<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998
REGISTRATION NO. 333-60829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NCI BUILDING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0127701
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>
7301 FAIRVIEW
HOUSTON, TEXAS 77041
(713) 466-7788
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT J. MEDLOCK
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
7301 FAIRVIEW
HOUSTON, TEXAS 77041
(713) 466-7788
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
RANDALL G. RAY, ESQ. STEVEN R. FINLEY, ESQ.
Gardere & Wynne, L.L.P. Gibson, Dunn & Crutcher LLP
1601 Elm Street, Suite 3000 200 Park Avenue
Dallas, Texas 75201-4761 New York, New York 10166-0193
(214) 999-4544 (212) 351-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS________________________________________________________________, 1998
3,800,000 Shares
[LOGO]
Common Stock
- -------------------------------------------------------------------------
Of the 3,800,000 shares of Common Stock (the "Common Stock") offered hereby (the
"Offering"), 3,500,000 shares are being offered by NCI Building Systems, Inc.
(the "Company") and 300,000 shares are being offered by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "NCS." On September 1, 1998, the last reported sale price of the Common
Stock on the NYSE was $18.625 per share. See "Price Range of Common Stock."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND CERTAIN OF THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY
THE UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SEE
"UNDERWRITING."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING OF $500,000, ALL OF
WHICH WILL BE PAID BY THE COMPANY.
(3) THE COMPANY AND CERTAIN OF THE SELLING STOCKHOLDERS HAVE GRANTED THE
UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO 570,000 ADDITIONAL SHARES OF
COMMON STOCK ON THE SAME TERMS PER SHARE SOLELY TO COVER OVER-ALLOTMENTS, IF
ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE
$ , THE TOTAL UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE
$ , THE TOTAL PROCEEDS TO COMPANY WILL BE $ AND THE TOTAL
PROCEEDS TO SELLING STOCKHOLDERS WILL BE $ . SEE "PRINCIPAL AND
SELLING STOCKHOLDERS" AND "UNDERWRITING."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Warburg Dillon Read LLC, New York, New York, on
or about , against payment therefor. The Underwriters include:
WARBURG DILLON READ LLC
J.C. BRADFORD & CO.
WHEAT FIRST UNION
DAIN RAUSCHER WESSELS A
DIVISION OF DAIN RAUSCHER INCORPORATED
<PAGE>
[Graphics]
Page 2 of the Prospectus includes photographs of the Company's products
and/or manufacturing processes, each with a brief, descriptive caption.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE COMMON STOCK
AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THIS OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO AND MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS
PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I) "NCI" MEANS NCI BUILDING
SYSTEMS, INC., ITS SUBSIDIARIES (INCLUDING LIMITED PARTNERSHIPS) AND
UNCONSOLIDATED AFFILIATES AND PREDECESSORS, BUT EXCLUDES MBCI (AS DEFINED
HEREIN), (II) "MBCI" MEANS, PRIOR TO NCI'S ACQUISITION OF MBCI (THE "MBCI
ACQUISITION"), METAL BUILDING COMPONENTS, INC., ITS SUBSIDIARIES AND
UNCONSOLIDATED AFFILIATES AND, AFTER THE MBCI ACQUISITION, THE ACQUIRED
OPERATIONS OF MBCI AND (III) THE "COMPANY" MEANS NCI AND MBCI. REFERENCES TO
NCI'S OR THE COMPANY'S "FISCAL YEAR" MEAN THE FISCAL YEAR OF NCI OR THE COMPANY
ENDED OCTOBER 31 OF THE YEAR SPECIFIED. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION
IS NOT EXERCISED AND GIVES EFFECT TO THE TWO-FOR-ONE STOCK SPLIT OF THE COMMON
STOCK ON JULY 23, 1998.
THE COMPANY
The Company is one of North America's largest integrated manufacturers of
metal products for the building industry, with 38 manufacturing and distribution
facilities located in 18 states and Mexico. The Company sells metal components
as well as complete, pre-engineered metal building systems, offering one of the
most extensive metal product lines in the building industry with well-recognized
brand names. Management believes that the Company's leading market positions and
strong track record of growth and profitability have resulted from its focus on
improving manufacturing efficiency, controlling overhead costs, developing new
markets and successfully identifying and integrating strategic acquisitions. In
May 1998, NCI acquired MBCI, thereby doubling its sales, becoming the largest
domestic manufacturer of nonresidential metal components and significantly
improving its product mix. On a pro forma basis giving effect to the MBCI
Acquisition, the Company's sales and income from operations were $849.0 million
and $95.0 million, respectively, for the 12-month period ended July 31, 1998.
Management believes that metal products have gained and continue to gain a
greater share of the new construction and repair and retrofit markets due to
increasing acceptance and recognition of the benefits of metal products in
building applications. Metal components offer builders, designers, architects
and end-users several advantages, including low lifecycle costs, longevity,
attractive aesthetics and design flexibility. Similarly, metal building systems
offer a number of advantages over traditional construction alternatives,
including shorter construction time, more efficient material utilization, lower
construction costs, greater ease of expansion and lower maintenance costs.
METAL COMPONENTS. With a market share at least twice that of its largest
competitor, the Company is the largest domestic supplier of metal components to
the nonresidential building industry. The Company designs, manufactures, sells
and distributes one of the widest selections of metal roof and wall systems,
overhead doors, fascia, mansard and various trim accessories for commercial,
industrial, architectural, agricultural and residential construction and repair
and retrofit uses. The Company is also one of the largest independent providers
of hot roll and light gauge metal coil coating and painting services and
products. The Company coats and paints hot roll coil metal for use in its own
metal components manufacturing, as well as processing hot roll coil metal and
toll coating light gauge metal for use by third parties. The Company markets its
metal components products and coating and painting services nationwide primarily
through a direct sales force under several brand names, including "Metal
Building Components," "American Building Components," "DBCI," "MBCI," "Metal
Coaters of Georgia," "Metal-Prep," "DOUBLECOTE" and "Metal Coaters of
California." On a pro forma basis giving effect to the MBCI Acquisition, the
Company's sales of metal components and coating and painting services were
$584.9 million, or 68.9% of total sales, for the 12-month period ended July 31,
1998.
