the office or
agency of NWS within the City and State of New York unless NWS elects to make
interest payments by check mailed to the holders at their address set forth in
the register of holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. Until
otherwise designated by NWS, its office or agency in New York will be the office
of the Trustee maintained for such purpose.
As of the date of the Indenture, all of our Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
Subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants in the Indenture. Unrestricted
Subsidiaries will not guarantee these notes.
Optional Redemption
NWS may redeem the notes, in whole or in part, at any time and from times
to time after January 15, 2004 and prior to maturity. The notes may be redeemed
at the following redemption prices, expressed as percentages of principal amount
plus accrued and unpaid interest, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on January 15 of the years
indicated below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Year Percentage
2004......................................... 105.0625%
2005......................................... 103.3750%
2006......................................... 101.6875%
2007 and thereafter.......................... 100.0000%
</TABLE>
In addition, prior to January 20, 2002, NWS may redeem up to 33.33% of the
aggregate principal amount of the notes with the proceeds of one or more equity
offerings by NWS at a redemption price of 110.125% of the principal amount, plus
accrued and unpaid interest, if any, to the redemption date. However, at least
66.67% of the original amount of the notes must remain outstanding after each
such redemption. In addition such redemption must occur within 45 days of the
date of the closing of each such public offering.
Selection and Notice of Redemption
In the event that less than all of the notes are redeemed pursuant to any
optional redemption, selection of the notes for redemption, will be made by the
Trustee on a pro rata basis, by lot or by such method as the Trustee shall
deemed fair and appropriate. No notes of $1,000 or less may be redeemed in part.
Notices of redemption must be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at the holder's registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note must state the portion of the principal amount or principal
amount at maturity, as the case may be, to be redeemed. A note in a principal
amount equal to the unredeemed portion will be issued in the name of the holder
upon cancellation of the original note. On and after the redemption date,
interest will cease to accrue on notes or portions thereof called for redemption
as long as NWS has deposited with the Paying Agent for the notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," NWS
is not required to make mandatory redemption or sinking fund payments with
respect to the exchange notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require NWS to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's notes at a price in cash equal to 101% of the
principal amount plus accrued and unpaid interest, if any, to the date of
purchase. Within ten days following any Change of Control, NWS will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase the notes on a specified date ,
which shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed, pursuant to the procedures required by the Indenture and
described in such notice. NWS will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control.
<PAGE>
On the Change of Control Payment Date, NWS will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly
tendered pursuant to the Change of Control offer,
(2) deposit with the Trustee an amount equal to the Change of
Control Payment in respect of all notes or portions thereof
so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of the notes or portions thereof
being purchased by NWS.
The Trustee will promptly mail to each holder of the notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof. NWS will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the notes to require that NWS repurchase
or redeem the notes in the event of a takeover, recapitalization or similar
transaction.
The New Credit Facility contains prohibitions of certain events that would
constitute a Change of Control and limits NWS' ability to repurchase notes in
the event of a Change of Control. In addition, the exercise by the holders of
notes of their right to require NWS to repurchase the notes could cause a
default under such Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchases on NWS. Finally, NWS' ability to
pay cash to the holders of exchange notes upon a repurchase may be limited by
NWS' then existing financial resources.
NWS will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by NWS and purchases all
notes validly tendered and not withdrawn under such Change of Control Offer.
Asset Sales
NWS will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) NWS or the Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or
sold or otherwise disposed of;
(2) such fair market value is determined by NWS' Board of
Directors and evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to
the Trustee; and
(3) at least 75% of the consideration received by NWS or such
Restricted Subsidiary is in the form of cash.
<PAGE>
For the purposes of this provision, the following shall be deemed to be cash:
o any liabilities (as shown on NWS or such Restricted
Subsidiary's most recent balance sheet) of NWS or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the
notes or Guarantee) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement
that releases NWS or such Restricted Subsidiary from further
liability; and
o any securities, notes or other Obligations received by NWS
or any such Restricted Subsidiary from such transferee that
are converted by NWS or such Restricted Subsidiary into cash
(to the extent of the cash received) within 10 business
days.
However, NWS may:
(1) sell its Cameron Springs bottled water business for fair
market value without complying with clause (3) above
provided that the non-cash consideration received is in the
form of securities registered under the Securities Act or
subject to a Registration Rights Agreement providing for
registration under the Securities Act within 90 days after
the sale; and
(2) sell beer franchises, brand labels and distribution rights
of NWS-Illinois or sell all or part of its U.S. Beverage
operations for fair market value, including cash royalty
payments or cash payments over time, without complying with
clause (3) above.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
NWS may apply such Net Proceeds at its option:
(1) to repay Indebtedness under a Credit Facility and to reduce
commitments with respect to revolving borrowings so long as
the repayment does not affect NWS' Borrowing Base;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in
a Permitted Business.
Pending the final application of any such Net Proceeds, NWS may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10 million, NWS will be required to
make an Asset Sale Offer to all holders of notes to purchase the maximum
principal amount of notes and any other equally ranking Indebtedness, including
a comparable asset sale covenant that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be in cash in an amount
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of purchase. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, NWS may use such Excess Proceeds for general corporate
purposes. If the aggregate principal amount of notes and such other equally
ranking Indebtedness surrendered by holders exceeds the amount of Excess
Proceeds, the notes and such other equally ranking Indebtedness shall be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
<PAGE>
Certain Covenants
Restricted Payments
NWS will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of its or any of its Restricted
Subsidiaries' Equity Interests, including payments in connection
with any merger or consolidation involving NWS, or to the direct
or indirect holders of NWS' or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of NWS or to NWS or any of its
Restricted Subsidiaries of NWS);
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of NWS or any direct or indirect parent of NWS
or other Affiliate of NWS (other than any such Equity Interests
owned by NWS or any Restricted Subsidiary of NWS) that is not a
Permitted Investment;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the notes, except a payment of interest
or principal at stated maturity;
(4) make any payment of salary, bonus, and any other cash
compensation, including split-dollar insurance premiums, that is
characterized as income on Form W-2 to or for the benefit of any
Person who is a beneficial owner of more than 10% of the
outstanding Voting Stock of NWS, or to or for the benefit of any
Immediate Family member of such Person, in excess of $950,000
annually for any individual or in excess of $2.5 million annually
in the aggregate for all such individuals;
(5) make any cash payment (including any repurchase or redemption)
after the date of the Indenture on any Indebtedness owing to any
shareholder on any NWS-Illinois Shareholder Subordinated Exchange
Note; or
(6) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (5) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) NWS would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
<PAGE>
(3) such Restricted Payment, together with the aggregate amount of
all other restricted payments made by NWS and its Restricted
Subsidiaries after the date of the Indenture (excluding
Restricted Payments permitted by clauses (2), (3), (4) and (5) of
the next succeeding paragraph), is less than the sum of:
(a) 50% of the Consolidated Net Income of NWS for the period
(taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the
Indenture to the end of NWS' most recently ended fiscal
quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by NWS from
the issue or sale since the date of the Indenture of Equity
Interests of NWS (other than Disqualified Stock) or of
Disqualified Stock or debt securities of NWS that have been
converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of NWS and other than
Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock) and 100% of the
capital contributions received by NWS after the date of the
Indenture in cash, plus
(c) one year and one day after the date of such receipt, 100% of
the cash payments received by NWS or a Restricted Subsidiary
of NWS after the date of the Indenture on a Company
Shareholder Exchange Note Receivable, plus
(d) to the extent that any Restricted Investment that was made
after the date of the Indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of; (i)
the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (ii)
the initial amount of such Restricted Investment, plus
(e) 50% of any dividends received by NWS or a Controlled
Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary of NWS, to the extent that such
dividends were not otherwise included in Consolidated Net
Income of NWS for such period.
So long as the Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) The payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the Indenture;
(2) The redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinate Indebtedness or
Equity Interests of NWS in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than
Disqualified Stock); provided that the amount of any such Net
Proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded
from clause (3)(b) of the proceeding paragraph;
<PAGE>
(3) The defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) The payment of any dividend by a Restricted Subsidiary to the
holders of its common Equity Interests on a pro rata basis;
(5) The payment of the Permitted Quarterly Tax Distributions to the
holders of Capital Stock of any of the S-Corp. Businesses as
described below; and
(6) The payment of any Restricted Payments not otherwise permitted in
an aggregate amount not exceeding $2.5 million.
For so long as each S-Corp. Business qualifies as a pass-through entity for
federal income tax purposes, such S-Corp. Business may make cash distributions
to its shareholders or members, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following NWS' filing of Internal Revenue Service Form 1120S
for the immediately preceding taxable year, the Tax Amounts CPA shall file with
the Trustee a written statement indicating in reasonable detail the calculation
of the True-up Amount. In the case of a True-up Amount due to the shareholders
or members, the Permitted Quarterly Tax Distribution payable during the
following Quarterly Payment Periods shall be increased by such True-up Amount.
In the case of a True-up Amount due to NWS, the Permitted Quarterly Tax
Distribution payable during the following Quarterly Payment Periods shall be
reduced by such True-up Amount and the excess, if any, of the True-up Amount
over such Permitted Quarterly Tax Distribution shall be applied to reduce the
following Permitted Quarterly Tax Distributions until such True-up Amount is
entirely offset.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by NWS-Indiana,
NWS-Illinois (other than its U.S. Beverage craft beer business), NWS-LLC or
NWS-Michigan be transferred to or held by an Unrestricted Subsidiary. In the
event of any such designation, all outstanding Investments owned by NWS and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant or
Permitted Investments, as applicable. All such outstanding Investments will be
deemed to constitute Restricted Investments in an amount equal to the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation
would not cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by NWS or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any non-cash Restricted Payment shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5.0 million. Not later than the date of making any Restricted
Payment, NWS shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
<PAGE>
Incurrence of Indebtedness and Issuance of Preferred Stock
NWS will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) and NWS will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock. However, NWS and any Guarantor may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if the Fixed
Charge Coverage Ratio would be greater than:
o 2.0 to 1.0 if such incurrence or issuance occurs on or before the
second anniversary of the date of the Indenture, and
o 2.25 to 1.0 if such incurrence or issuance occurs at any time
thereafter,
In each case, determined on a pro forma basis (including a pro forma application
of the Net Proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period;
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt")
(1) the incurrence by NWS or any Guarantor of Indebtedness and
letters of credit under Credit Facilities; provided, that the
aggregate principal amount will not exceed an amount equal to the
greater of:
o $60.0 million (provided that such amount shall be
reduced to the extent of any reduction or elimination
of any commitment under any Credit Facility resulting
from or relating to the formation of any Receivables
Subsidiary or the consummation of any Qualified
Receivables Transaction) less the aggregate amount of
all Net Proceeds of Asset Sales that have been applied
by NWS or any of its Restricted Subsidiaries since the
date of the Indenture to repay Indebtedness under a
Credit Facility pursuant to the covenant described
above under the caption "--Asset Sales," and
o the amount of the Borrowing Base as of the date of such
incurrence;
Provided further, that, after giving effect to such incurrence
and the application of proceeds thereof, the aggregate principal
amount of all term Indebtedness and letters of credit (with
letters of credit being deemed to have a principal amount equal
to the maximum potential liability of NWS and its Restricted
Subsidiaries thereunder) at any time outstanding under all Credit
Facilities after giving effect to such incurrence, does not
exceed an amount equal to the greater of (a) $30.0 million or (b)
50% of the amount of the Borrowing Base as of the date of such
incurrence;
(2) the incurrence by NWS or any of its Restricted Subsidiaries of
the Existing Indebtedness;
<PAGE>
(3) the incurrence of Indebtedness represented by the notes ;
(4) the incurrence by NWS or any of its Restricted Subsidiaries of
Indebtedness in the form of Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant
or equipment used in the business of NWS and its Restricted
Subsidiaries (including industrial revenue bonds, tax increment
financing and related reimbursement obligations), in an aggregate
principal amount, including any related Permitted Refinancing,
not to exceed $5 million at any time outstanding;
(5) the incurrence by NWS or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted by the Indenture to be incurred
pursuant to clause (2) or (3) of this paragraph or pursuant to
the immediately preceding paragraph;
(6) the incurrence by NWS or any of its Restricted Subsidiaries of
intercompany Indebtedness, including Credit Facility Intercompany
Indebtedness, between or among NWS and any Restricted Subsidiary
that is a Guarantor; provided, however, that (i) except for
Credit Facility Intercompany Indebtedness, (A) if NWS is the
obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all
Obligations with respect to the notes, or (B) if a Guarantor is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to all Obligations with respect to such Guarantor's
Subsidiary Guarantee and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than NWS or a
Restricted Subsidiary that is a Guarantor and (B) any sale or
other transfer of any such Indebtedness to a Person that is not
either NWS or a Restricted Subsidiary that is a Guarantor shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by NWS or such Restricted Subsidiary, as the case
may be;
(7) the incurrence by NWS or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to
be outstanding;
(8) the Guarantee by NWS or any of the Guarantors of Indebtedness of
NWS or a Restricted Subsidiary of NWS that was permitted to be
incurred by another provision of this covenant (except clause (9)
of this paragraph);
(9) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to NWS
or to any other Subsidiary of NWS or their assets (other than
such Receivables Subsidiary and its assets and, as to NWS or any
Subsidiary of NWS , other than pursuant to representations,
warranties, covenants and indemnities customary for such
transactions) and is not guaranteed by any such Person;
(10) the incurrence by NWS' Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt, such event shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary that was
not permitted by this clause (10); and
<PAGE>
(11) the incurrence by NWS or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding (which
may, but need not, be borrowed under Credit Facilities),
including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (11), not to exceed $10 million.
At December 31, 1998, the Borrowing Base was approximately $ 89.8 million.
NWS will not incur any Indebtedness that is contractually subordinated in
right of payment to any other Indebtedness of NWS unless such Indebtedness is
also contractually subordinated in right of payment to the notes on
substantially identical terms; provided, however, that no Indebtedness of NWS
shall be deemed to be contractually subordinated in right of payment to any
other Indebtedness of NWS solely by virtue of being unsecured.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (11) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, NWS
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of NWS as accrued to the extent contemplated by the definition of such
term.
Sale and Leaseback Transactions
Neither NWS nor any Restricted Subsidiary shall enter into any
Sale/Leaseback Transaction for any property unless:
(1) NWS or such Restricted Subsidiary would be entitled to:
o incur Indebtedness in an amount equal to the Attributable
Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "Incurrence of
Indebtedness and Issuance of Preferred Stock", and
o incur a Lien to secure such Indebtedness pursuant to the
covenant described under "Liens";
(2) the gross cash proceeds received in connection with such
Sale/Leaseback Transaction are at least equal to the fair value
(as determined in good faith by the Board of Directors) or such
property; and
(3) the transfer of such property is permitted by the covenant
described under "Asset Sales," and NWS or such Restricted
Subsidiaries applies the proceeds of such transaction in
compliance with the covenant described under "Asset Sales".