3
<PAGE>
PRE-ENGINEERED METAL BUILDING SYSTEMS. NCI is one of the largest domestic
suppliers of pre-engineered metal building systems. The Company designs,
manufactures and markets pre-engineered metal building systems, self-storage
building systems and metal home framing systems for commercial, industrial,
agricultural, governmental, community service and residential uses. The Company
markets these systems nationwide through authorized builder networks totaling
over 1,200 builders and a direct sales force under several brand names,
including "Metallic Buildings," "Mid-West Steel Buildings," "A & S Buildings,"
"All American Systems," "Steel Systems" and "Mesco." On a pro forma basis giving
effect to the MBCI Acquisition, the Company's sales of pre-engineered metal
building systems were $264.1 million, or 31.1% of total sales, for the 12-month
period ended July 31, 1998.
Prior to their combination, NCI and MBCI both demonstrated strong growth in
sales and income from operations. NCI achieved five-year compound annual growth
rates of 38.9% and 49.6%, respectively, in sales and income from operations.
MBCI achieved five-year compound annual growth rates of 15.3% and 16.2%,
respectively, in sales and income from operations.
THE MBCI ACQUISITION
On May 4, 1998, NCI acquired MBCI for a purchase price of $600 million.
Following the consummation of the MBCI Acquisition, management implemented an
integration plan to realize immediate and longer-term benefits. Management
estimates potential cost savings and synergies at $15 million annually. The main
objectives of the integration plan include:
- Realizing economies of scale, including purchasing efficiencies;
- Expanding internal metal coil coating and painting capacity and utilizing
internal capacity to produce products that were previously purchased from
third parties;
- Cross-selling broader product lines to a wider customer base;
- Expanding the geographic scope of operations throughout the United States;
- Rationalizing production capacity to maximize productivity and eliminate
redundant costs;
- Consolidating metal components management, sales and marketing; and
- Eliminating duplicate administrative costs.
COMPANY STRENGTHS
The Company believes that the combined NCI and MBCI operations will be able
to continue to grow sales, income from operations, net income and net income per
share by capitalizing on the following strengths:
LEADING MARKET POSITIONS AND SCALE OF OPERATIONS. The Company is the
largest manufacturer of metal components for the nonresidential building
industry and one of the largest suppliers of pre-engineered metal building
systems in the United States. In addition, the Company is one of the largest
independent providers of coated steel. As a result of its leading market
positions and scale of operations, the Company has expanded its geographic
scope to meet customers' product and delivery needs, realized production
efficiencies and improved its ability to attract builders and other
customers.
BALANCE BETWEEN NEW CONSTRUCTION AND REPAIR AND RETROFIT
END-MARKETS. Prior to the MBCI Acquisition, NCI's business was focused
primarily on pre-engineered metal building systems, demand for which is
driven primarily by new building construction. The Company currently derives
a majority of its sales and net income from metal components sales, which
are used in a number of repair and retrofit applications as well as new
construction. Management believes that the balance between these end markets
reduces the impact on the Company of slowdowns in new construction activity
and provides enhanced growth opportunities.
4
<PAGE>
LOW-COST SUPPLIER. The Company strives to be the low-cost supplier to
its customers by maintaining low production and distribution costs. The
Company's large scale manufacturing capabilities provide purchasing
efficiencies and enhance productivity through the sharing of best practices
between metal components and pre-engineered metal building systems
operations. In addition, the Company's "hub and spoke" system of satellite
manufacturing facilities places the locations for the manufacture of
secondary structural framing and covering systems and final distribution
closer to the customer, thereby reducing transportation costs and delivery
times.
BROAD PRODUCT LINES AND DIVERSE CUSTOMER BASE. The addition of MBCI's
metal components operations, including metal coating and painting, to NCI's
pre-engineered metal building systems has enabled the Company to become one
of the largest integrated suppliers in the industry, offering a wider
variety of products and services. In addition, the Company has a broad and
diversified customer base with significant cross-selling opportunities.
NATIONWIDE COVERAGE. The MBCI Acquisition provides the Company with the
opportunity to expand substantially its manufacturing, selling and
distribution presence into new geographic markets. The Company's
pre-engineered metal building systems facilities in the South, Southwest and
West complement its metal components facilities nationwide. The addition of
MBCI's metal components locations in the Northeast and Northwest provide the
Company with access to new regional markets for the Company's pre-engineered
metal building systems.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team has
an average of over 20 years of industry experience and has significantly
increased its depth as a result of the MBCI Acquisition. The management
teams of NCI and MBCI share similar business philosophies and historically
have demonstrated an ability to grow sales and net income in times of
strong, as well as adverse, economic conditions. Management attributes this
ability to effectively marketing its products, strategically locating new
manufacturing facilities, controlling expenses, maintaining flexibility in
capital budgeting, reducing production and distribution costs and
successfully completing and integrating acquisitions. In addition, the two
management teams have successfully identified and completed nine
acquisitions in the last five years. The Company's senior management team
will own approximately 12.3% of the Common Stock after giving effect to the
Offering.
BUSINESS STRATEGY
The Company's management has developed business strategies to capitalize on
the Company's strengths. The Company's primary business strategies include the
following:
PURSUE STRATEGIC GROWTH OPPORTUNITIES. Throughout its history, the
Company has increased its sales and net income through a combination of
selective acquisitions and internal growth. Since 1993, the Company has
successfully acquired and integrated seven companies and is in the process
of integrating MBCI and a subsequently acquired metal coating and painting
operation. In order to expand its geographic coverage and increase
manufacturing capacity, the Company has also constructed nine new
manufacturing facilities in the last five years and has formed four joint
ventures to expand into new markets and to increase penetration of existing
markets.
LEVERAGE EXISTING DISTRIBUTION CHANNELS TO INCREASE SALES OF METAL
COMPONENTS. The Company seeks to penetrate further the metal components
market, primarily for metal roofing and wall systems. Currently, the Company
sells its products under well-recognized brand names through various
distribution channels to a broad range of end users. These channels include,
among others, (i) authorized builders, (ii) building materials
manufacturers, distributors and retailers, (iii) roofing systems installers,
(iv) contractors and end users and (v) builders of self-storage facilities.
The Company plans to increase sales and net income by utilizing its multiple
distribution channels to market its expanded range of metal components
products to existing and new customers.