Liens
Neither NWS nor any of its Subsidiaries will, directly or indirectly,
create, incur, assume or suffer to exist any Lien securing Indebtedness or trade
payables on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
<PAGE>
Dividend and Other Payment Restrictions Affecting Subsidiaries
Neither NWS nor any Restricted Subsidiary will create or otherwise cause or
permit to exist any consensual restriction on the ability of any Restricted
Subsidiary to take the following actions:
(1) pay dividends or make any other distributions on its Capital
Stock or its profits, other than Permitted Quarterly Tax
Distributions;
(2) pay any Indebtedness owned to NWS or any Restricted Subsidiary;
(3) may any loans or advances to NWS or any Restricted Subsidiary; or
(4) transfer any of its property or assets to NWS or a Restricted
Subsidiary.
However, this prohibition does not apply to:
(1) any restriction pursuant to the Existing Indebtedness;
(2) any restrictions pursuant to the New Credit Facility, and any
amendments, restatements or refinancings thereof, provided that
such amendments, restatements or refinancings are no more
restrictive with respect to dividend or payment restrictions than
the New Credit Facility on the date of the Indenture;
(3) any restrictions pursuant to the Indenture or the notes;
(4) applicable law;
(5) any restrictions pursuant to any instrument governing
Indebtedness or Capital Stock of a Person acquired by NWS or a
Restricted Subsidiary that is not created in contemplation of
such acquisition;
(6) any customary restriction on assignment of property or asset
subject to a lease or similar contract;
(7) any restrictions related to purchase money obligations for
property acquired in the ordinary course of business;
(8) any restrictions pursuant to any agreement for the sale or other
disposition of a Restricted Subsidiary pending the sale or other
disposition;
(9) any restrictions in connection with Permitted Refinancing
Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are
no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(10) any restrictions in connection with Liens securing Indebtedness
otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that
limit the right of NWS or any of its Restricted Subsidiaries to
dispose of the assets subject to such Lien;
<PAGE>
(11) any restrictions with respect to the sale or other disposition of
assets or property pursuant to Asset Sales (or transactions
which, but for their size, would be Asset Sales) with respect to
assets to be sold, or in joint venture agreements and other
similar agreements entered into in the ordinary course of
business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(13) any restrictions related to Indebtedness or other contractual
requirements of a Receivables Subsidiary in connection with a
Qualified Receivables Transaction. However, such restrictions may
apply only to such Receivables Subsidiary and the contractual
requirements of NWS and its Restricted Subsidiaries to transfer
assets to such Receivables Subsidiary in Qualified Receivables
Transactions.
Additional Subsidiary Guarantees
If NWS or any of its Restricted Subsidiaries acquires or creates another
Subsidiary after the date of the Indenture, then, except for Subsidiaries that
have been properly designated as Unrestricted Subsidiaries and Receivables
Subsidiaries, that newly acquired or created Subsidiary must become a Guarantor
and execute a supplemental indenture and deliver an Opinion of Counsel, in
accordance with the terms of the Indenture. In addition, if any Unrestricted
Subsidiary is redesignated, or becomes, a Restricted Subsidiary, then that
Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture and deliver an Opinion of Counsel, in accordance with the terms of the
Indenture. However, the requirements of this section will not apply to any
Restricted Subsidiary that is not incorporated under the laws of the United
States unless such Restricted Subsidiary guarantees other Indebtedness or
another Subsidiary.
Merger, Consolidation or Sale of Assets
NWS may not: (A) consolidate or merge with or into another person (whether
or not NWS is the surviving corporation); or (B) sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person; unless
(1) NWS is the surviving corporation, or the Person formed by or
surviving any such consolidation or merger (if other than NWS) or
to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than NWS) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of NWS under the
Registration Rights Agreement, the notes and the Indenture
pursuant to a supplemental Indenture in a form reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of NWS with or into a Controlled
Subsidiary, NWS or the Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made will, immediately after such transaction after giving pro
forma effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock."
<PAGE>
Transactions with Affiliates
NWS will not, and will not permit any of its Restricted Subsidiaries to,
enter into any transaction or series of transactions, including the purchase,
sale, lease or exchange or the rendering any service with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(1) such Affiliate Transaction is on terms that are no less favorable
to NWS or the relevant Restricted Subsidiary than the terms that
would have been obtained in a comparable transaction with an
unrelated Person; and
(2) NWS delivers to the Trustee:
o with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $1 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies this
covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the
Board of Directors; and
o with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $5 million, an opinion as to the
fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal
or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions, and
therefore, will not be prohibited by this covenant:
(1) any employment agreement entered into by NWS or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of NWS or such Restricted
Subsidiary;
(2) transactions between or among NWS and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of NWS;
(4) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of NWS;
(5) salaries, bonuses and employee benefits paid to the officers of
NWS and its Subsidiaries in the ordinary course of business
consistent with past practice;
(6) transactions in the ordinary course of business between NWS or
any Restricted Subsidiary and
o any Person that is not a Restricted Subsidiary (A) that is
engaged in a Permitted Business and (B) in which NWS has an
Investment on the date of the Indenture or makes an
Investment permitted by the Indenture, and (C) in which
neither the Principal, any Related Party or any officer,
director or equity owner of NWS or any of its Subsidiaries
has any beneficial ownership interest (other than indirectly
through NWS or a Restricted Subsidiary), or
<PAGE>
o Consolidated Rectifying, Inc. for the bottling, blending
and/or manufacture of distilled spirits in the ordinary
course of business and consistent with past practice;
(7) transactions between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an Investment in connection
with any Qualified Receivables Transaction; and
(8) Permitted Investments and Restricted Payments that are permitted
by the provisions of the Indenture described above under the
caption "--Restricted Payments."
Limitation on Issuances and Sales of Capital Stock of Controlled
Subsidiaries
NWS will not, and will not permit any Subsidiary to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Controlled
Subsidiary of NWS to any Person (other than NWS or a Controlled Subsidiary of
NWS), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Capital Stock of such Controlled Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant
described above under the caption "--Asset Sales"; and
(3) after giving effect to such disposition, such Controlled
Subsidiary remains a Controlled Subsidiary.
In addition, NWS will not permit any Controlled Subsidiary of NWS to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to NWS
or a Controlled Subsidiary of NWS if, after giving effect thereto, such
Controlled Subsidiary would cease to be a Controlled Subsidiary. However, the
limitations contained in this covenant will not prevent any increase in the
ownership or profits interest of Martin H. Bart or his successors in NWS-LLC or
any successor entity thereto in accordance with the terms of the NWS-LLC limited
liability company agreement, and as amended or replaced thereafter in a manner
not adverse to the holders of the notes.
Business Activities
NWS will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses.
Payments for Consent
Neither NWS nor any of its Subsidiaries will, directly or indirectly, pay
or cause to be paid any consideration to any holder of any notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the notes unless such consideration is offered to be paid or
is paid to all holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
<PAGE>
Reports
Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, NWS will furnish to the holders of notes within the
time periods specified in the SEC's rules and regulations:
o beginning with the quarterly period ending December 31, 1998, all
quarterly and annual financial information that would be required to
be contained in a filing with the SEC on Forms 10-Q and 10-K if NWS
were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of NWS and
its Consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by NWS' certified independent
accountants; and
o all current reports that would be required to be filed with the SEC on
Form 8-K if NWS were required to file such reports.
In addition, beginning with the first quarterly period commencing after the
consummation of the exchange offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the SEC, NWS
will file a copy of all such information and reports with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations and make such information available to securities analysts and
prospective investors upon request. In addition, NWS and any Guarantors have
agreed that, for so long as any notes remain outstanding, they will furnish to
the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions
of the Indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by NWS or any Subsidiary to comply with the provisions
described under the captions "--Change of Control," "--Merger,
Consolidation or Sale of Assets," "--Restricted Payments" or
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(4) failure by NWS for 60 days after notice to comply with any of its
other agreements in the Indenture or the notes;
(5) default under any mortgage, Indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by NWS or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
NWS or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, if that default
(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness
on the date of such default (a "Payment Default") or
<PAGE>
(b) results in the acceleration of such Indebtedness prior to
its express maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more;
(6) failure by NWS or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(7) the termination of any Subsidiary Guarantee for any reason not
permitted by the Indenture, or the denial of any Guarantor or any
Person acting on behalf of any Guarantor of such Guarantor's
obligations under its respective Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to NWS or
any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. However, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to NWS, any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
notes will become due and payable without further action or notice.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default, except a Default or
Event of Default relating to the payment of principal or interest, if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction, taken or not taken, by or on behalf of NWS with the
intention of avoiding payment of the premium that NWS would have had to pay if
NWS then had elected to redeem the notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the notes. If an Event of Default occurs prior to January 15, 2004 by reason
of any willful action or inaction, taken or not taken, by or on behalf of NWS
with the intention of avoiding the prohibition on redemption of the notes prior
to January 15, 2004, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
NWS is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, NWS is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
<PAGE>
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, or stockholder, partner or
member of NWS or any Guarantor, as such, shall have any liability for any
obligations of NWS or any Guarantor under the notes, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
NWS may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on
such notes when such payments are due from the trust referred to
below;
(2) NWS' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency
for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and NWS' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, NWS may, at its option and at any time, elect to have the
obligations of NWS released with respect to certain covenants that are described
in the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) NWS must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and NWS must specify whether
the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, NWS shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that NWS has received from, or there has been
published by, the Internal Revenue Service a ruling or since the
date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
<PAGE>
(3) in the case of Covenant Defeasance, NWS shall have delivered to
the Trustee an opinion of reasonably acceptable to the Trustee
confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to
which NWS or any of its Subsidiaries is a party or by which NWS
or any of its Subsidiaries is bound;
(6) NWS must have delivered to the Trustee an opinion of counsel to
the effect that, assuming no intervening bankruptcy of NWS
between the date of deposit and the 91st day following the
deposit and assuming no holder of notes is an insider of NWS,
after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) NWS must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by NWS with the intent of
preferring the holders of notes over the other creditors of NWS
with the intent of defeating, hindering, delaying or defrauding
creditors of NWS or others; and
(8) NWS must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and NWS may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
NWS is not required to transfer or exchange any note selected for redemption.
Also, NWS is not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in this section, the Indenture or the notes may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the exchange notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, exchange notes), and any existing default or compliance
with any provision of the Indenture or the exchange notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
exchange notes (including consents obtained in connection with a tender offer or
exchange offer for exchange notes).
<PAGE>
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the notes (except a
rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such
acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of or premium, if any, or interest
on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under
the caption "--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding , without the consent of any holder of notes,
NWS and the Trustee may amend or supplement the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes,
(3) to provide for the assumption of NWS' obligations to holders of
notes in the case of a merger or consolidation,
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely
affect the legal rights under the Indenture of any such holder,
or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust
Indenture Act.
<PAGE>
Concerning the Trustee
If the Trustee becomes a creditor of NWS, the Indenture limits its rights
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Refer to
the Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, whether or not the Indebtedness incurred in
connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and, in the case of a natural Person, any
immediate family member of such Person. For purposes of this definition,
"control", as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the voting securities of a Person shall be deemed to be control. No
Person (other than NWS or any Subsidiary of NWS) in whom a Receivables
Subsidiary makes an Investment in connection with a Qualified Receivables
Transaction will be deemed to be an Affiliate of NWS or any of its Subsidiaries
solely by reason of such Investment. For purposes of this definition, the terms
"controlling," "controlled by," and "under common control with" shall have
correlative meanings.
"Asset Sale" means, whether in a single transaction or a series of related
transactions which have either a fair market value or net proceeds of more than
$1 million:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course
of business consistent with past practices; provided that the
sale, lease, conveyance or other disposition of all or
substantially all of the assets of NWS and its Restricted
Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption
"--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
<PAGE>
(2) the issue or sale by NWS or any of its Restricted Subsidiaries of
Equity Interests.
Notwithstanding the foregoing, the following items will not be deemed asset
sales:
(1) a transfer of assets between or among NWS and its Restricted
Subsidiaries that are Guarantors;
(2) an issuance of equity interests by a Controlled Subsidiary to NWS
or to another Controlled Subsidiary;
(3) a Permitted Investment or a Restricted Payment that is permitted
by the covenant described above under the caption "--Restricted
Payments";
(4) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction" to a Receivables Subsidiary for fair market value,
including cash at least equal to 75% of the book value as
determined in accordance with GAAP. For the purposes of this
clause (4), notes received in exchange for the transfer of
accounts receivable and related assets will be deemed cash if the
notes are required to be repaid from available cash collections
less amounts required to be established as reserves pursuant to
contracts with entities are not Affiliates of NWS entered into as
part of a Qualified Receivables Transaction;
(5) transfers of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a
Receivables Subsidiary in a Qualified Receivables Transaction;
and
(6) transfers from NWS-Illinois and NWS-LLC to U.S. Beverage of
assets directly related to, and primarily used in, the operations
of U.S. Beverage.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of :
(1) 80% of the face amount of all accounts receivable owned by NWS
and its Restricted Subsidiaries on that date that are not more
than 45 days past due; provided, however, that any accounts
receivable owned by a Receivables Subsidiary, or which NWS or any
of its Subsidiaries has agreed to transfer to a Receivables
Subsidiary, shall be excluded for purposes of determining such
amount; and
<PAGE>
(2) 65% of the book value of all inventory owned by NWS and its
Restricted Subsidiaries on that date, all calculated on a
consolidated basis in accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory or trade payables as of a specific date, NWS may utilize
the most recent available information for purposes of calculating the Borrowing
Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership (whether general or limited) or membership interests;
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof having maturities of not more than six months from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to
the New Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2)
and (3) above entered into with any financial institution meeting
the qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of
acquisition; and
(6) money market funds at least 95% of the assets of which constitute
cash equivalents of the kinds described in clauses (1)-(5) of
this definition.
<PAGE>
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets
of NWS and its Restricted Subsidiaries taken as a whole to any
"Person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principal or his Related Parties (as
defined below);
(2) the adoption of a plan relating to the liquidation or dissolution
of NWS;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any "Person" (as defined above), other than the Principal
and his Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to
acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition),
directly or indirectly, of more than 40% of the Voting Stock of
NWS (measured by voting power rather than number of shares);
(4) the first day on which a majority of the members of the Board of
Directors of NWS are not Continuing Directors; or
(5) NWS consolidates with, or merges with or into, any Person or
sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any
Person consolidates with, or merges with or into, NWS, in any
such event pursuant to a transaction in which any of the
outstanding Voting Stock of NWS is converted into or exchanged
for cash, securities or other property, other than any such
transaction where the Voting Stock of NWS outstanding immediately
prior to such transaction is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee
Person (immediately after giving effect to such issuance).
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of NWS and its Subsidiaries taken as a whole. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of exchange notes to require NWS to
repurchase such exchange notes as a result of a sale, lease, transfer,
conveyance, or other disposition of less than all of the assets of NWS and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Shareholder Exchange Note Receivable" means any promissory note
receivable by NWS or a Subsidiary of NWS on the date of the Indenture from any
shareholder of NWS.
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period; plus
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such
losses were deducted in computing such Consolidated Net Income);
plus
(2) (a) if such Person is an S-Corporation or substantially similar
pass-through entity for federal income tax purposes, the amount
of all Permitted Quarterly Tax Distributions of such Person and,
without duplication, its Consolidated Subsidiaries for such
period, as adjusted for any True-up Amount then determined for
such period; or
(b) if such Person is not an S-Corporation or substantially
similar pass-through entity for federal income tax purposes, any
provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated
Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, original issue
discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligation, imputed
interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations but excluding
amortization of debt issuance costs and non-cash interest accrued
or accruing on any NWS-Illinois shareholder subordinated exchange
note), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such
Consolidated Net Income; plus
(5) LIFO expense; plus
(6) start-up expenses reported on the consolidated financial
statements of NWS, NWS-Indiana and NWS-Illinois for any quarterly
period ending on or prior to March 31, 1998 that is included in
the period for which the calculation is being made; plus
(7) prepayment penalties associated with the prepayment of
Indebtedness on the date of the Indenture to the extent any such
expense was deducted in computing such Consolidated Net Income;
minus
<PAGE>
(8) non-cash items increasing such Consolidated Net Income for such
period including, without limitation, LIFO income and non-cash
interest income, in each case, on a consolidated basis and
determined in accordance with GAAP.
Notwithstanding the foregoing, the Permitted Quarterly Tax Distributions
(adjusted as provided above) of, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of NWS shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of NWS and only if a corresponding amount would be permitted at the date
of determination to be dividended to NWS by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
reduced by the amount of Permitted Quarterly Tax Distributions of such Person
and, without duplication, its Consolidated Subsidiaries for such period, as
adjusted for any True-up Amount then determined for such period, if such Person
is an S-Corporation or substantially similar pass-through entity for federal
income tax purposes; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to the
specified Person or a Controlled Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded;
(5) the Net Income (but not loss) of any Unrestricted Subsidiary
shall be excluded, whether or not distributed to NWS or one of
its Restricted Subsidiaries;
(6) interest received or accrued on a Company Shareholder Exchange
Note Receivable shall be excluded when determining NWS' ability
to make Restricted Payments under the Indenture; and
(7) the cumulative effect of a change in accounting principals shall
be excluded.
"Consolidated Tangible Assets" means with respect to any Person as of any
date, the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" (or any like caption) on a consolidated balance sheet of
such Person and its Restricted Subsidiaries, less all intangible assets,
including, without limitation, goodwill, organization costs, patents,
trademarks, copyrights, franchises and research and development costs.
<PAGE>
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of NWS who:
(1) was a member of such Board of Directors on the date of the
Indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who
were members of such board at the time of such nomination or
election.
"Controlled Subsidiary" of NWS means a Restricted Subsidiary of NWS:
(1) 90% or more of the economic interest in the total equity
interests or other ownership interests of which and 90% or more
of the voting rights represented by the Voting Stock of which is
owned by NWS, either directly or through one or more Controlled
Subsidiaries; and
(2) over which NWS possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies.
"Credit Facilities" means, with respect to NWS, one or more debt facilities
(including, without limitation, the New Credit Facility) or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Credit Facility Intercompany Indebtedness" means intercompany Indebtedness
of NWS' Subsidiaries.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise; or
(2) is redeemable at the option of the holder, in whole or in part,
on or prior to the date that is 91 days after the date on which
the exchange notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
NWS to repurchase such Capital Stock upon the occurrence of a Change of Control
or an Asset Sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that NWS may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Estimation Period" means the period for which a shareholder who is an
individual is required to estimate for federal income tax purposes his
allocation of taxable income from a calendar year in connection with determining
his estimated federal income tax liability for such period.
<PAGE>
"Existing Indebtedness" means Indebtedness of NWS and its Subsidiaries
(other than Indebtedness under the New Credit Facility) in existence on the date
of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, (including,
without limitation, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding amortization of debt issuance costs and
excluding non-cash interest accrued or accruing for such period on any
NWS-Illinois Shareholder Subordinated Exchange Note; plus
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon);
plus
(4) the product of :
(a) all cash dividend payments or other distributions (and non-cash
dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of preferred equity of such Person;
times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person (or in the case of a
Person that is an "S-Corporation" or other pass-through entity
for federal income tax purposes, the combined federal, state and
local income tax rate that was or would have been utilized to
calculate the Tax Amount of such Person), expressed as a decimal,
in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that NWS or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the fixed charge coverage ratio is made (the "Calculation Date"),
then the fixed charge coverage ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by NWS or any of its Restricted
Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash
Flow for such reference period shall be calculated without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
<PAGE>
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the calculation date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the calculation date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the Specified Person or any of its
Restricted Subsidiaries following the calculation date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a Guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Guarantors" means each of:
(1) NWS-Indiana, NWS-Illinois, NWS-LLC and NWS-Michigan; and
(2) any other Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Immediate Family" has the meaning assigned to such term in Rule 16a1-(e)
under the Exchange Act.
"Indebtedness" means, with respect to any Person, any Indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
<PAGE>
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property
except any such balance that constitutes an accrued expense or trade
payable; and
(6) representing any Hedging Obligations.
If and to the extent any of the foregoing Indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of such Person (whether or not such Indebtedness is assumed by such
Person) and, to the extent not otherwise included, the Guarantee by such Person
of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all Investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as Investments on a balance sheet prepared in accordance with GAAP.
If NWS or any of its Subsidiaries sells or otherwise disposes of any equity
interests of any direct or indirect Subsidiary of NWS such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary of
NWS, NWS shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Restricted
Payments."
"Issue Date" means the date on which the initial $110 million in exchange
notes was originally issued under the Indenture.
"Lien" means, with respect to any asset, any mortgage, Lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any Person for any period, the Net
Income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred interests or dividends,
excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with (a) any Asset
Sale including, without limitation, dispositions pursuant to sale and
leaseback transactions or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries; and
<PAGE>
(2) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes or Permitted Quarterly Tax
Distributions on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by NWS or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale including, without limitation, legal, accounting and investment
banking fees, and sales commissions and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement executed on the
date of the Indenture, by and among NWS and NBD Bank, as agent, providing for up
to $60.0 million of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments, letters of credit and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither NWS nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or
both any holder of any other Indebtedness (other than the notes) of
NWS or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of NWS or any of its
Restricted Subsidiaries.
"NWS-Indiana" means National Wine & Spirits Corporation, an Indiana
corporation, and its successors.
"NWS-Illinois" means NWS, Inc., an Illinois corporation, and its
successors.
"NWS-LLC" means NWS-Illinois, LLC, an Illinois limited liability company,
and its successors.
"NWS-Michigan" means NWS Michigan, Inc., a Michigan corporation, and its
successors.
"NWS-Illinois Shareholder Subordinated Exchange Note" means any note
payable to any shareholder of NWS by NWS-Illinois that is outstanding on the
date of the Indenture and:
(1) matures on December 31, 2009;
(2) does not require redemption prior to maturity; and
(3) is subordinated in right of payment to the exchange notes.
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any of the businesses engaged in by NWS and its
Subsidiaries on the date of the Indenture and any extensions thereof or other
businesses reasonably related thereto.
"Permitted Investments" means:
(1) any Investment in NWS or in a Controlled Subsidiary of NWS;
(2) any Investment in Cash Equivalents;
(3) any Investment by NWS or any Restricted Subsidiary of NWS in a Person,
if as a result of such Investment;
(a) such Person becomes a Controlled Subsidiary of NWS, or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, NWS or a Controlled Subsidiary of NWS;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of NWS;
(6) Investments made after the date of the Indenture in wholesale
alcohol-based beverage distribution businesses (measured on the dates
such Investments were made and without giving effect to subsequent
changes in value) that are not, after giving effect to such
Investments, Controlled Subsidiaries, in an aggregate amount
outstanding after giving effect to any such Investment not exceeding
10% of Consolidated Tangible Assets;
(7) redemptions of the interests in NWS-LLC that are held by Martin H.
Bart on the date of the Indenture, and his successors and assigns;
(8) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction, and any other Investment by NWS or
a Subsidiary of NWS in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person in connection with a
Qualified Receivables Transaction provided, that such other Investment
is in the form of a note or other instrument that the Receivables
Subsidiary or other Person is required to repay as soon as practicable
from available cash collections less amounts required to be
established as reserves pursuant to contractual agreements with
entities that are not Affiliates of NWS entered into as part of a
Qualified Receivables Transaction;
(9) transfers from NWS-Illinois and NWS-LLC to U.S. Beverage of assets
directly related to, and primarily used in, the operations of U.S.
Beverage; and
(10) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (10) that are at the
time outstanding, not to exceed $7.0 million.
<PAGE>
"Permitted Liens" means
(1) Liens securing Indebtedness and Guarantees permitted by the terms of
the Indenture to be incurred under any Credit Facilities, including
the New Credit Facility; on
(a) accounts receivable and the related assets of the type specified
in the definition of "Qualified Receivables Transaction" and
inventory and proceeds thereof, and
(b) Credit Facility Intercompany Indebtedness and any documents or
instruments evidencing such Indebtedness;
(2) any such Liens on assets of the type described in clause (1)(a)
securing Credit Facility Intercompany Indebtedness, provided, however,
that any Liens permitted by clause (1)(b) and this clause (2) shall
only constitute Permitted Liens for so long as:
(a) the Credit Facility pursuant to which such Liens were granted
contains a provision stating in substance that in the event of
any bankruptcy, insolvency or similar proceeding involving any
Guarantor, the claims of the lenders under such Credit Facility
with respect to the Guarantee of such Guarantor shall be reduced
by the amount of claims, if any, which are made by such lenders
and allowed in such proceeding with respect to the Credit
Facility Intercompany Indebtedness pledged to secure such
Indebtedness under the Credit Facility, net of any offsets
against such Credit Facility Intercompany Indebtedness relating
to Indebtedness or other obligations owed by NWS to such
Guarantor, and provided further:
that such reduction shall be rescinded in the event of equitable
subordination of the claims with respect to the Credit Facility
Intercompany Indebtedness unless such equitable subordination
arose out of or resulted from the acts or omissions of any
lenders under the Credit Facility; and
(b) any intercompany notes representing any Credit Facility
Intercompany Indebtedness that are pledged to secure Indebtedness
under such Credit Facility are at all times limited in aggregate
amount to the balance at any time outstanding under such Credit
Facility;
(3) Liens in favor of NWS or any Restricted Subsidiary;
(4) Liens on property of a Person existing at the time such Person is
merged into or consolidated with NWS or any Restricted Subsidiary of
NWS; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
NWS;
(5) Liens on property existing at the time of acquisition thereof by NWS
or any Subsidiary of NWS, provided that such Liens were in existence
prior to the contemplation of such acquisition;
(6) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
<PAGE>
(7) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness;
(8) Liens existing on the date of the Indenture;
(9) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10) Liens incurred in the ordinary course of business of NWS or any
Subsidiary of NWS with respect to obligations that do not exceed $5.0
million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the
ordinary course of business), and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by NWS or such Subsidiary;
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries; and
(12) Liens on assets of a Receivables Subsidiary incurred in connection
with a Qualified Receivables Transaction.
"Permitted Quarterly Tax Distribution" means quarterly distributions of Tax
Amounts determined on the basis of the estimated taxable income of NWS, for the
related Estimation Period, provided, however, that:
(1) prior to any distributions of Tax Amounts, NWS shall deliver an
officers' certificate certifying that the Tax Amounts to be
distributed were determined pursuant to the terms of the Indenture and
stating to the effect that NWS qualifies as an S-Corporation or
substantially similar pass-through entity for federal income tax
purposes; and
(2) at the time of such distributions, the most recent audited financial
statements of NWS reflect that NWS was treated as an S-Corporation or
substantially similar pass-through entity for federal income tax
purposes for the period covered by such financial statements.
"Permitted Refinancing Indebtedness" means any Indebtedness of NWS or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of NWS or any of its Restricted Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
<PAGE>
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
exchange notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is
subordinated in right of payment to, the exchange notes on terms at
least as favorable to the holders of exchange notes as those contained
in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by NWS or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principal" means James E. LaCrosse.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by NWS or any of its Subsidiaries pursuant to which
NWS or any of its Subsidiaries sells, conveys or otherwise transfers to
(1) a Receivables Subsidiary (in the case of a transfer by NWS or any of
its Subsidiaries) and
(2) any other Person (in the case of a transfer by a Receivables
Subsidiary),
or grants a security interest in, any accounts receivable (whether now existing
or arising in the future) of NWS or any of its Subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Quarterly Payment Period" means the period commencing on the tenth day and
ending on and including the twentieth date of each month in which federal
individual estimated tax payments are due (provided that payments in respect of
estimated state income taxes due in January may instead, at the option of NWS,
be paid during the last five days of the immediately preceding December.
"Receivables Subsidiary" means a Subsidiary of NWS which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by the Board of Directors of NWS (as provided below) as
a Receivables Subsidiary,
(1) no portion of the Indebtedness or any other Obligations (contingent or
otherwise) of which:
(a) is guaranteed by NWS or any Subsidiary of NWS (excluding
Guarantees of Obligations, other than the principal of, and
interest on, Indebtedness pursuant to representations,
warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified
Receivables Transaction),
(b) is recourse to or obligates NWS or any Subsidiary of NWS in any
way other than pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, or
<PAGE>
(c) subjects any property or asset of NWS or any Subsidiary of NWS
other than accounts receivable and related assets as provided in
the definition of "Qualified Receivables Transaction", directly
or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction,
(2) with which neither NWS nor any Subsidiary of NWS has any material
contract, agreement, arrangement or understanding other than on terms
no less favorable to NWS or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of NWS, other
than fees payable in the ordinary course of business in connection
with servicing accounts receivable; and
(3) with which neither NWS nor any Subsidiary of NWS has any obligation to
maintain or preserve such Subsidiary's financial condition or cause
such Subsidiary to achieve certain levels of operating results. Any
such designation by the Board of Directors of NWS will be evidenced to
the Trustee by filing with the Trustee a certified copy of the
resolutions of the Board of Directors of NWS giving effect to such
designation and an officers' certificate certifying that such
designation complied with the foregoing conditions.
"Related Party" means
(1) any immediate family member of the Principal; and
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in this definition.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S-Corp. Businesses" means NWS and any Subsidiary of NWS that qualifies as
a qualified subchapter S Subsidiary or is classified as a partnership or other
pass-through entity for federal income tax purposes.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person,
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof); and
<PAGE>
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Amounts" with respect to any taxable period shall not exceed an amount
equal to:
(1) the product of:
(a) the taxable income of NWS for such period as determined by the
Tax Amounts CPA, and
(b) the Tax Percentage reduced by:
(2) to the extent not previously taken into account, any income tax
benefit attributable to NWS which could be realized (without regard to
the actual realization) by its shareholders in the current or any
prior taxable year, or portion thereof, commencing on or after the
Issue Date (including any tax losses or tax credits), computed at the
applicable Tax Percentage for the year that such benefit is taken into
account for purposes of this computation.