5
<PAGE>
CONTINUE TO ENHANCE FLEXIBLE, COST-EFFECTIVE PRODUCTION FACILITIES AND
PROCESSES. The Company's commitment to providing its customers with quality
products on a timely basis at competitive prices remains a key element of
its business strategy. As a result, management is focused on continuous cost
reduction including realization of opportunities to (i) aggressively manage
the purchase of raw materials, (ii) further automate its manufacturing
operations to reduce process costs and improve product quality and (iii)
capitalize on the breadth of the Company's geographic coverage to provide
customers with rapid delivery.
INCREASE SALES OF PRE-ENGINEERED METAL BUILDING SYSTEMS IN NEW AND
EXISTING GEOGRAPHIC MARKETS. The addition of MBCI's metal components
locations nationwide provides the Company with an opportunity to expand
sales of the Company's pre-engineered metal building systems in existing
markets and provides access to new regional markets in the Northeast and
Northwest. By utilizing MBCI's nationwide metal components manufacturing
facilities as platforms for expansion, the Company is well positioned to
increase sales of pre-engineered metal building systems in markets that
previously had been difficult for NCI to serve on a cost-effective basis.
------------------------
NCI was incorporated in Texas in December 1984 and reincorporated in
Delaware in December 1991. The Company's principal executive offices are located
at 7301 Fairview, Houston, Texas 77041, and its telephone number at that address
is (713) 466-7788.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock offered by the Company.................................. 3,500,000 shares
Common Stock offered by the Selling Stockholders..................... 300,000 shares
------------
Total Common Stock offered....................................... 3,800,000 shares
------------
------------
Common Stock to be outstanding after the Offering.................... 21,740,648 shares(1)
Use of proceeds by the Company....................................... To repay a portion of the indebtedness of the
Company under its Senior Credit Facility (as
defined herein) incurred in connection with
the MBCI Acquisition. See "Use of Proceeds."
Nasdaq symbol........................................................ NCS
</TABLE>
- ------------------------
(1) Based upon shares outstanding as of August 31, 1998. Excludes (i) 1,681,828
shares issuable upon exercise of outstanding options, with a weighted
average exercise price of $14.13 per share, under the Company's Employee
Stock Option Plan as of August 31, 1998, and (ii) 100,250 shares issuable as
of August 31, 1998, pursuant to a convertible debenture held by a member of
the senior management team at a conversion price of $14.9625 per share.
Includes 186,166 shares of Common Stock to be issued upon the exercise of
options by certain selling stockholders prior to the closing of the
Offering. See "Principal and Selling Stockholders."
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with an investment in the Common Stock, see "Risk Factors."
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents summary unaudited pro forma condensed combined
financial information of the Company for the fiscal year ended October 31, 1997,
the nine months ended July 31, 1998, and the 12-month period ended July 31,
1998. The unaudited pro forma condensed combined statements of income give
effect to the MBCI Acquisition as if it had occurred on November 1, 1996. The
unaudited pro forma financial information is not necessarily indicative of
either the future results of operations or the results of operations that would
have occurred if the MBCI Acquisition had been completed on the indicated date.
In the MBCI Acquisition, NCI acquired all of the capital stock of Amatek
Holdings, Inc., the former indirect parent company of MBCI ("Amatek"). The
unaudited pro forma financial information reflects only the results of
operations and financial condition of Amatek for the periods indicated. Because
Amatek had a fiscal year ended December 31, the unaudited pro forma financial
information presented for the year ended October 31, 1997, the nine months ended
July 31, 1998, and the 12-month period ended July 31, 1998, includes financial
information of Amatek for the year ended December 31, 1997, the six months ended
March 31, 1998, and the nine-month period ended March 31, 1998, respectively.
The Company's consolidated results of operations for the nine months ended July
31, 1998 reflect NCI's operations prior to the MBCI Acquisition and combined NCI
and MBCI operations for the third quarter of fiscal 1998. The Company's
unaudited consolidated balance sheet as of July 31, 1998 gives effect to the
MBCI Acquisition and no pro forma adjustments are required. See "The MBCI
Acquisition." The summary unaudited pro forma financial information should be
read in conjunction with the Unaudited Pro Forma Condensed Combined Financial
Statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's/NCI's historical
consolidated financial statements and notes thereto and Amatek's historical
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED JULY 31, ENDED JULY 31,
OCTOBER 31, 1997 1998 1998
----------------- --------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales............................................................. $ 815.7 $ 617.9 $ 849.0
Cost of sales..................................................... 611.7 462.7 636.2
------ ------ ------
Gross profit...................................................... 204.0 155.2 212.8
Operating expenses................................................ 108.8 86.6 115.7
Nonrecurring acquistion expenses(1)............................... -- 2.1 2.1
------ ------ ------
Income from operations............................................ 95.2 66.5 95.0
Interest expense.................................................. 44.4 32.4 43.5
Nonrecurring gain(2).............................................. 3.3 3.3 3.3
Other income...................................................... 2.7 2.5 3.8
------ ------ ------
Income before income taxes........................................ 56.8 39.9 58.6
Provision for income taxes........................................ 25.4 17.2 25.5
------ ------ ------
Net income........................................................ $ 31.4 $ 22.7 $ 33.1
------ ------ ------
------ ------ ------
Net income per share:
Basic........................................................... $ 1.79 $ 1.27 $ 1.86
------ ------ ------
------ ------ ------
Diluted......................................................... $ 1.70 $ 1.20 $ 1.76
------ ------ ------
------ ------ ------
Weighted average number of common shares:
Basic........................................................... 17.5 17.9 17.8
Diluted......................................................... 18.5 18.9 18.8
OTHER FINANCIAL DATA:
EBITDA(3)......................................................... $ 125.7 $ 91.0 $ 133.9
Capital expenditures.............................................. 38.5 17.9 30.1
</TABLE>
- ------------------------------
(1) Nonrecurring acquisition expenses in the third quarter of fiscal 1998 for
severance and relocation expenses related to the consolidation of components
sales and marketing functions, estimated costs associated with announced
plant closures and consolidations and costs associated with the integration
of product lines.
(2) Nonrecurring gain reflects insurance recoveries for fire damage to MBCI's
Lubbock, Texas plant in 1997.