"Tax Amounts CPA" means Katz, Sapper & Miller or a nationally recognized
certified public accounting firm.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of federal and state income tax, imposed on an
individual taxpayer, as certified by the Tax Amounts CPA in a certificate filed
with the Trustee. The rate of "state income tax" to be taken into account for
purposes of determining the Tax Percentage for a particular taxable year shall
be deemed to be the highest state marginal tax rate applicable to any
stockholder.
"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between
(1) the aggregate Permitted Quarterly Tax Distributions actually
distributed in respect of such taxable year, and
(2) the actual Tax Amounts for such year.
For purposes of this Agreement, the amount equal to the excess, if any, of
the amount described in clause (1) over the amount described in clause (2) above
shall be referred to as the "True-up Amount due to NWS" and the excess, if any,
of the amount described in clause (2) over the amount described in clause (1)
above shall be referred to as the "True-up Amount due to the shareholders."
"True-up Determination Date" means the date on which the Tax Amounts CPA
delivers a statement to the Trustee indicating the True-up Amount.
"Unrestricted Subsidiary" means any Subsidiary of NWS that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution; but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with NWS or any of its Restricted Subsidiaries unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to NWS or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of NWS;
<PAGE>
(3) is a Person with respect to which neither NWS nor any of its
Restricted Subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional Equity Interests, or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of NWS or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of NWS or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of NWS or any of its Restricted
Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the board resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of NWS as of such date (and, if such Indebtedness is not permitted to
be incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," NWS shall be in
default of such covenant).
The Board of Directors of NWS may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of NWS
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period; and
(2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
<PAGE>
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
NWS nor the initial purchasers takes any responsibility for these operations or
procedures, and investors are urged to contact the relevant systems or its
participants directly to discuss these matter.
Book-Entry, Delivery and Form
Except as set forth below, the notes will be in the form of one or more
registered global notes without interest coupons (the "Global Notes"). The
Global Notes will be deposited with the Trustee, as custodian for The Depositary
Trust Company ("DTC"), and registered in the name of DTC or its nominee for
credit to the accounts of DTC's Direct and Indirect Participants (as defined
below). Transfer of beneficial interests in Global Notes will be subject to the
applicable rules and procedures of DTC and its Direct and Indirect Participants,
which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. See "--Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as paying agent and registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
Depositary Procedures
DTC has advised NWS that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the initial purchasers), banks, trust company,
clearing corporations and certain other organizations, including Euroclear and
Cedel. Access to DTC's system is also available to other entities that clear
through, or maintain a direct or indirect custodial relationship with, a Direct
Participant (collectively, the "Indirect Participants").
DTC has advised NWS that, pursuant to DTC's procedures, (1) upon deposit of
the Global Notes, DTC will credit the accounts of the Direct Participants
designated by the initial purchasers with an interest in the Global Notes, and
(2) DTC will maintain records of the ownership interests of Direct Participants
in the Global Notes and the transfer of ownership interests by and between
Direct Participants. However, DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, Indirect
Participants or other owners of beneficial interests in the Global Notes. Direct
Participants and Indirect Participants must maintain their own records of the
ownership interests of, and the transfer of ownership interests by and between,
Indirect Participants and other owners of beneficial interests in the Global
Notes.
<PAGE>
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Morgan Guaranty Trust
Company of New York, Brussels office is the operator and depository of
Euroclear, and Citibank, N.A. is the operator and depository of CEDEL (each a
"nominee" of Euroclear and CEDEL, respectively). Therefore, they will each be
recorded on DTC's records as the holders of all ownership interests held by them
on behalf of Euroclear and CEDEL, respectively. Euroclear and CEDEL must
maintain on their own records the ownership interests, and transfers of
ownership interests by and between, their own customers' securities accounts.
DTC will not maintain such records. All ownership interests in any Global Notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states' jurisdictions may require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests.
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes", owners of beneficial interests in the Global Notes will
not:
o have notes registered in their names;
o receive physical delivery of notes in certificated form; or
o be considered the registered owners or holders thereof under the Indenture
for any purpose.
Under the terms of the Indenture, NWS, the guarantors and the Trustee will
treat the persons in whose names the notes are registered (including notes
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes. Payments in respect of the
principal, premium, liquidated damages, if any, and interest on Global Notes
registered in the name of DTC or its nominee will be payable by the Trustee to
DTC or its nominee as the registered holder under the Indenture. Consequently,
neither NWS, the Trustee nor any agent of NWS or the Trustee has or will have
any responsibility or liability for (1) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (2) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised NWS that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the Trustee,
NWS or the guarantors. Neither NWS, the guarantors nor the Trustee will be
liable for any delay by DTC or its Direct Participants or Indirect Participants
in identifying the beneficial owners of the notes, and NWS and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
<PAGE>
Transfers between Direct Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
Indirect Participants in Euroclear or Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between Direct Participants in DTC, on the one hand,
and Indirect Participants who hold interests in the notes through Euroclear or
CEDEL, on the other hand, will be effected by Euroclear's or CEDEL's respective
Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
CEDEL; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants who hold interest in the notes through
Euroclear and CEDEL may not deliver instructions directly to Euroclear's or
CEDEL's Nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
Global Note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant purchasing an interest in a Global Note from a Direct Participant in
DTC will be credited, and any such crediting will be reported to Euroclear or
CEDEL during the European business day immediately following the settlement date
of DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in a Global Note to a DTC Participant until the European business day
for Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised NWS that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Direct Participants to
whose account interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of the notes to which such Direct
Participant or Direct Participants has or have given direction. However, if
there is an event of default under the notes, DTC reserves the right to exchange
Global Notes (without the direction of one or more of its Direct Participants)
for legended notes in certificated form, and to distribute such certificated
forms of notes to its Direct Participants. See "--Transfers of Interests in
Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the U.S. Global Notes among Direct
Participants, including Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. None of NWS, the guarantors, the initial purchasers or
the Trustee shall have any responsibility for the performance by DTC, Euroclear
or CEDEL or their respective Direct and Indirect Participants of their
respective obligations under the rules and procedures governing any of their
operations.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if (1) DTC (a)
notifies NWS that it is unwilling or unable to continue as Depositary for the
Global Notes and NWS thereupon fails to appoint a successor Depositary within 90
days or (b) has ceased to be a clearing agency registered under the Exchange
Act, (2) NWS, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Certificated Notes, or (3) there shall have occurred and
be continuing a default or an event of default with respect to the notes. In any
such case, NWS will notify the Trustee in writing that, upon surrender by the
Direct and Indirect Participants of their interest in such Global Note,
Certificated Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owner of the related
notes.
<PAGE>
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither NWS, the guarantors nor the Trustee will be liable for any delay by
the holder of any Global Note or DTC in identifying the beneficial owners of
notes, and NWS and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and liquidated
damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, NWS will make all payments of principal,
premium, if any, interest and liquidated damages, if any, by wire transfer of
immediately available same day funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. NWS expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
Registration Rights; Liquidated Damages
NWS, the guarantors and the initial purchasers entered into the
Registration Rights Agreement on January 25, 1999. Pursuant to this agreement,
NWS and the guarantors agreed to a registration statement relating to the
exchange offer for the old notes under the Securities Act with the SEC within 60
days of the issue date, and to use their respective best efforts to have it
declared effective at the earliest possible time. NWS and the guarantors also
agreed to use their best efforts to cause the exchange offer registration
statement to be effective continuously, to keep the exchange offer open for a
period of not less than 20 business days, and to cause the exchange offer to be
consummated no later than the 30th business day after it is declared effective
by the SEC.
If (a) the exchange offer is not permitted by applicable law or SEC policy
or (b) any holder of old notes which are transfer restricted securities notifies
NWS prior to the 20th business day following the consummation of the exchange
offer that:
(1) it is prohibited by law or SEC policy from participating in the
exchange offer;
(2) it may not resell the notes acquired by it in the exchange offer to
the public without delivering a prospectus, and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales by it; or
(3) it is a broker-dealer and holds old notes acquired directly from NWS
or any affiliates of NWS then,
NWS and the guarantors will file with the SEC a shelf registration statement to
register for public resale the transfer restricted securities held by any such
holder who provides NWS with certain information for inclusion in the Shelf
Registration Statement.
<PAGE>
For the purposes of the Registration Rights Agreement, "transfer restricted
securities" means each old note until the earliest of the date of which:
(1) such old note is exchanged in the exchange offer and entitled to be
resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act;
(2) such old note has been disposed of in accordance with the shelf
registration statement; or
(3) such old note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that NWS and the guarantors
agree to pay to each holder of transfer restricted securities liquidated damages
if any of the following 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 (each, a "Registration Default").
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 ("U.S.") federal income tax
consequences associated with the exchange of the old notes for the exchange
notes pursuant to the exchange offer and the ownership and disposition of the
exchange notes that are applicable to those holders of exchange notes who
purchased the old notes upon original issuance and who acquires an exchange note
pursuant to the exchange offer. The summary is based upon current laws,
regulations, rulings and judicial decisions, all of which are subject to change
(possibly with retroactive effect) and to differing interpretations. The
discussion below does not address all aspects of U.S. federal income taxation
that may be relevant to particular holders in the context of their specific
investment circumstances or certain types of holders subject to special
treatment under such laws (e.g., financial institutions, tax-exempt
organizations, insurance company or dealers in securities or currencies, persons
that will hold notes as a position in a "straddle" or conversion transaction, or
as part of a "synthetic security" or other integrated financial transaction, or
persons that have a "functional currency" other than the U.S. dollar). In
addition, the discussion does not address any aspect of state, local or foreign
taxation and assumes that purchasers of the notes will hold them as "capital
assets" (generally, property held for investment) within the meaning of Section
1221 of the Code.
<PAGE>
For purposes of the discussion, a "U.S. Holder" is:
o a beneficial holder of a note that is an individual who is a citizen
or resident of the U.S.;
o a corporation, partnership or other entity created under the laws of
the U.S. or any political subdivision thereof; or
o an estate that is subject to U.S. federal income taxation without
regard to the source of income or a trust whose administration is
subject to the primary supervision of a U.S. court and which has one
or more U.S. persons who have authority to control substantial
decisions of the trust.
A "Non-U.S. Holder" is any holder who is not a U.S. Holder.
Prospective holders of the notes are urged to consult their tax advisors
concerning the U.S. federal income tax consequences of acquiring, owning and
disposing of the notes as well as the application of state, local and foreign
income and other tax laws.
S Corporation Status
NWS has elected to be treated as an S corporation under the Code and for
each of its subsidiaries to be qualified subchapter S subsidiaries under the
Code or other similarly taxed pass-through entities. Accordingly, the
shareholders of NWS are directly subject to tax on their respective
proportionate shares of the taxable income of NWS and its subsidiaries for
federal and certain state income tax purposes.
While NWS believes that it qualifies and will continue to qualify as an S
corporation and that its subsidiaries have qualified and will continue to
qualify as S corporations, qualified subchapter S subsidiaries or other
pass-through entities for federal and state income tax purposes ("Pass-Through
Status"), if the Pass-Through Status of NWS or any of its subsidiaries were
successfully challenged, such entity could be required to pay federal and
certain state income taxes (plus interest and possibly penalties) on its past
and future taxable income. While the shareholders have agreed to indemnify NWS
if the Pass-Through Status of NWS or any of its subsidiaries is successfully
challenged, there can be no assurance that the resultant payment of taxes,
interest and penalties will not have a material adverse effect on NWS' financial
condition, results of operations or debt service capabilities.
Continuation of NWS' Status as an S Corporation
The consummation of the initial offering was conditioned, among other
things, upon the receipt by NWS of an opinion of Ice Miller Donadio & Ryan,
counsel to NWS in connection with the initial offering, that the issuance of the
old notes would not cause the termination of the Pass-Through Status of NWS or
any of its subsidiaries. Investors should be aware, however, that opinions of
counsel are not binding upon the Internal Revenue Service or any court, and
there can be no assurance that the Internal Revenue Service or a court will
agree with the conclusion expressed in the opinion referred to above. The
following discussion assumes that the notes will be treated as indebtedness for
all federal income tax purposes.
<PAGE>
U.S. Holders
Exchange Offer
The exchange of an old note for an exchange note pursuant to the exchange
offer will not constitute a "significant modification" of the old note for
United States federal income tax purposes and, accordingly, the exchange note
received will be treated as a continuation of the old note in the hand of such
holder. As a result, there will be no United States federal income tax
consequences to a United States Holder who exchanges an old note for an exchange
note pursuant to the exchange offer, and any such holder will have the same
adjusted tax basis and holding period in the exchange note as it had in the old
note immediately before the exchange.
Payments of Interest
Payments of interest on a note will be taxable to a U.S. Holder as ordinary
interest income at the time that such payments are accrued or are received (in
accordance with the U.S. Holder's method of tax accounting).
If NWS is required to pay liquidated damages (as defined herein under
"Description of the Exchange Notes--Registration Rights; Liquidated Damages"),
such payment will be taxable to a U.S. Holder as ordinary income in accordance
with such U.S. Holder's method of accounting for tax purposes. NWS believes that
the likelihood that it would be required to pay liquidated damages is remote.
Accordingly, NWS does not intend to treat the possibility of paying liquidated
damages as affecting the yield to maturity of the notes.
Redemption, Sale or Other Disposition of Exchange Notes
If a note is redeemed, sold or otherwise disposed of, a U.S. Holder
generally will recognize gain or loss equal to the excess of the amount realized
on the sale or other disposition of such note (to the extent such amount does
not represent accrued but unpaid interest) over such U.S. Holder's tax basis in
the note. Such gain or loss will be capital gain or loss, assuming that the U.S.
Holder has held the note as a capital asset and none of the gain is market
discount. Capital gain or loss will be long-term capital gain if the U.S. Holder
has held the note for more than 12 months at the time of disposition.
A "market discount note" is a note that is acquired other than at the
original issuance, where the tax basis of the note to the holder is less than
the stated redemption price of the note at maturity. The excess of such
redemption price over the tax basis is the "market discount." In general, upon
the disposition of a market discount note, gain shall be treated as ordinary
income up to the amount of market discount attributable to the holder of the
note. Holders who acquire a note after original issuance at a discount should
consult their tax advisors concerning the recognition of the market discount.
Information Reporting and Backup Withholding
A noncorporate U.S. Holder may be subject to information reporting and to
backup withholding at a rate of 31% with respect to payments of principal and
interest made on a note, or on proceeds of disposition of a note before
maturity, unless such U.S. Holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the information reporting and backup withholding rules.
<PAGE>
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against the U.S. Holder's U.S. federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
Non-U.S. Holders
Payments of Interest
No withholding of U.S. federal income tax will be required with respect to
payments by NWS of interest on a note to a Non-U.S. Holder of such note,
provided that:
o the Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of NWS entitled to
vote, is not a controlled foreign corporation that is related to NWS
through stock ownership, a foreign tax-exempt organization or foreign
private foundation for U.S. federal income tax purposes, and
o the requirements of Sections 871(h) or 881(c) of the Code, as set
forth below, are satisfied.
Notwithstanding the above, a Non-U.S. Holder that is engaged in the conduct
of a U.S. trade or business will be subject to:
(1) U.S. federal income tax on interest that is effectively connected
with such trade or business and
(2) if the Non-U.S. Holder is a corporation, a U.S. branch profits
tax equal to 30% of its "effectively connected earnings and
profits" (as adjusted) for the taxable year, unless it qualifies
for an exemption from such tax or a lower tax rate under an
applicable treaty.
Redemption, Sale or Other Disposition of Exchange Notes
A Non-U.S. Holder generally will not be subject to tax on any capital gains
recognized upon the redemption, sale, or other disposition of a note unless (1)
such gain is effectively connected with the conduct of a U.S. trade or business
by the Non-U.S. Holder or (2) in the case of a Non-U.S. Holder who is a
nonresident alien individual, such holder is present in the U.S. for 183 or more
days in the taxable year and certain other requirements are met. In the case of
(1) above, the Non-U.S. Holder will be subject to tax on its Net Income at
graduated rates. In the case of (2) above, the non-U.S. Holder will be subject
to tax at a rate of 30% on any such capital gains to the extent that such
capital gains exceed his U.S. source capital losses.
Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the U.S. will not be subject to U.S. federal estate tax as a result
of such individual's death, provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of NWS entitled to vote and that the interest accrued on such notes was
not effectively connected with a U.S. trade or business.
<PAGE>
Owner Statement Requirement
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business and that holds a note on behalf of such owner file a statement with
NWS or its agent to the effect that the beneficial owner is not a U.S. Person in
order to avoid withholding of U.S. federal income tax. Under current
regulations, this requirement will be satisfied if NWS or its agent receives (1)
a statement (an "Owner's Statement") from the beneficial owner of a note in
which such owner certifies, under penalties of perjury, that such owner is not a
U.S. Person and provides such owner's name and address, or (2) a statement from
the financial institution holding the note on behalf of the beneficial owner in
which such financial institution certifies, under penalties of perjury, that it
has received the Owner's Statement together with a copy of the Owner's
Statement. The beneficial owner must inform NWS or its agent (or, in the case of
a statement described in clause (2) of the immediately preceding sentence, the
financial institution) within 30 days of any change in information on the
Owner's Statement.
Backup Withholding and Information Reporting
Under current U.S. federal income tax law, a 31% backup withholding tax is
applied to certain payments made to, and to the proceeds of sales before
maturity by, certain U.S. Persons if such Persons (1) fail to furnish their
taxpayer identification numbers which, for an individual, would be his or her
social security number or (2) in certain circumstances, fail to certify, under
penalties of perjury, that they have both furnished a correct taxpayer
identification number and not been notified by the Internal Revenue Service that
they are subject to backup withholding for failure to report interest payments.
Under current regulations, this backup withholding will not apply to payments
made by NWS or a paying agent on a note if the Owner's Statement is received;
provided in each case that NWS or the paying agent, as the case may be, does not
have actual knowledge that the payee is a U.S. Person.
Under current regulations, payments of the proceeds of the sale of a note
to or through a foreign office of a "broker" will not be subject to backup
withholding but will be subject to information reporting if the broker is a U.S.
Person, a controlled foreign corporation for U.S. federal income tax purposes,
or a foreign Person 50% or more of whose gross income is from a U.S. trade or
business for a specified three-year period unless the broker has in its records
documentary evidence that the holder of a note is not a U.S. Person and certain
conditions are met or the holder of a note otherwise establishes an exemption.
Payment of the proceeds of a sale to or through the U.S. office or a broker is
subject to backup withholding and information reporting unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
On October 7, 1997, the Treasury Department released new Treasury
Regulations governing the backup withholding and information reporting
requirements described above. The new regulations would not generally alter the
treatment of Non-U.S. Holders who furnish an Owner's Statement to the payor. The
new regulations may change certain procedures applicable to the foreign office
of a U.S. broker or foreign brokers with certain types of relationships to the
U.S. Based on a recent Internal Revenue Service notice, the new regulations
generally are effective for payments made after December 31, 1999. Prospective
investors should consult their tax advisors regarding the effect, if any, of
such new Treasury Regulations on an investment in the notes.
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties in similar transactions, NWS believes that the exchange notes
issued in the exchange offer in exchange for the old notes may be offered for
resale, resold and otherwise transferred by holders without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the exchange notes are acquired in the ordinary course of such holders'
business and the holders are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to participate in, a
distribution of exchange notes. This position does not apply to any holder that
is (1) an "affiliate" of NWS within the meaning of Rule 406 under the Securities
Act, (2) a broker-dealer who acquired old notes directly from NWS or (3)
broker-dealers who acquired old notes as a result of market-making or other
trading activities. Any broker-dealer ("Participating Broker-Dealers") receiving
exchange notes in the exchange offer are subject to a prospectus delivery
requirement with respect to resales of the exchange notes. To date, the SEC has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the exchange offer
(other than a resale of an unsold allotment from the sale of the old notes to
the initial purchasers) with this prospectus.
Each broker-dealer receiving exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in any resale
of the exchange notes. Participating Broker-Dealers may use this prospectus in
reselling exchange notes, if the old notes were acquired for their own accounts
as a result of market-making activities or other trading activities. NWS has
agreed that a Participating Broker-Dealer may use this prospectus in reselling
exchange notes for a period ending one year after the expiration date or, if
earlier, when a Participating Broker-Dealer has disposed of all exchange notes.
A Participating Broker-Dealer intending to use this prospectus in the resale of
exchange notes must notify NWS on or before the expiration date that it is a
Participating Broker-Dealer. This notice may be given in the space provided for
in the letter of transmittal or may be delivered to the exchange agent. NWS has
agreed that, for a period of one year after the expiration date, it will make
this prospectus, and any amendment or supplement to this prospectus, available
to any broker-dealer that requests these documents in the letter of transmittal.
See "The Exchange Offer -- Resales of Exchange Notes" for more information.
NWS will not receive any cash proceeds from the exchange notes.
Broker-dealers acquiring exchange notes for their own accounts may sell the
notes in one or more transactions in the over-the-counter market, in negotiated
transactions, through writing options on the exchange notes or a combination of
such methods. Any resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of exchange notes.
Any broker-dealer reselling exchange notes that it received in the exchange
offer and any broker or dealer that participates in a distribution of exchange
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of exchange notes and any commissions or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
NWS by Ice Miller Donadio & Ryan, Indianapolis, Indiana.
<PAGE>
CHANGE IN INDEPENDENT AUDITORS
In 1998, NWS reassessed its requirements for auditing services. NWS advised
Katz, Sapper & Miller, its independent auditors at that time, that it would
interview national accounting firms prior to retaining an auditor for its March
31, 1998 audit. Following such interviews, in March, 1998 NWS retained Ernst &
Young LLP as its independent auditors. Katz, Sapper & Miller audited the
consolidated financial statements of NWS for the years ended March 31, 1994
through March 31, 1997. During such years, the auditors' reports on such
financial statements contained no adverse opinions or disclaimers of opinion and
there were no qualifications or modifications of the opinions due to
uncertainty, audit scope, or accounting principles. During such period, there
were no disagreements with NWS' independent auditors on any matters of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure.
EXPERTS
The consolidated financial statements of National Wine & Spirits, Inc. at
March 31, 1998, and for the year then ended, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, and at March 31, 1997, and for each of the two years in the period
ended March 31, 1997, by Katz, Sapper & Miller, LLP, independent auditors as set
forth in their respective reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
NWS has filed with the SEC a registration statement on Form S-4 for the
registration of the exchange notes (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement"). This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits to the registration statement.
NWS is not currently subject to the informational requirements of the
Exchange Act. Upon completion of the exchange offer, NWS will be subject to the
information requirements of the Exchange Act and will be required to file
periodic reports and other information with the SEC. The registration statement,
such reports and other information can be inspected and copied at the public
reference facilities of the SEC located in Washington D.C, Chicago, Illinois and
New York, New York. Copies of such material, including copies of all or any
portion of the registration statement, can be obtained from these public
reference facilities at prescribed rates. These materials may also be accessed
electronically by means of the SEC's website (http://www.sec.gov).
Pursuant to the Indenture, NWS has agreed that, beginning with the fiscal
period ending December 31, 1998 and for as long as any notes remain outstanding,
it will furnish to the holders of the notes quarterly and annual financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the SEC, if NWS were subject to Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only, a
report thereon by NWS' certified independent public accountants as such would be
required in such reports to the SEC, and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required. Such requirements may be satisfied
through the filing and provision of such documents and reports which would
otherwise be required pursuant to Section 13 in respect of NWS.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Page
National Wine & Spirits, Inc.
Reports of Independent Auditors..................................................................................... F-2
Consolidated Balance Sheets as of March 31, 1997 and 1998 and as of December 31, 1998 (unaudited)................... F-4
Consolidated Statements of Income for the years ended March 31, 1996, 1997 and 1998 and for the nine-month periods
ended December 31, 1997 and 1998 (unaudited)..................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1996, 1997 and 1998 and for the
nine-month period ended December 31, 1998 (unaudited)............................................................ F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1997 and 1998 and for the nine-month
periods ended December 31, 1997 and 1998 (unaudited)............................................................. F-7
Notes to Consolidated Financial Statements.......................................................................... F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated balance sheet of National Wine &
Spirits, Inc. as of March 31, 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of NWS' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Wine &
Spirits, Inc. at March 31, 1998, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Indianapolis, Indiana
July 17, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Stockholders
National Wine & Spirits, Inc.
We have audited the accompanying consolidated balance sheet of National Wine &
Spirits, Inc. as of March 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of NWS'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Wine &
Spirits, Inc. at March 31, 1997, and the consolidated results of its operations
and its cash flows for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
June 18, 1997 (except for
Note 4, as to which the
date is September 2, 1997)
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED BALANCE SHEETS
<S> <C> <C> <C>
March 31, December 31,
------------------------------- ---------------
1997 1998 1998
ASSETS (Unaudited)
Current assets:
Cash............................................................... $ 3,395,000 $ 1,370,000 $ 3,217,000
Accounts receivable, less allowance for doubtful accounts of
$926,000 in 1997, $900,000 in 1998 and $1,370,000 at 34,740,000 31,313,000 56,361,000
December 31, 1998...............................................
Inventories........................................................ 72,078,000 76,734,000 74,563,000
Prepaid expenses and other......................................... 4,123,000 4,933,000 3,759,000
------------- ------------ ------------
Total current assets.................................................. 114,336,000 114,350,000 137,900,000
Property and equipment, net........................................... 40,670,000 48,565,000 49,948,000
Other assets:
Notes receivable................................................... 55,000 1,772,000 1,653,000
Cash surrender value of life insurance, net of loans............... 904,000 1,396,000 1,631,000
Investment in Kentucky Distributor................................. -- -- 6,400,000
Intangible assets, net of amortization............................. 3,068,000 2,487,000 3,760,000
Deferred pension costs............................................. 489,000 362,000 451,000
Deposits and other................................................. 844,000 170,000 393,000
------------- ------------ ------------
Total other assets.................................................... 5,360,000 6,187,000 14,288,000
------------- ------------ ------------
Total assets.......................................................... $ 160,366,000 $169,102,000 $202,136,000
============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 31,239,000 $ 33,721,000 $ 39,543,000
Accrued payroll and payroll taxes.................................. 4,838,000 5,034,000 5,354,000
Excise taxes payable............................................... 7,981,000 5,883,000 4,872,000
Other accrued expenses and taxes................................... 5,366,000 7,086,000 5,824,000
Notes payable to stockholders...................................... 5,450,000 6,135,000 --
Current maturities of long-term debt............................... 5,163,000 6,200,000 100,224,000
Total current liabilities............................................. 60,037,000 64,059,000 155,817,000
Deferred pension liability............................................ 927,000 362,000 479,000
Long-term debt........................................................ 88,932,000 90,099,000 20,721,000
Total liabilities..................................................... 149,896,000 154,520,000 177,017,000
Stockholders' equity:
Voting common stock, $.01 par value................................ 1,000 1,000 1,000
Nonvoting common stock $.01 par value.............................. 53,000 53,000 53,000
Additional paid-in capital......................................... 23,202,000 23,202,000 25,009,000
Retained earnings (deficit)........................................ (2,357,000) 1,929,000 5,708,000
Unrecognized net pension loss...................................... (438,000) -- --
20,461,000 25,185,000 30,771,000
Notes receivable from stockholders................................. (9,991,000) (10,603,000) (5,652,000)
Total stockholders' equity............................................ 10,470,000 14,582,000 25,119,000
Total liabilities and stockholders' equity............................ $ 160,366,000 $169,102,000 $ 202,136,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<S> <C> <C> <C> <C> <C>
Nine months ended
Years Ended March 31, December 31,
1996 1997 1998 1997 1998
(Unaudited) (Unaudited)
Net product sales........................... $ 443,257,000 $ 488,071,000 $ 505,141,000 $ 401,927,000 $ 423,367,000
Distribution fees........................... -- 2,729,000 16,270,000 13,121,000 14,010,000
Total revenue............................ 443,257,000 490,800,000 521,411,000 415,048,000 437,377,000
Cost of products sold....................... 364,792,000 402,072,000 411,734,000 329,566,000 346,516,000
Gross profit............................. 78,465,000 88,728,000 109,677,000 85,482,000 90,861,000
Selling, general and administrative expenses:
Warehouse and delivery................ 19,777,000 23,489,000 33,428,000 25,864,000 27,178,000
Selling............................... 26,213,000 30,906,000 32,328,000 24,483,000 29,421,000
Administrative........................ 22,935,000 24,747,000 30,042,000 21,534,000 22,091,000
Start-up costs........................ -- 1,157,000 3,320,000 3,163,000 --
68,925,000 80,299,000 99,118,000 75,044,000 78,690,000
Income from operations...................... 9,540,000 8,429,000 10,559,000 10,438,000 12,171,000
Interest expense:
Related parties.......................... (123,000) (338,000) (507,000) (371,000) (363,000)
Third parties............................ (7,812,000) (8,148,000) (9,165,000) (6,954,000) (7,655,000)
(7,935,000) (8,486,000) (9,672,000) (7,325,000) (8,018,000)
Other income:
Equity earnings in Kentucky distributor.. -- -- -- -- 400,000
Gain on sale of assets................... 172,000 41,000 4,139,000 4,225,000 97,000
Interest income.......................... 999,000 1,003,000 1,246,000 746,000 749,000
Rental and other income.................. 248,000 616,000 839,000 192,000 187,000
Total other income.......................... 1,419,000 1,660,000 6,224,000 5,163,000 1,433,000
Net income.................................. $ 3,024,000 $ 1,603,000 $ $7,111,000 $ 8,276,000 $ 5,586,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
$0.01 Par Value Accumulated Notes
Common Stock Additional Retained Other Receivable
------------------- Paid-in Earnings Comprehensive from
Voting Nonvoting Capital (Deficit) Income (Loss) Stockholders
------------------- ----------- ---------- ------------- -------------
Balance at April 1, 1995............ $ 1,000 $ 4,000 $17,658,000 $ 6,973,000 $ (508,000) $ (8,766,000)
Comprehensive income:
Net income.................... -- -- -- 3,024,000 -- --
Decrease in unrecognized net
pension loss................ -- -- -- -- 292,000 --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (691,000)
Distributions to stockholders.... (7,835,000) -- --
Capital contributions............ -- -- 4,056,000 -- -- --
Issuance of 21,347 shares of NWS,
Inc. voting common stock...... -- -- -- -- -- --
NWS, Inc. nonvoting common stock
dividend declared............. -- 45,000 -- (45,000) -- --
Balance at March 31, 1996........... 1,000 49,000 21,714,000 2,117,000 (216,000) (9,457,000)
Comprehensive income:
Net income.................... -- -- -- 1,603,000 -- --
Increase in unrecognized net
pension loss................ -- -- -- -- (222,000) --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (534,000)
Distributions to stockholders.... -- -- -- (6,077,000) -- --
Capital contributions............ -- -- 1,488,000 -- -- --
Issuance of 408,554 shares of NWS,
Inc. nonvoting common stock... -- 4,000 -- -- -- --
Balance at March 31, 1997........... 1,000 53,000 23,202,000 (2,357,000) (438,000) (9,991,000)
Comprehensive income:
Net income.................... -- -- -- 7,111,000 -- --
Decrease in unrecognized net
pension loss................ -- -- -- -- 438,000 --
Total comprehensive income....... -- -- -- -- -- --
Increase in notes receivable from
stockholders.................. -- -- -- -- -- (612,000)
Distributions to stockholders.... -- -- -- (2,825,000) -- --
Balance at March 31, 1998........... 1,000 53,000 23,202,000 1,929,000 -- (10,603,000)
Unaudited:
Net income.................... -- -- -- 5,586,000 -- --
Decrease in notes receivable
from stockholders........... -- -- -- -- -- 4,951,000
Conversion of notes payable to
stockholders to equity...... -- -- 1,807,000 -- -- --
Distributions to stockholders. -- -- -- (1,807,000) -- --
Balance at December 31, 1998 $ 1,000 $ 53,000 $25,009,000 $ 5,708,000 $ -- $ (5,652,000)
(Unaudited)......................