(3) "EBITDA" consists of net income before interest expense, taxes, depreciation
and amortization and minority interest. EBITDA is not a measure of financial
performance under generally accepted accounting principles, but is presented
here to provide additional information about operations. EBITDA should not
be considered as an alternative to, or more meaningful than, net income or
cash flows as an indicator of operating performance or as a better measure
of liquidity. EBITDA presented above may not be comparable to similarly
titled measures of other companies. See the consolidated financial
statements and notes thereto included elsewhere in this Prospectus for
information regarding operating, investing and financing cash flow
activities.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Summary historical consolidated financial information for the Company/NCI
and for MBCI is presented below. The Company's consolidated results of
operations for the nine months ended July 31, 1998 reflect NCI's operations
prior to the MBCI Acquisition and combined NCI and MBCI operations for the third
quarter of fiscal 1998. The following financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company/ NCI's historical consolidated financial
statements and notes thereto and Amatek's historical consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
THE COMPANY/NCI
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................................................... $ 234.2 $ 332.9 $ 407.7 $ 287.0 $ 422.2
Gross profit............................................................ 64.4 91.5 108.3 75.9 112.8
Income from operations.................................................. 26.3 38.4 42.3 28.0 46.6
Net income.............................................................. $ 17.0 $ 24.8 $ 27.9 $ 18.3 $ 23.5
Net income per share:
Basic................................................................. $ 1.36 $ 1.60 $ 1.73 $ 1.14 $ 1.39
Diluted............................................................... $ 1.26 $ 1.51 $ 1.64 $ 1.08 $ 1.31
OTHER FINANCIAL DATA:
EBITDA.................................................................. $ 30.3 $ 45.8 $ 52.2 $ 35.1 $ 60.1
Capital expenditures.................................................... 5.8 10.3 11.3 5.4 7.4
</TABLE>
<TABLE>
<CAPTION>
AS OF
JULY 31, 1998
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital..................................................................................... $ 68.8
Property, plant and equipment, net.................................................................. 166.0
Total assets........................................................................................ 809.6
Total debt.......................................................................................... 500.1
Shareholders' equity................................................................................ 209.5
</TABLE>
MBCI
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................................................... $ 315.7 $ 362.9 $ 408.0 $ 82.5 $ 84.2
Gross profit............................................................ 81.7 91.6 95.6 18.6 15.3
Income from operations.................................................. 56.8 61.9 58.9 10.1 5.7
Net income.............................................................. $ 33.9 $ 38.6 $ 39.7 $ 6.1 $ 3.6
OTHER FINANCIAL DATA:
EBITDA.................................................................. $ 61.0 $ 69.0 $ 71.2 $ 11.8 $ 9.3
Capital expenditures.................................................... 12.5 21.1 27.2 5.8 1.6
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital................................................................................... $ 76.1
Property, plant and equipment, net................................................................ 104.0
Total assets...................................................................................... 243.2
Total debt........................................................................................ 0.0
Shareholder's equity.............................................................................. 208.4
</TABLE>
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS
AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY.
THE MBCI ACQUISITION--SUCCESSFUL INTEGRATION
The MBCI Acquisition involves a number of risks that could materially
adversely affect the Company's operating results. The integration of MBCI with
NCI will require substantial management time and other resources and may pose
risks with respect to production, customer service and market share. There can
be no assurance that the Company will not experience difficulties with various
aspects of the business combination, including relationships with customers,
suppliers or employees, systems integration, the continued use of separate
operational or management information systems or internal controls. The Company
may also be subject to unanticipated product liability claims or environmental
liabilities. In addition, there can be no assurance that benefits from the MBCI
Acquisition will be realized or that the combination of NCI and MBCI will be
more successful than these companies would have been had they remained separate.
See "The MBCI Acquisition," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business."
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has substantial debt service
requirements. At July 31, 1998, on an as adjusted basis giving effect to the
Offering, the total debt of the Company would have been approximately $438.7
million and 61.8% of the Company's total capitalization. Subject to the
restrictions under the Senior Credit Facility, the Company may incur additional
indebtedness from time to time to provide working capital and for other general
corporate purposes. The Company's leverage and obligations could have important
consequences for holders of the Common Stock, including the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
acquisitions, capital expenditures or other purposes may be limited; (iii)
certain of the Company's indebtedness contains financial and other restrictive
covenants which, if breached, could result in an event of default under such
indebtedness; and (iv) the Company's level of indebtedness could limit its
flexibility in planning for and reacting to, and make it more vulnerable to,
competitive pressures and changes in industry and economic conditions generally.
If the Company is unable to generate sufficient cash flow to service its
indebtedness and fund its capital or other expenditures, it will be forced to
adopt an alternative strategy that may include reducing or delaying capital
expenditures, selling assets, refinancing of indebtedness or seeking additional
equity or debt capital. There can be no assurance that any of these strategies
could be effected on satisfactory terms, if at all. See "The MBCI Acquisition"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
INDUSTRY CYCLICALITY; GEOGRAPHIC CONCENTRATION
The nonresidential construction industry is highly sensitive to national and
regional economic conditions and from time to time has been adversely affected
in various geographic regions by unfavorable economic conditions, low
manufacturing capacity utilization, high vacancy rates, changes in tax laws
affecting the real estate industry, high interest rates and the unavailability
of financing. Sales of the
Company's products may be adversely affected by weakness in demand for its
products within particular customer groups, including builders of self-storage
facilities, or a recession in the metal building industry, the general
construction industry or particular geographic regions. The Company cannot
predict the timing or severity of future economic or industry downturns. Any
economic downturn, particularly in states where much of the Company's sales are
concentrated, could have a material adverse effect on the Company's
9
<PAGE>
results of operations and financial condition. The markets for metal components,
including overhead doors, self-storage buildings and metal home framing systems
are also highly sensitive to overall economic conditions, high interest rates
and the availability of financing.
RISKS ASSOCIATED WITH EXPANSION STRATEGY
The Company has grown and intends to continue to grow by, among other
things, establishing additional plants, further developing its authorized
builder networks and acquiring other manufacturers of complementary products.
There can be no assurance that the Company will be able to accomplish these
goals. Continued growth may strain the Company's physical and human resources,
as well as create a need to attract additional qualified management, which may
not be readily available. In addition, many builders already are authorized
builders for competitors of the Company. The Company's ability to expand its
market share depends on its ability to persuade a number of these builders to
market the Company's products in lieu of or in addition to those of its
competitors and to attract conventional contractors to the metal building and
metal home industries. Furthermore, there can be no assurance that the Company
will be able to identify or finance suitable acquisitions in the future.
Acquisitions may have an adverse effect upon the Company's results of operations
and financial condition while the operations of the acquired businesses are
being integrated into the Company's operations. Furthermore, the integration of
acquired businesses may result in unforeseen difficulties that require a
disproportionate amount of management's attention or other Company resources.
See "Business--Business Strategy."
AVAILABILITY AND PRICING OF RAW MATERIALS
The Company's principal raw material is steel. The Company does not have any
long-term contracts for the purchase of raw materials. On a combined basis for
their respective 1997 fiscal years, NCI and MBCI purchased an aggregate of
approximately 80% of their steel requirements from National Steel Corporation
and Bethlehem Steel Corporation. The Company has not traditionally maintained an
inventory of steel in excess of its current production requirements. There can
be no assurance that steel will remain available or that prices will remain
stable. The steel industry is highly cyclical in nature, and steel prices are
influenced by numerous factors beyond the control of the Company, including
general economic conditions, competition, labor costs, import duties and other
trade restrictions. Furthermore, a prolonged labor strike against one or more of
the Company's principal domestic suppliers could have a material adverse effect
on the Company's operations. If the available supply of steel declines or if one
or more of the Company's current sources is unable for any reason to meet the
Company's requirements, the Company could experience price increases, a
deterioration of service from its suppliers or interruptions or delays that may
cause the Company to fail to meet delivery schedules to its customers, any of
which could adversely affect the Company's results of operations and financial
condition. See "Business--Raw Materials."
SEASONAL NATURE OF BUSINESS; POSSIBLE VOLATILITY OF STOCK PRICE
The metal components and metal building systems businesses, as well as the
construction industry in general, are seasonal in nature. Sales and shipments
normally are lower in the first calendar quarter of each year compared to the
other three quarters because of unfavorable weather conditions for construction
(particularly in the northern United States) and typical business planning
cycles affecting construction. This seasonality adversely affects the Company's
results of operations for the first two fiscal quarters. Prolonged severe winter
weather conditions can delay construction projects and otherwise adversely
affect the Company's business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results." As a result,
the market price for shares of the Common Stock may be subject to wide
fluctuations in response to variations in the Company's quarterly results,
changes in the metal components and building industry or the failure by the
Company to meet securities analysts' expectations.
10
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The future success of the Company depends to a significant degree on the
continued service of its key personnel and on its ability to attract, motivate
and retain qualified employees. The loss of the services of any of the Company's
key personnel could have a material adverse effect upon the Company's results of
operations and financial condition. See "Management."
COMPETITION
Competition in the metal components and metal buildings markets of the
building industry is intense and is based primarily on price, speed of
construction, quality of builder networks, the ability to provide added value in
the design and engineering of buildings and, among manufacturers of metal
components and metal building systems, service, quality and delivery times. The
Company competes with a number of other manufacturers of metal components and
metal building systems ranging from small local firms to large national firms.
In addition, the Company and other manufacturers of metal components and metal
building systems compete with alternative methods of building construction,
which may be perceived as more traditional, more aesthetically pleasing or
having other advantages. See "Business--Competition."
POSSIBLE IMPACT OF ENVIRONMENTAL REGULATION AND CLAIMS
The Company's operations are subject to a wide variety of federal, state and
local laws and regulations governing, among other things, emissions to air,
discharges to waters, the generation, handling, storage, transportation,
disposal of hazardous substances and other materials and health and safety
matters. Laws protecting the environment generally have become more stringent
than in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability," which means that in some
situations the Company could be exposed to liability for cleanup costs and
"toxic tort" or other damages as a result of conduct of the Company that was
lawful at the time it occurred or conduct of, or conditions caused by, prior
operators or other third parties, regardless of fault on the part of the
Company. The Company believes it is in substantial compliance with all
environmental standards applicable to its operations. However, there can be no
assurance that cleanup costs, natural resource damages, criminal sanctions,
"toxic tort" or other damages arising as a result of environmental laws and
costs associated with complying with changes in environmental laws and
regulations will not be substantial and will not have a material adverse effect
on the Company's financial condition. There can be no assurance that more
stringent regulatory standards will not be established that might require
material capital expenditures to meet future environmental standards. From time
to time, claims have been made against the Company under environmental laws. See
"Business--Regulatory Matters."
YEAR 2000 ISSUE
The Company has implemented a year 2000 plan to attempt to ensure that the
Company's computer systems and applications will function properly with respect
to years beyond 1999. Computer programs that have time-sensitive software may
not recognize dates beginning in the year 2000, which could result in
miscalculations or system failures. The Company is implementing its plan, as
part of the Company's overall upgrade of its management information systems
("MIS"), to attempt to ensure that its MIS and computer software are year 2000
compliant, but there can be no assurance that the plan will be completed
successfully or on a timely basis. The Company has no separate budget for year
2000 compliance. Failure to ensure that the Company's MIS and software are year
2000 compliant or to implement successfully new year 2000 compliant software
applications on a timely basis could have a material adverse effect on the
Company's business, results of operations and financial condition. As the
Company's MIS upgrade is implemented, the Company may identify assets that
present a risk of year 2000-related disruption. The Company does not currently
have a contingency plan with respect to the year 2000 issue if the MIS upgrade
is not completed or is delayed beyond the end of 1999. The ability of third
parties with whom the Company transacts business to address adequately their
year 2000 issue is outside the Company's control,
11
<PAGE>
and the Company is discussing with its vendors and customers the possibility of
any year 2000 interface difficulties that may affect the Company. The failure of
the Company or of third parties with whom the Company transacts business to
address adequately, and in a timely manner, the year 2000 issue with respect to
such interfaces, or any year 2000-related disruption, could also have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Issue."