<C>
Total
Stockholders'
Equity
$15,362,000
3,024,000
292,000
3,316,000
(691,000)
(7,835,000)
4,056,000
--
--
14,208,000
1,603,000
(222,000)
1,381,000
(534,000)
(6,077,000)
1,488,000
4,000
10,470,000
7,111,000
438,000
7,549,000
(612,000)
(2,825,000)
14,582,000
5,586,000
4,951,000
1,807,000
(1,807,000)
$25,119,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WINE & SPIRITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C> <C>
Nine months ended
Years Ended March 31, December 31,
1996 1997 1998 1997 1998
(Unaudited) (Unaudited)
Operating activities:
Net income................................... $ 3,024,000 $ 1,603,000 $ 7,111,000 $ 8,276,000 $ 5,586,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation of property and equipment.. 3,997,000 4,613,000 5,872,000 4,160,000 5,116,000
Gain on sale of assets.................. (172,000) (41,000) (4,139,000) (4,225,000) (97,000)
Amortization of intangible assets....... 905,000 1,144,000 1,243,000 892,000 958,000
Equity earnings in Kentucky distributor. - - - - (400,000)
Changes in operating assets and
liabilities:
Accounts receivable.................. (4,422,000) (568,000) 3,427,000 (20,707,000) (25,048,000)
Inventories.......................... (15,132,000) (1,191,000) (4,656,000) 2,038,000 2,171,000
Prepaid expenses and other........... (447,000) (1,692,000) (810,000) (8,000) 1,174,000
Accounts payable..................... 4,413,000 864,000 2,482,000 (4,888,000) 5,822,000
Accrued expenses and taxes........... 1,107,000 2,207,000 (747,000) (469,000) (1,925,000)
-------------- -------------- ------------- -------------- ------------
Net cash provided (used) by operating activities (6,727,000) 6,939,000 9,783,000 (14,931,000) (6,643,000)
Investing activities:
Purchase of property and equipment........... (3,609,000) (10,447,000) (13,952,000) (12,069,000) (6,518,000)
Proceeds from sales of property and equipment 128,000 88,000 253,000 74,000 116,000
Investment in Kentucky distributor........... - - - - (6,000,000)
Payment for supplier's net assets............ - (181,000) - - -
Intangible assets............................ (1,827,000) (947,000) (730,000) (254,000) (2,231,000)
Proceeds from sale of intangibles............ - - 3,000,000 3,000,000 -
Deposits and other........................... (52,000) (58,000) 1,766,000 (83,000) (223,000)
(Increase) decrease in cash surrender value of
insurance, net............................. (263,000) (16,000) (492,000) 27,000 (235,000)
Increase in receivable from affiliate........ (143,000) - - - -
Decrease (increase) in notes receivable 689,000 1,590,000 - (1,698,000) 119,000
from supplier................................
Collections on notes receivable.............. - 34,000 247,000 - -
-------------- -------------- ------------- -------------- ------------
Net cash used by investing activities........... (5,077,000) (9,937,000) (9,908,000) (11,003,000) (14,972,000)
Financing activities:
Net proceeds (borrowings) on line of credit.. 15,921,000 1,414,000 (3,078,000) 19,188,000 20,680,000
Proceeds of long-term debt................... 45,000 13,811,000 11,257,000 12,504,000 8,800,000
Principal payments on long-term debt......... (2,038,000) (7,302,000) (5,975,000) (4,983,000) (4,834,000)
Proceeds of borrowings from stockholder...... 2,463,000 2,919,000 685,000 250,000 -
Repayments of borrowings from stockholders... (657,000) - - - -
Issuance of NWS, Inc. common stock........... - 4,000 - - -
Additional paid-in capital................... 4,056,000 1,488,000 - - -
Notes receivable from stockholders and others (859,000) (646,000) (1,964,000) (376,000) 623,000
Distributions to stockholders................ (7,142,000) (6,770,000) (2,825,000) (1,120,000) (1,807,000)
-------------- -------------- ------------- -------------- ------------
Net cash provided (used) by financing activities 11,789,000 4,918,000 (1,900,000) 24,463,000 23,462,000
-------------- -------------- ------------- -------------- ------------
Net increase (decrease) in cash................. (15,000) 1,920,000 (2,025,000) (471,000) 1,847,000
Cash, beginning of period....................... 1,490,000 1,475,000 3,395,000 3,395,000 1,370,000
-------------- -------------- ------------- -------------- ------------
Cash, end of period............................. $ 1,475,000 $ 3,395,000 $ 1,370,000 $ 2,924,000 $ 3,217,000
============== ============== ============= ============== ============
See accompanying notes.
</TABLE>
<PAGE>
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business and Principles of Consolidation
In December 1998, a reorganization took place which created a new holding
company, National Wine & Spirits, Inc. (NWS), NWS. All of the shares of capital
stock in National Wine & Spirits Corporation (NWSC) and NWS, Inc. (NWSI) were
contributed in exchange for shares of NWS. In addition, NWSC subsequently
distributed all of its shares in NWS Michigan, Inc. (NWSM) to NWS. Finally, a
new limited liability company subsidiary of NWSI was created into which
substantially all of the Illinois operations were transferred (NWS-LLC). The
reorganization was accounted for as a combination of entities under common
control, similar to a pooling-of-interests. As such, the financial statements
have been presented to reflect this accounting treatment. The consolidated
financial statements include the accounts of NWS, NWSC, NWSI and NWSM. All
significant intercompany accounts and transactions have been eliminated from the
consolidated financial statements. Substantially all revenues result from the
sale of liquor, beer and wine.
Based in Indianapolis, NWSC is a wholesale distributor of liquor and wines
throughout Indiana. Based in Chicago, NWSI is a wholesale distributor of liquor
and wines throughout Illinois. NWSM was organized October 18, 1996, as a
wholesale distributor of liquor throughout Michigan, and commenced operations in
February 1997. NWSC also operates a bottled water division and a division for
distribution of cigars and accessories. NWS performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
Credit losses have been within management's expectations.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of NWS, all adjustments (consisting of only normal recurring
accruals) considered necessary to present fairly the financial position as of
December 31, 1998 and the statements of income, stockholders' equity and cash
flows for the nine-month periods ended December 31, 1997 and 1998 have been
included.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
NATIONAL WINE & SPIRITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
NWS' cash, accounts receivable, short-term notes receivable, accounts
payable, short-term notes payable and certain other accrued liabilities are all
short-term in nature and the carrying amount approximates fair value. Long-term
notes receivable and payable have primarily variable interest rates, thus their
carrying amounts approximate fair value.
Inventories
Substantially all inventories are stated at the lower of cost, determined
by the last-in, first-out (LIFO) method, or market.
Bulk whiskey represents NWS' interest in certain whiskey inventories which
are being aged by the supplying distiller. This interest serves as collateral
for related notes payable to the distiller. In accordance with industry
practices, storage and handling costs incurred during the aging process are
included as a component of the cost of bulk whiskey. Bulk whiskey represented
approximately $6,200,000 and $4,200,000 of the total inventory balance at March
31, 1997 and 1998, respectively. The bulk whiskey was 100% financed through
notes payable and the Company's line of credit.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising
expense was $2,157,000, $2,712,000 and $2,087,000 for 1996, 1997 and 1998,
respectively.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated using
primarily the straight-line method over their expected useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Land improvements........................ 15 - 40 years
Buildings and improvements............... 10 - 40 years
Furniture and equipment.................. 5 - 7 years
Warehouse equipment...................... 7 years
Automobiles and trucks................... 5 years
</TABLE>
Intangible Assets
Intangible assets include the cost of certain assets obtained in the
acquisition of various distributors, costs incurred in obtaining financing and
amounts paid to acquire supplier distribution rights. These costs are being
amortized by the straight-line method over lives of the agreements or their
estimated useful lives which range from two to ten years. Accumulated
amortization related to these assets was $2,068,000 and $3,311,000 at March 31,
1997 and 1998, respectively. 1.
<PAGE>
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Long-lived Assets
The carrying value of the long-lived assets is periodically reviewed by
management. If this review indicates that the carrying value may be impaired
then the impaired amount will be written off.
Income Taxes
There is no provision for federal or state income taxes reflected in the
financial statements because the stockholders have consented to NWS' elections
to be taxed as S corporations under the applicable provisions of the Internal
Revenue Code. NWS' income is taxable directly to its stockholders.
Comprehensive Income
During the year ended March 31, 1998, NWS adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting of Comprehensive
Income, which requires entities to report comprehensive income in their basic
financial statements. Comprehensive income refers to the change in an entity's
equity during a period resulting from all transactions and events other than
capital contributed by and distributions to the entity's owners. For NWS,
comprehensive income is equal to net income plus the change in unrecognized net
pension gain or loss. The Company has elected to report comprehensive income in
the consolidated statements of stockholders' equity. NWS' prior years' financial
statements have been reclassified for comparative reporting purposes, however,
there was no change in the net income previously reported for the years ended
March 31, 1996 and 1997.
Revenue Recognition
NWSC and NWSI purchase inventory items for sale to customers and are liable
for payment to the suppliers, as well as collecting payment from customers. NWSM
receives a fixed fee per case of liquor distributed from the State of Michigan
(distribution fees) which is also responsible for payments to suppliers. All
Michigan shipments are cash on delivery and are deposited directly to the State
of Michigan.
Net sales and distribution fees are recognized at the time product is
shipped.
Start-up Costs
Start-up costs to commence operations and to reach normal capacity are
expensed as incurred, in accordance with Statement of Position 98-5, Reporting
on the Costs of Start-up Activities.
Recently Issued Accounting Pronouncements
In July 1997, the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information. Under SFAS 131, the Company will report financial and descriptive
information about its operating segments. SFAS 131 is effective for the Company
beginning with the March 31, 1999 annual financial statements. While the Company
has not yet finalized its evaluation of the impact of adoption of SFAS 131, it
presently believes that it will be reporting multiple operating segments.
<PAGE>
1. Nature of Business and Summary of Significant Accounting Policies (continued)
Reclassification
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
2. Inventories
Inventories at March 31 are comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Inventories at FIFO (approximate replacement cost)..... $78,508,000 $83,734,000
Less: LIFO reserve..................................... 6,430,000 7,000,000
----------- -----------
$72,078,000 $76,734,000
=========== ===========
</TABLE>
If the Company had used the FIFO inventory method, net income would have
been $545,000, $1,455,000 and $570,000 greater for 1996, 1997 and 1998,
respectively.
3. Property and Equipment
Property and equipment at March 31 is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Land and improvements.................................. $ 1,348,000 $ 1,421,000
Buildings and improvements............................. 24,674,000 27,233,000
Furniture and equipment................................ 12,391,000 14,307,000
Warehouse equipment.................................... 12,768,000 23,580,000
Automobiles and trucks................................. 7,542,000 8,069,000
------------ ------------
58,723,000 74,610,000
Less: Accumulated depreciation......................... 21,484,000 26,045,000
------------ ------------
37,239,000 48,565,000
Property and equipment not yet placed in service....... 3,431,000 --
------------ ------------
$ 40,670,000 $ 48,565,000
============ ============
</TABLE>
<PAGE>
4. Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
---------------
Mortgage Notes Payable:
National Wine & Spirits Corporation
City of Indianapolis-First Mortgage Note, Series 1983-payable monthly,
with interest computed at 80% of the prime lending rate of NBD Bank,
N.A., through April 2003. Secured by certain property
in Indianapolis.................................................... $ 471,000 $ 372,000 $ 296,000
Bank-payable in monthly installments, plus interest at 1% above the
Bank's prime lending rate, through October 1, 2003. Secured by
certain property................................................... 183,000 162,000 145,000
NWS, Inc.
Bank loans secured by substantially all of the Company's assets:
Mortgage note payable in monthly installments of $63,000, plus
interest at the Bank's prime lending rate plus 2%, through July 1,
2000, when the unpaid principal balance is due..........
2,503,000 1,752,000 1,189,0000
Mortgage note payable in monthly installments of $14,000, plus interest
at the Bank's prime lending rate plus 1%, through March 31, 2002,
when the unpaid principal balance is due........