ANTI-TAKEOVER PROVISIONS
The shares beneficially owned by the Company's executive officers, directors
and affiliates, combined with the ability of the Board of Directors to issue
shares of preferred stock without further vote or action by the stockholders and
certain provisions contained in the Company's Restated Certificate of
Incorporation and Amended and Restated By-laws, may have the effect of
discouraging persons from pursuing a non-negotiated takeover of the Company and
preventing certain changes of control. The Company has adopted a stockholder
rights plan pursuant to which one preferred stock purchase right automatically
trades with each share of Common Stock and upon the occurrence of certain events
entitles the registered holder to purchase the Company's Series A Junior
Participating Preferred Stock. The rights are generally exercisable following a
non-negotiated acquisition of, or public announcement of intent to commence an
offer for, 20% or more of the outstanding Common Stock and, therefore, may have
an anti-takeover effect. In addition, Section 203 of the Delaware General
Corporation Law, which is applicable to the Company, contains provisions that
restrict certain business combinations with interested stockholders, which may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect prevailing market prices for shares of Common
Stock. Of the 21,740,648 shares that will be outstanding after this Offering,
approximately 20,340,648 shares, including all of the shares offered hereby,
generally will be eligible for immediate sale in the public market. The
Company's directors and senior management team and certain of the Company's
principal stockholders beneficially owning an aggregate of 3,214,500 shares of
Common Stock (excluding outstanding stock options) after the Offering have
agreed not to, directly or indirectly, offer, sell, distribute or otherwise
dispose of any shares of Common Stock for a period of 90 days after the date of
this Prospectus without the prior written consent of Warburg Dillon Read LLC.
See "Underwriting." In addition, shares of Common Stock held by affiliates of
the Company are subject to the volume limitations and other restrictions of Rule
144 under the Securities Act. After this offering, the Company anticipates it
will also have outstanding employee and director options to purchase an
aggregate of 1,681,828 shares of Common Stock, which are covered by an effective
registration statement on Form S-8 and will also generally be freely tradeable
upon issuance, except to the extent held by affiliates or subject to the
foregoing transfer restrictions.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than historical
or current facts, including, without limitation, statements about the business,
financial condition, business strategy, plans and objectives of management and
prospects of the Company, are forward-looking statements. When used in this
Prospectus the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and "predicts," and similar statements that a result or event
"should" occur and similar expressions as they relate to the Company or its
management, are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in the forward-looking
statements are reasonable, these expectations and the related statements
12
<PAGE>
are not guarantees of future performance and are subject to risks, uncertainties
and other factors that could cause the actual results to differ materially from
those projected. These risks, uncertainties and other factors include, but are
not limited to, the ability to integrate MBCI and other acquisitions, the
ability to service indebtedness and obtain additional capital, industry
cyclicality, fluctuations in customer demand and other patterns, the ability to
make strategic activities accretive to net income, raw material availability and
pricing, seasonality and adverse weather conditions, competitive activity and
pricing pressure, changes in tax and other governmental rules and regulations
applicable to the Company, new technological developments, the year 2000 issue,
including year 2000 compliance by the Company and third parties with which the
Company does business, and general economic conditions affecting the
construction industry, as well as other risks detailed in this Prospectus and in
filings of the Company with the Commission. Certain of these risks and
uncertainties are beyond the ability of the Company to control and, in many
cases, the Company cannot predict the occurrence of these risks and
uncertainties. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those stated. Important factors that could cause actual results
to differ materially from the Company's expectations are disclosed in "Risk
Factors" and elsewhere in this Prospectus. The Company expressly disclaims any
obligation to release publicly any updates or revisions to these forward-looking
statements to reflect any changes in its expectations.
13
<PAGE>
THE MBCI ACQUISITION
On May 4, 1998, NCI acquired all of the outstanding capital stock of Amatek
from BTR Australia Limited, an indirect wholly owned subsidiary of BTR plc, for
a purchase price of $600 million, including cash of $550 million. At the time of
the MBCI Acquisition, Amatek had no operations other than MBCI. In connection
with the MBCI Acquisition, NCI issued an aggregate of 1,400,000 unregistered
shares of Common Stock (with an approximate fair market value of $32.2 million)
at the closing to certain officers and employees of MBCI in exchange for their
future interests in MBCI's senior management incentive plan.
NCI financed the MBCI Acquisition by obtaining a new $600 million credit
facility (the "Senior Credit Facility") from a syndicate of lenders. The Senior
Credit Facility consists of a $200 million five-year revolving credit facility
(the "Five-Year Revolver"), a $200 million five-year term loan facility (the
"Term Loan") and a $200 million 364-day revolving credit facility (the "364-Day
Revolver"). Borrowings under the Senior Credit Facility may also be used for
working capital and other general corporate purposes.
The following table sets forth the estimated cash sources and uses of funds,
including transaction costs, for the MBCI Acquisition and the cost of the Common
Stock issued to MBCI officers and employees:
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- ------------------------------------------------------ ------------------------------------------------------
(IN MILLIONS)
<S> <C>
</TABLE>
<TABLE>
<S> <C>
Cash................................ $ 27.8
Senior Credit Facility:
Term Loan......................... 200.0
Five-Year Revolver................ 140.0
364-Day Revolver.................. 200.0
Issuance of Common Stock(a)......... 32.2
---------
Total........................... $ 600.0
---------
---------
Cash purchase price................. $ 550.0
Estimated transaction costs......... 17.8
Issuance of Common Stock(a)......... 32.2
---------
Total........................... $ 600.0
---------
---------
</TABLE>
- ------------------------------
(a) Represents approximate fair market value of 1,400,000 unregistered shares of
Common Stock.
USE OF PROCEEDS
The net proceeds to the Company from the Offering (at an assumed public
offering price of $18.625 per share, the last reported sale price on the NYSE on
September 1, 1998), after deducting underwriting discounts and estimated
expenses of the Offering, are estimated to be approximately $61.4 million. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The
Senior Credit Facility requires the Company to use the net proceeds to repay a
portion of the outstanding borrowings under the 364-Day Revolver. The Company
intends to repay the principal balance of the 364-Day Revolver remaining after
application of the net proceeds of this Offering with cash from operations or to
extend or convert the 364-Day Revolver to a three-year term note.
The 364-Day Revolver is part of the Senior Credit Facility and matures on
May 3, 1999. The Company currently has outstanding $200.0 million under the
364-Day Revolver, which was borrowed to finance the MBCI Acquisition. If the
364-Day Revolver is not repaid by the Company or extended by the lenders, the
Company has the option to convert it to a three-year term note on the same
terms, but in no case longer than the maturity of the Five-Year Revolver. The
364-Day Revolver currently bears interest at LIBOR plus 2.00%. With application
of the net proceeds to repay a portion of the 364-Day Revolver, the Company
anticipates the LIBOR margin, which is adjusted based upon the ratio of funded
debt to EBITDA (as defined in the Senior Credit Facility), will decrease to
1.375%. See "The MBCI Acquisition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at July
31, 1998, and (ii) as adjusted as of July 31, 1998, to reflect the sale of
3,500,000 shares of Common Stock offered by the Company and the application of
the estimated net proceeds therefrom. This table should be read in conjunction
with "Use of Proceeds" and the consolidated financial statements of the
Company/NCI and Amatek and the notes thereto, which are included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Total debt, including current portion:
Senior Credit Facility:
Term Loan.............................................................................. $ 200.0 $ 200.0
Five-Year Revolver..................................................................... 98.4 98.4
364-Day Revolver....................................................................... 200.0 138.6
Other debt............................................................................... $ 1.7 1.7
--------- -----------
Total debt, including current portion................................................ 500.1 438.7
--------- -----------
Shareholders' equity:
Preferred Stock, $1.00 par value; 1,000,000 shares authorized; no shares outstanding..... -- --
Common Stock, $0.01 par value; 25,000,000 shares authorized; 18,034,482 issued and
outstanding actual; 21,720,648 issued and outstanding as adjusted(1)................... 0.2 0.2
Additional paid-in capital............................................................... 89.1 150.5
Retained earnings........................................................................ 120.2 120.2
--------- -----------
Total shareholders' equity............................................................... 209.5 270.9
--------- -----------
Total capitalization..................................................................... $ 709.6 $ 709.6
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) The actual number of shares issued and outstanding excludes (i) 1,887,994
shares issuable upon exercise of outstanding options, with a weighted
average exercise price of $12.71 per share, under the Company's Employee
Stock Option Plan as of July 31, 1998, and (ii) 100,250 shares issuable as
of July 31, 1998, pursuant to a convertible debenture held by a member of
the senior management team at a conversion price of $14.9625 per share. The
as adjusted number of shares issued and outstanding (i) excludes 1,701,828
shares issuable upon exercise of outstanding options or issued upon exercise
of options after July 31, 1998, (ii) includes 186,166 shares to be issued
upon the exercise of options by certain Selling Stockholders prior to the
closing of Offering and (iii) excludes 100,250 shares issuable pursuant to
the convertible debenture. See "Principal and Selling Stockholders."
15
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the NYSE under the symbol "NCS" on August
13, 1998. The Common Stock previously traded on the Nasdaq National Market. The
following table sets forth, on a per share basis for the fiscal quarter ending
on the date indicated, after giving effect to the two-for-one stock split of the
Common Stock on July 23, 1998, the range of high and low closing sale prices for
the Common Stock as reported by the Nasdaq National Market or the NYSE, as
applicable.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1996
January 31................................................................................ $ 14.315 $ 10.500
April 30.................................................................................. 19.000 13.250
July 31................................................................................... 19.250 11.750
October 31................................................................................ 17.565 10.875
FISCAL YEAR ENDED OCTOBER 31, 1997
January 31................................................................................ 18.750 13.375
April 30.................................................................................. 19.125 14.750
July 31................................................................................... 18.940 12.750
October 31................................................................................ 19.875 16.750
FISCAL YEAR ENDED OCTOBER 31, 1998
January 31................................................................................ 19.782 16.875
April 30.................................................................................. 26.000 18.063
July 31................................................................................... 32.250 23.125
October 31 (through September 1, 1998).................................................... 27.375 17.750
</TABLE>
On September 1, 1998, the closing price of the Common Stock as reported by
the NYSE was $18.625 per share. As of August 31, 1998, there were 190 holders of
record of the Common Stock. The Company believes there are approximately 7,500
beneficial holders of the Common Stock.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception. The Board of Directors does not anticipate payment of any cash
dividends in the foreseeable future and intends to continue its present policy
of retaining earnings for reinvestment in the operations of the Company. The
Senior Credit Facility prohibits the payment of cash dividends.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
(the "Pro Forma Financial Statements") are based on the historical consolidated
financial statements of the Company/NCI and of Amatek, and the notes thereto,
included elsewhere in this Prospectus.
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the
year ended October 31, 1997, the nine months ended July 31, 1998, and the
12-month period ended July 31, 1998, give effect to the MBCI Acquisition as if
it had occurred on November 1, 1996. Because Amatek had a fiscal year ended
December 31, the unaudited pro forma financial information presented for the
year ended October 31, 1997, the nine months ended July 31, 1998, and the
12-month period ended July 31, 1998, includes financial information of Amatek
for the year ended December 31, 1997, the six months ended March 31, 1998 and
the nine-month period ended March 31, 1998, respectively. The Company's
consolidated results of operations for the nine months ended July 31, 1998
reflect NCI's operations prior to the MBCI Acquisition and combined NCI and MBCI
operations for the third quarter of fiscal 1998. The Company's unaudited
consolidated balance sheet as of July 31, 1998 gives effect to the MBCI
Acquisition and no pro forma adjustments are required.
The unaudited pro forma adjustments are based upon available information and
upon certain assumptions and estimates that the Company believes are reasonable.
The MBCI Acquisition has been accounted for using the purchase method of
accounting. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments reflected in the
unaudited pro forma information are preliminary and have been made solely for
purposes of developing such information. The Company's management believes,
however, that the unaudited pro forma adjustments and the underlying assumptions
and estimates reasonably present the significant effects of the transactions
reflected thereby and that any subsequent changes in the underlying assumptions
and estimates will not materially affect the Pro Forma Financial Statements.
The Pro Forma Financial Statements do not purport to represent what the
Company's financial position or results of operations actually would have been
had such transaction occurred on the dates indicated or to project the Company's
financial position or results of operation for any future date or period.
Furthermore, the Pro Forma Financial Statements do not reflect changes that may
occur as the result of post-acquisition activities and other matters.