2,492,000 2,339,000 2,148,000
----------- ----------- ---------------
5,649,000 4,625,000 3,778,000
Notes Payable:
National Wine & Spirits Corporation
Bank revolving line of credit, which bears interest, as defined, to
maturity on September 30, 1999. Secured by substantially all
assets. (A)........................................................ 24,218,000 23,193,000 29,695,000
Term loan for Kentucky investment, repaid in January 1999........... - - 7,500,000
Heaven Hill Distillers, Inc. notes payable. Repaid in March 1998........ 348,000 - -
Term loans payable in monthly installments of $51,000, including
interest at 9.53%, through May 1999. The notes are secured by
certain assets and are guaranteed by NWSI.......................... 1,170,000 651,000 180,000
Term loan payable in monthly installments of $30,000, including
interest at 7.73%, through December 29, 2002. Secured by certain
assets............................................................. - 1,462,000 1,269,000
NWS Michigan, Inc.
Term loan payable in monthly installments of $67,000, plus interest at the
Bank's LIBOR rate plus 2.75%, through September 5, 2002.
Secured by certain assets.......................................... - 3,600,000 3,000,000
<PAGE>
4. Debt (continued)
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
---------------
Term loan payable in monthly installments of $62,000, plus interest at the
Bank's LIBOR rate plus 3.0%, through November 14, 2002.
Secured by certain assets.......................................... $ - $ 4,936,000 $ 4,381,000
NWS, Inc.
Bank revolving line of credit, which bears interest, as defined, to
maturity on September 30, 1999. Secured by substantially all
assets. (B)........................................................ 45,571,000 43,518,000 57,695,000
Term loan payable. Repaid July 1997. ............................... 83,000 - -
Term loan with interest only payable quarterly at the Bank's LIBOR rate
plus .25% until maturity on June 16, 2001. The note is
subordinate to the senior bank debt................................ 6,000,000 6,000,000 6,000,000
Subordinated promissory note payable to a former employee on
June 30, 1999. Interest only is payable quarterly at the prime
rate plus 1'2%. The note is subordinate to senior bank debt....... 750,000 350,000 350,000
Bank home equity line of credit with interest only payable monthly
at the Bank's prime lending rate plus 1%, through November 1, 1999, when
the unpaid principal balance is due The loan is secured by a condominium
and is guaranteed by the majority stockholder of
NWS, Inc........................................................... 500,000 500,000 500,000
Promissory note payable to the State of Illinois in monthly
installments of $9,000, including interest at 6.5%, through
February 14, 2000, when a balloon payment of $501,000 is due. The
note is secured by substantially all assets and is guaranteed by
the majority stockholder of NWS, Inc............................... 631,000 568,000 511,000
Term loan payable in monthly installments of $133,000, plus
interest at the one month LIBOR rate plus 3.25%, through
March 2001. The note is secured by certain assets and is
guaranteed by NWSC................................................. 6,533,000 4,933,000 3,733,000
Term loans payable in monthly installments of $60,000, including
interest at 9.43%, through April 1999. The notes are secured by
certain assets and are guaranteed by NWSC.......................... 1,354,000 737,000 234,000
Term loan payable in annual installments of $300,000 in 1999 and
$500,000 in 2000 and 2001, including interest...................... - - 1,300,000
Term loan payable in monthly installments of $12,000, including
interest at 9.51%, through July 2000. The note is secured by
certain assets and is guaranteed by NWSC........................... - 304,000 213,000
----------- ----------- ---------------
87,158,000 90,752,000 116,561,000
----------- ----------- ---------------
<PAGE>
4. Debt (continued)
March 31, December 31,
-------------------------- --------------
1997 1998 1998
----------- ----------- ---------------
(Unaudited)
Non-competition agreement payable to a former stockholder in annual
installments of $300,000, beginning April 1, 1995 through April 1, 2000.
The obligation is secured by proceeds of life insurance from
NWSC's majority stockholder........................................ $ 1,200,000 $ 900,000 $ 600,000
Other 88,000 22,000 6,000
----------- ----------- ---------------
94,095,000 96,299,000 120,945,000
Less: Current maturities 5,163,000 6,200,000 100,224,000
----------- ----------- ---------------
$88,932,000 $90,099,000 $20,721,000
=========== =========== ===============
<FN>
- -----------
(A) On September 2, 1997, NWSC entered into a credit agreement, which was
amended March 31, 1998, that provides a revolving line of credit for
borrowings of up to $35 million through September 30, 1999. The portion of
the line of credit available to fund advances to NWSI and NWSM is $10
million (see Note 8). Line of credit borrowings are limited to eligible
accounts receivable plus eligible inventories. The credit agreement permits
NWSC to elect an interest rate based upon either the prime lending rate or
LIBOR. At March 31, 1998, $19,000,000 of the credit line borrowings bear
interest at 3.00% above the LIBOR rate (8.70% at March 31, 1998). The
remaining $4,193,000 of credit line borrowings bear interest at the prime
lending rate plus .50% (9.00% at March 31, 1998). Credit line borrowings
are secured by substantially all of NWSC's assets (including life insurance
on NWSC's principal stockholders) and are guaranteed by NWSI and NWSM.
NWSC's bank credit agreement requires NWSC to maintain certain financial
ratios and earnings, and restricts the amount of capital expenditures and
distributions NWSC may make to its stockholders.
(B) On September 2, 1997, NWSI entered into a credit agreement, which was
amended March 31, 1998, that provides a revolving line of credit for
borrowings of up to $60 million through September 30, 1999. Line of credit
borrowings are limited to eligible accounts receivable plus eligible
inventories. The credit agreement permits NWSI to elect an interest rate
based upon either the prime lending rate or LIBOR. At March 31, 1998,
$35,000,000 of the credit line borrowings bear interest at 3.00% above the
LIBOR rate (8.68% at March 31, 1998). The remaining $8,518,000 of credit
line borrowings bear interest at the prime lending rate plus .50% (9.00% at
March 31, 1998). Through October 27, 1999, the LIBOR rate is capped at a
maximum of 8.0% related to $25,000,000 of the credit line borrowings
subject to the LIBOR rate. Credit line borrowings are secured by
substantially all of NWSI's assets (including life insurance on NWSI's
principal stockholders) and are guaranteed by NWSC and NWSM. Additionally,
NWSI had a supplier letter of credit of which $560,000 was outstanding at
March 31, 1998. NWSI's bank credit agreement includes certain restrictions
and requires NWSI to maintain certain financial ratios and earnings. In
addition, the agreement restricts the amount of capital expenditures and
distributions NWSI may make to its stockholders.
</FN>
</TABLE>
<PAGE>
4. Debt (continued)
At March 31, 1998, the Company was in violation of certain loan covenants
in its credit agreements. These violations were waived by the lenders at March
31, 1998. Subsequent to March 31, 1998, the Company has been in compliance with
their covenants.
At March 31, 1998, the aggregate principal maturities for long-term
obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999................................ $ 6,200,000
2000................................ 72,759,000
2001................................ 4,797,000
2002................................ 8,133,000
2003................................ 3,541,000
Thereafter.......................... 869,000
-----------
$96,299,000
===========
</TABLE>
NWSI had subordinated notes payable to its two principal stockholders
aggregating $5,450,000 and $6,135,000 at March 31, 1997 and 1998, respectively.
These notes earn interest at the effective borrowing rate on NWSI's revolving
line of credit. See Note 11.
NWSI has a commitment from a lender for $30,000,000 of debt financing. At
March 31, 1998, there were no amounts outstanding on this commitment.
Cash paid for interest was $8,049,000, $8,445,000 and $9,643,000 for 1996,
1997 and 1998, respectively.
5. Common Stock
The Company has two authorized classes of capital stock: voting $.01 par
value common shares and nonvoting $.01 par value common shares. Both classes of
stock have the same relative rights, performance limitations and restrictions,
except that nonvoting shares are not entitled to vote on any matters submitted
to a vote of the stockholders, except as provided by law.
<PAGE>
5. Common Stock (continued)
Following are the details of common stock at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Shares
---------------------------------------------------------
Authorized Issued Outstanding Amount
Voting..................... 200,000 104,520 104,520 $ 1,000
Nonvoting.................. 20,000,000 5,226,001 5,226,001 $ 53,000
</TABLE>
6. Commitments
The Company leases office and warehouse space under noncancellable
operating leases ranging from two to ten years, some of which included renewal
and purchase options and escalation clauses, expiring on various dates through
2007. The Company also leases certain trucks and equipment pursuant to
noncancellable operating leases with terms ranging from three to seven years.
Future minimum rent payments as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.......................... $ 2,715,000
2000.......................... 2,712,000
2001.......................... 2,391,000
2002.......................... 2,138,000
2003.......................... 2,083,000
Thereafter.................... 5,462,000
------------
$ 17,501,000
============
</TABLE>
Rent expense was $1,218,000, $2,114,000 and $3,732,000 for 1996, 1997 and
1998, respectively.
<PAGE>
6. Commitments (continued)
The Company has committed to purchase warehouse equipment of approximately
$3,500,000.
The Company is committed under a distribution agreement to pay $500,000
over the next four years.
7. Pension Plans
The Company sponsors a multiple-employer defined benefit pension plan
covering substantially all of their warehousemen and drivers. Under terms of the
Plan, the Company is liable for any unsatisfied liabilities of the other
affiliated entities. The Company makes contributions to the Plan based on
amounts permitted by law. Contributions to the Plan by the Company were
$179,000, $171,000 and $224,000 in the years ended March 31, 1996, 1997 and
1998, respectively.
For purposes of financial reporting, the Company uses the projected unit
credit actuarial cost method to determine the net periodic pension cost and
projected benefit obligations under Statement of Financial Accounting Standards
No. 87. Under this method, the service cost is computed as the actuarial present
value of the benefit accruing during the current year based on the assumption
that benefits accrue uniformly over each participant's working lifetime. The
projected benefit obligation is the actuarial present value of benefits accrued
in prior years based on the assumption that benefits accrue uniformly over each
participant's working lifetime.
The components of net periodic pension cost of the defined benefit plan are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1997 1998
Service cost-benefits earned during the year.............. $ 111,000 $ 146,000 $ 114,000
Interest on projected benefit obligation.................. 144,000 171,000 196,000
Actual return on plan assets.............................. (220,000) (121,000) (624,000)
Amortization of unrecognized net transition asset......... 20,000 19,000 19,000
Amortization of loss...................................... 16,000 15,000 8,000
Amortization of prior service cost........................ - 19,000 19,000
Difference between expected and actual return on plan assets
102,000 (20,000) 471,000
---------- ---------- ----------
Net periodic pension cost................................. $ 173,000 $ 229,000 $ 203,000
========== ========== ==========
</TABLE>
<PAGE>
7. Pension Plans (continued)
The funded status and amounts recognized in the accompanying consolidated
balance sheets at March 31, 1997 and 1998 for the defined benefit pension plan
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
Actuarial present value of accumulated benefit obligations:
Vested........................................................ $2,717,000 $2,812,000
Nonvested..................................................... 264,000 294,000
---------- ----------
Accumulated benefit obligation................................... 2,981,000 3,106,000
Effect of anticipated future compensation levels (A)............. - -
---------- ----------
Projected benefit obligation..................................... 2,981,000 3,106,000
Less: Fair value of plan assets.................................. 1,877,000 2,662,000
---------- ----------
Minimum liability................................................ $1,104,000 $ 444,000
========== ==========
Balance Sheet Classification:
Current accrued liability..................................... $ 177,000 $ 82,000
Noncurrent deferred additional liability...................... 927,000 362,000
---------- ----------
Minimum liability................................................ $1,104,000 $ 444,000
========== ==========
Deferred pension costs (intangible asset)........................ $ 489,000 $ 362,000
Unrecognized net pension loss.................................... 438,000 -
---------- ----------
$ 927,000 $ 362,000
========== ==========
<FN>
(A) Plan benefits are based on years of service, rather than compensation
levels.
</FN>
</TABLE>
The deferred pension cost asset is being amortized on a straight-line basis
over a 17.5 year period. Plan assets are comprised primarily of common stocks
and bonds.
In determining the net periodic pension cost, the discount rate for the
benefit obligation was 6.75% in 1997 and 1998. The expected long-term rate of
return on assets was 8.00% for 1996, 1997 and 1998.
The Company also sponsors a defined contribution pension plan for
substantially all employees not covered by the defined benefit plan.
Contributions to the Plan are made at the discretion of the Company and may not
exceed 5% of a participant's compensation. The Company's pension expense for the
defined contribution plan was $631,000, $773,000 and $942,000 for 1996, 1997 and
1998, respectively.
NWSI contributes to union-sponsored multiemployer pension plans which
provide for contributions based on a specified rate per labor hour. Union
employees constitute approximately 56% of NWSI's workforce. Contributions
charged to expense were $443,000, $509,000 and $565,000 for 1996, 1997 and 1998,
respectively. Information as to NWSI's portion of accumulated plan benefits and
plan net assets is not currently available. Under the Employee Retirement Income
Security Act of 1974 as amended, an employer upon withdrawal from a
multiemployer plan is required to continue funding its proportionate share of
the plan's unfunded vested benefits. NWSI has no intention of withdrawing from
the plans.
<PAGE>
8. Related Party Transactions
NWSC had notes receivable from its two stockholders totaling $9,991,000 and
$10,603,000 at March 31, 1997 and 1998, respectively. The notes earn interest at
NWSC's effective borrowing rate on its revolving line of credit. Interest income
earned was $818,000, $870,000 and $893,000 during 1996, 1997 and 1998,
respectively. Proceeds of the notes were used by the stockholders to purchase
additional capital stock of NWSI and to make loans to NWSI. The notes, which are
due on demand, have been reflected as a reduction of stockholders' equity in the
consolidated balance sheets as it is the Company's present intent to satisfy
these receivables through future stockholder distributions. See Note 11. The
unaudited notes receivable balance at December 31, 1998 was approximately
$10,000,000.
In January 1998, the Company paid an employee $300,000 pursuant to a five
year non-compete agreement related to the start-up of NWSC's cigar division.
During fiscal 1998, the Company paid $170,000 for consulting fees to a
minority stockholder of NWSI.
<PAGE>
8. Related Party Transactions (continued)
Consolidated Rectifying, Inc. (CRI), a related party, is an Illinois liquor
bottler, blender and manufacturer which utilized brands, trademarks and
tradenames licensed to it from NWSI. On December 20, 1996, NWSI purchased
substantially all of the assets, and assumed certain liabilities, of CRI for
$181,000.
<TABLE>
<CAPTION>
<S> <C>
Assets acquired:
Accounts receivable........................ $ 1,951,000
Inventory.................................. 6,773,000
Property and equipment..................... 509,000
------------
9,233,000
Liabilities assumed:
Excise tax payable......................... (4,637,000)
Liabilities and debt....................... (2,482,000)
Receivable/payable from supplier........... (1,933,000)
------------
Net assets acquired........................... $ 181,000
============
</TABLE>
Effective June 25, 1997, NWSI sold certain of its licensed brands,
trademarks and tradenames for approximately $5,250,000. NWSI recognized a gain
of $4,071,000 which represents the $5,250,000 less $1,179,000 transaction costs
and the costs of assets related to the brands which were disposed. The purchase
price is receivable under a $2,250,000 seven-year promissory note, with the
remaining balance received in cash at the sale date. At March 31, 1998 the note
receivable balance was $2,045,000.
NWSI had a short-term note receivable from CRI with a balance of $613,000
at March 31, 1996. The note was repaid in December 1996. Interest accrued on the
note was $168,000 and $112,000 for the years ended March 31, 1996 and 1997,
respectively.
Transactions with CRI not disclosed elsewhere in the financial statements
for the years ended March 31, 1996 and 1997 were as follows (none in 1998):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1997
Sales................................................... $ 640,000 $ 715,000
Purchases of inventory.................................. 30,390,000 19,721,000
Purchase discounts...................................... 384,000 113,000
Administrative and data processing charged to CRI....... 225,000 169,000
Operational items paid by NWSI.......................... 28,555,000 17,326,000
Rent expense charged to CRI............................. 132,000 88,000
</TABLE>
9. Concentration of Risk
Purchases from four international suppliers accounted for approximately
65%, 62% and 65% of all revenues in 1996, 1997 and 1998, respectively.
<PAGE>
10. Litigation
The Company is a party to various lawsuits and claims arising in the normal
course of business. While the ultimate resolution of lawsuits or claims against
the Company cannot be predicted with certainty, management does not expect that
these matters will have a material adverse effect on the financial position or
results of operations of the Company.
11. Subsequent Events--Unaudited
Effective July 31, 1998, the Company and its stockholders executed new
notes payable to stockholders to provide for a legal right of offset against the
notes receivable from stockholders. Accordingly, as of December 31, 1998, the
notes payable to stockholders (principal plus accrued interest) have been offset
against the notes receivable from stockholders, with the resulting net amount
reflected as a reduction of stockholders' equity.
In September 1998, the Company guaranteed a $1.3 million obligation of a
related entity.
In December 1998, 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, the Company will invest $7.5
million ($4.5 million in cash and a $3.0 million cash franchise fee), in
exchange for 25% of the new company, which management believes is the largest
distributor of wine and spirits in Kentucky. Vertner and Kentucky W&S equally
own the remaining 75%. At December 31, 1998, $6.0 million had been paid and a
$1.5 million commitment remained outstanding. The Company has accounted for its
investment in Kentucky using the equity method.
In January 1999, the Company issued $110,000,000 of senior notes to
qualified institutional buyers. The net proceeds to the Company from the sales
of the notes were approximately $107,000,000. The notes are unsecured, bear
interest at 10.125% per annum and are due January 2009. These senior notes are
unconditionally guaranteed by the Company's subsidiaries. Audited financial
information of guarantor subsidiaries has been omitted because the senior notes
are guaranteed by all direct and indirect subsidiaries of the parent, which has
no operations or assets separate from its investments in its subsidiaries.
Concurrently with the offering of the senior notes, the Company entered
into a new $60.0 million credit facility secured by the accounts receivable and
inventory of the Company. With proceeds from the senior notes offering and
borrowings under the new credit facility, the Company retired substantially all
of its bank revolving and term indebtedness.
On January 25, 1999, the Company paid a dividend of approximately $1.8
million.
The Company is party to a lawsuit brought by several drivers of
NWS-Illinois who allege age discrimination and workers' compensation retaliation
and claim back pay and front pay damages of $1.9 million and $1.0 million,
respectively, and the cost of action. In April 1999, the Company settled with
the Plaintiffs which released the Company from all claims, including legal fees,
in exchange for $475,000. Documentation of the settlement has not been completed
and approved.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offering covered by this prospectus. If given
or made, such information or representations must not be relied upon as having
been authorized by NWS. This prospectus does not constitute an offer to sell or
a solicitation to buy, the notes offered hereby in any jurisdiction where, or to
any person to whom, it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale hereunder shall, in any
circumstances, create an implication that there has not been any change in the
facts set forth in this prospectus or in the affairs of NWS since the date
hereof.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Prospectus Summary............................................................................. 3
Risk Factors................................................................................... 12
The Exchange Offer............................................................................. 19
Reorganization of the Company.................................................................. 27
Use of Proceeds................................................................................ 27
Capitalization................................................................................. 28
Selected Consolidated Financial and Other Data................................................. 29
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 31
Business....................................................................................... 40
Management..................................................................................... 52
Certain Transactions........................................................................... 54
Principal Stockholders......................................................................... 55
Description of New Credit Facility and Other Indebtedness...................................... 56
Description of the Exchange Notes.............................................................. 58
Certain Book-Entry Procedures for the Global Notes............................................. 97
Registration Rights; Liquidated Damages........................................................ 100
U.S. Federal Income Tax Considerations......................................................... 101
Plan of Distribution........................................................................... 106
Legal Matters.................................................................................. 106
Change in Independent Auditors................................................................. 107
Experts........................................................................................ 107
Where You Can Find More Information............................................................ 107
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>
Until _______, 1999 (forty days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligations to deliver a prospectus when acting as
underwriters
<PAGE>
NATIONAL WINE & SPIRITS, INC.
Exchange Offer for
$110,000,000 10.125% Senior Notes
Due 2009
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The following summary is qualified in its entirety be reference to the
complete text of the statute and the amended articles of incorporation referred
to below.
National Wine & Spirits, Inc. ("NWS") is empowered by Chapter 37 of the
Indiana Business Corporation Law (the "IBCL"), subject to the procedures and
limitations therein, to indemnify any person against expenses (including
attorneys' fees) and the obligation to pay a judgment, settlement, penalty, fine
or reasonable expenses incurred with respect to a threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which such person is made a
party by reason of such person's being or having been a director, officer,
employee or agent of NWS if his or her conduct was in good faith and he or she
reasonably believed that, if acting in the individual's official capacity, the
conduct was in the best interests of the corporation and in all other cases, the
conduct was not opposed to the corporation's best interests. In the case of any
criminal proceeding, NWS is empowered to indemnify a person if he or she had
reasonable cause to believe the conduct was lawful or had no reasonable cause to
believe the conduct was unlawful. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under a corporation's articles of
incorporation or bylaws, vote of directors or stockholders, or otherwise. In
addition, unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful in the defense of any proceeding to
which the person was a party because the person is or was a director, officer,
employee or agent against reasonable expenses incurred by him or her in
connection with the proceeding.
Article VIII of NWS' articles of incorporation, dated December 18, 1998,
obligates NWS to indemnify any person in connection with any liability arising
by reason of such person's status as a past or present director, officer,
employee or agent of NWS or of any other enterprise which he or she is serving
or served in any capacity at the request of NWS if such person acted in good
faith and in a manner he or she reasonably believed, in the case of conduct in
his or her official capacity, was in the best interest of NWS, and in all other
cases, was not opposed to the best interests of NWS, and, with respect to any
criminal action or proceeding, he or she either had reasonable cause to believe
his or her conduct was lawful or no reasonable cause to believe his or her
conduct was unlawful.
ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Description
3(a)* Articles of Incorporation of National Wine & Spirits, Inc.
3(b)* Bylaws of National Wine & Spirits, Inc.
4(a)* 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(b)* A/B Exchange Registration Rights Agreement,
dated as of January 25, 1999, among National
Wine & Spirits, Inc., the Subsidiary
Guarantors and the Initial Purchasers
<PAGE>
4(c)* Form of Exchange Notes (including related Subsidiary Guarantors)
4(d)* 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(a)* Purchase Agreement, dated January 20, 1999, among National Wine & Spirits, Inc.,
the Subsidiary Guarantors and the Initial Purchasers
10(b)* 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(a)** Consent of Ernst & Young LLP
23(b)** Consent of Katz, Sapper & Miller, LLP
23(c)** Consent of Ice Miller Donadio & Ryan (contained in Exhibit 5)
24* Powers of Attorney (contained in signature pages of this Registration Statement)
25* Statement of eligibility of trustee
27* Financial Data Schedule
99.1* Form of Letter of Transmittal with respect to the Exchange Offer
99.2* Form of Notice of Guaranteed Delivery with respect to the Exchange Offer
* Previously filed
* * Filed herewith
</TABLE>
(b) Financial Statement Schedules
II. Valuation and qualifying accounts
ITEM 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
<PAGE>
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 3, 1999.
NATIONAL WINE & SPIRITS, INC.
By:
----------------------------------------
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 3rd day of May, 1999 by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
______________________ Chairman, President and Chief Executive Officer
James E. LaCrosse (Principal Executive Officer)
______________________ 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>
Exhibit 5
- ---------
Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282
May 3, 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, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (2) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
Our opinions herein are limited in all respects to the substantive law of
the State of Indiana, Illinois and Michigan 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 8
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Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indian 46282
January 25, 1999
Purchasers of Senior Notes
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co., Inc.
First Chicago Capital Markets, Inc.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
227 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
You have requested our opinions as to certain tax matters relating to
issuance of the Senior Notes (the "Senior Notes") by National Wine & Spirits,
Inc., an Indiana corporation (the "Corporation").
The Corporation was incorporated on December 23, 1998, and elected to be
classified as an S corporation within the meaning of Section 1361(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), on January 22, 1999.
Pursuant to a reorganization (the "Reorganization") described on pages 4 and 19
of the Preliminary Offering Memorandum relating to the Senior Notes, dated
January 6, 1999 (the "OM"), the Corporation became the sole shareholder of three
corporate subsidiaries (the "Subsidiaries"). The Subsidiaries are (a) National
Wine & Spirits Corporation, an Indiana corporation that previously elected to be
classified as an S corporation under Section 1361(a)(1) of the Code
("NWS-Indiana"), (b) NWS Michigan, Inc., a Michigan corporation that was
previously owned by NWS-Indiana and for which an election had been timely filed
to treat it as a qualified subchapter S subsidiary within the meaning of Section
1361(b)(3)(B) of the Code, and (c) NWS, Inc., an Illinois corporation that
previously elected to be classified as an S corporation within the meaning of
Section 1361(a)(1) of the Code ("NWS-Illinois"). Elections were filed on January
23, 1999, to treat each of the Subsidiaries as a qualified subchapter S
subsidiary within the meaning of Section 1361(b)(3)(B) of the Code following the
Reorganization.
<PAGE>
In connection with our opinions set forth in this letter, we have
investigated such questions of fact and law as we have deemed necessary or
appropriate. We also have examined and relied upon the following documents:
1. The OM.
2. The Indenture, dated as of January 25, 1999, among the
Corporation, certain of the Corporation's subsidiaries and
Norwest Bank Minnesota, N.A. (the "Indenture").
3. The Subordinated Promissory Notes issued by NWS-Illinois that
are payable to certain of the Corporation's shareholders and
are attached to this opinion as Exhibit A (the "NWS-Illinois
Notes").
<PAGE>
4. The Promissory Notes issued by certain shareholders of the
Corporation that are payable to NWS-Indiana and are attached
to this opinion as Exhibit B (the "Shareholder Notes").
5. The Corporation's election to be an S corporation, as filed on
January 22, 1999.
6. The elections to treat each of the Subsidiaries as a qualified
subchapter S subsidiary, as filed on January 23, 1999.
The foregoing documents shall be collectively referred to as the "Reference
Documents". Terms used in this letter which are capitalized when the rules of
grammar do not require capitalization and which are not otherwise defined in
this letter shall have the meanings assigned to such words in the Reference
Documents.
As to various questions of fact material to the following opinions, we have
relied upon the facts and documents described in this letter as well as the
factual representations in the Reference Documents and certificates and other
statements of the shareholders and officers of the Corporation. We have not made
any independent investigation as to the veracity or accuracy of any such
assumptions or certifications. However, we have discussed these assumptions and
certifications with the officers of the Corporation, and nothing contrary to any
of these assumptions or certifications has come to our attention in the course
of our consideration of these matters. For purposes of this opinion, we have
assumed (i) the genuineness of all signatures on documents reviewed by us, and
(ii) the authenticity of all documents submitted to us as originals and the
conformity to authentic originals of all documents submitted to us as copies.
Based on the foregoing and subject to the qualifications, limitations and
assumptions set forth in the rest of this letter, we are of the opinion that the
following items will not, individually or in the aggregate, cause the
Corporation to fail to meet the definition of "S corporation" set forth in
Section 1361(a)(1) of the Code, cause the Subsidiaries to fail to meet the
definition of "qualified subchapter S subsidiary" set forth in Section
1361(b)(3)(B) of the Code, or cause any other subsidiary entity of the
Corporation to fail to meet the requirements for pass-through status for tax
purposes:
1. The issuance of the Senior Notes on the terms and conditions
described in the OM and set forth in the Indenture.
2. The issuance of the NWS-Illinois Notes.
3. The issuance of the Shareholder Notes.
4. The Reorganization.
The opinions expressed in this letter speak as to the documents, facts and
the law in existence as of the date hereof and at no time subsequent hereto. No
expansion of our opinions may be made by implication or otherwise. We express no
opinions other than as herein expressly set forth. We do not undertake to advise
you of any matter within the scope of this letter that comes to our attention
after the date of this letter and disclaim any responsibility to advise you of
any changes in law or fact that may affect the opinions set forth herein.
We do not express any opinion concerning any question of law not governed
by the laws of the United States of America and the internal laws of the State
of Indiana. To the extent that the laws of any other state govern or affect any
of the opinions expressed herein, we assume with your permission that the laws
of such other state are identical to the laws of the State of Indiana. We
believe that our assumption in this regard to be reasonable under the
circumstances and that you are justified in relying on such opinions. No
expansion of our opinions may be made by implication or otherwise. We express no
opinions other than as herein expressly set forth. The opinions expressed herein
are matters of professional judgment and are not a guarantee of results.
Consequently, there can be no assurance that positions contrary to those stated
in our opinions will not be taken by the Internal Revenue Service, by any other
taxing authority or by a court.
<PAGE>
This letter is furnished by us as counsel for the Company and the
Guarantors to you and is solely for your benefit. It may not be relied upon in
any context other than in connection with the transactions described above, and
it may not be quoted in whole or in part nor may copies (other than transcript
copies) be furnished or delivered to any other person (other than your counsel)
without the prior written consent of this Firm.
Very truly yours,
/s/ Ice Miller Donadio & Ryan
Exhibit 23(a)
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Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated July 17, 1998, in the Amendment No. 1 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated May 3, 1999.
Our audit also included the financial statement schedule of National Wine &
Spirits, Inc. listed in the accompanying index to exhibits and financial
statement schedules (Item 21), as it relates to the year ended March 31, 1998.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
valuation and qualifying accounts schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the year ended March 31, 1998.
/s/ Ernst & Young LLP
Indianapolis, Indiana
April 29, 1999
Exhibit 23(b)
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Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated July 17, 1998, in the Amendment No. 1 to the
Registration Statement (Form S-4) and related Prospectus of National Wine &
Spirits, Inc. dated May 3, 1999.
Our audit also included the financial statement schedule of National Wine &
Spirits, Inc. listed in the accompanying index to exhibits and financial
statement schedules (Item 21), as it relates to the years ended March 31, 1997
and 1996. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
valuation and qualifying accounts schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set for the therein for
the years ended March 31, 1997 and 1996.
Katz, Sapper & Miller, LLP
Indianapolis, Indiana
April 29, 1999