17
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED OCTOBER 31, 1997
--------------------------------------------------------
HISTORICAL PRO FORMA
---------------------- ACQUISITION PRO FORMA
NCI AHI ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue................................................ $ 407,751 $ 407,967 $ -- $ 815,718
Cost of sales.......................................... 299,407 312,329 -- 611,736(C)
---------- ---------- --------------- ---------------
Gross profit........................................... 108,344 95,638 -- 203,982
Operating expenses..................................... 66,055 36,637 9,825(D) 108,771(C)
(3,746)(D)
---------- ---------- --------------- ---------------
Income from operations................................. 42,289 59,001 (6,079) 95,211
Equity income in DOUBLECOTE............................ -- 83 -- 83
Nonrecurring gain...................................... -- 3,284 -- 3,284
Interest expense....................................... (163) -- (42,050)(E) (44,377)
(2,164)(E)
Other income........................................... 1,999 2,019 (1,390)(F) 2,628
---------- ---------- --------------- ---------------
Income (loss) before taxes............................. 44,125 64,387 (51,683) 56,829
Provision for income taxes............................. 16,238 24,647 (15,488)(G) 25,397
---------- ---------- --------------- ---------------
Net income............................................. $ 27,887 $ 39,740 $ (36,195) $ 31,432
---------- ---------- --------------- ---------------
---------- ---------- --------------- ---------------
Net income per share:
Basic................................................ $ 1.73 -- -- $ 1.79
---------- ---------------
---------- ---------------
Diluted.............................................. $ 1.64 -- -- $ 1.70
---------- ---------------
---------- ---------------
Weighted average number of common shares:
Basic................................................ 16,127 -- 1,400(B) 17,527
Diluted.............................................. 17,085 -- 1,400(B) 18,485
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
18
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31, 1998
--------------------------------------------------------
HISTORICAL PRO FORMA
---------------------- ACQUISITION PRO FORMA
NCI AHI ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue................................................ $ 422,219 $ 195,695 $ -- $ 617,914
Cost of sales.......................................... 309,452 153,306 -- 462,758(C)
---------- ---------- --------------- ---------------
Gross profit........................................... 112,767 42,389 -- 155,156
Operating expenses..................................... 64,084 19,458 4,913(D) 86,602(C)
(1,853)(D)
Nonrecurring acquisition expenses...................... 2,060 -- -- 2,060
---------- ---------- --------------- ---------------
Income from operations................................. 46,623 22,931 (3,060) 66,494
Equity income in DOUBLECOTE............................ -- 14 -- 14
Nonrecurring gain...................................... -- 3,284 -- 3,284
Interest expense....................................... (10,307) -- (21,025)(E) (32,414)
(1,082)(E)
Other income........................................... 2,424 761 (695)(F) 2,490
---------- ---------- --------------- ---------------
Income (loss) before taxes............................. 38,740 26,990 (25,862) 39,868
Provision for income taxes............................. 15,194 9,763 (7,751)(G) 17,206
---------- ---------- --------------- ---------------
Net income............................................. $ 23,546 $ 17,227 $ (18,111) $ 22,662
---------- ---------- --------------- ---------------
---------- ---------- --------------- ---------------
Net income per share:
Basic................................................ $ 1.39 -- -- $ 1.27
---------- ---------------
---------- ---------------
Diluted.............................................. $ 1.31 -- -- $ 1.20
---------- ---------------
---------- ---------------
Weighted average number of common shares:
Basic................................................ 16,930 -- 933(B) 17,863
Diluted.............................................. 17,965 -- 933(B) 18,898
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
19
<PAGE>
NCI BUILDING SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JULY 31, 1998
--------------------------------------------------------
HISTORICAL PRO FORMA
---------------------- ACQUISITION PRO FORMA
NCI AHI ADJUSTMENTS COMBINED
---------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue................................................ $ 542,974 $ 306,074 $ -- $ 849,048
Cost of sales.......................................... 397,741 238,502 -- 636,243(C)
---------- ---------- --------------- ---------------
Gross profit........................................... 145,233 67,572 -- 212,805
Operating expenses..................................... 82,217 29,011 7,369(D) 115,703(C)
(2,894)(D)
Nonrecurring acquisition expenses...................... 2,060 -- -- 2,060
---------- ---------- --------------- ---------------
Income from operations................................. 60,956 38,561 (4,475) 95,042
Equity income in DOUBLECOTE............................ -- 7 -- 7
Nonrecurring gain...................................... -- 3,284 -- 3,284
Interest expense....................................... (10,345) -- (31,538)(E) (43,506)
(1,623)(E)
Other income........................................... 3,172 1,648 (1,043)(F) 3,777
---------- ---------- --------------- ---------------
Income (loss) before taxes............................. 53,783 43,500 (38,679) 58,604
Provision for income taxes............................. 20,655 16,467 (11,585)(G) 25,537
---------- ---------- --------------- ---------------
Net income............................................. $ 33,128 $ 27,033 $ (27,094) $ 33,067
---------- ---------- --------------- ---------------
---------- ---------- --------------- ---------------
Net income per share:
Basic................................................ $ 1.98 -- -- $ 1.86
---------- ---------------
---------- ---------------
Diluted.............................................. $ 1.87 -- -- $ 1.76
---------- ---------------
---------- ---------------
Weighted average number of common shares:
Basic................................................ 16,756 -- 1,050(B) 17,806
Diluted.............................................. 17,778 -- 1,050(B) 18,828
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
20
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION--The Unaudited Pro Forma Condensed Combined Financial
Statements are presented to give pro forma effect to the acquisition of
Amatek Holdings, Inc. and Subsidiaries (AHI).
The purchase method of accounting has been used in preparing the Unaudited
Pro Forma Condensed Combined Financial Statements of NCI Building Systems,
Inc. (the Company) with respect to the acquisition of AHI. The Unaudited Pro
Forma Condensed Combined Statements of Income for the nine months ended July
31, 1998 and fiscal year ended October 31, 1997 combine the results of
operations for the Company's nine months ended July 31, 1998 and fiscal year
ended October 31, 1997 with AHI's results for the six months ended March 31,
1998 and fiscal year ended December 31, 1997, respectively. The Unaudited
Pro Forma Condensed Combined Statement of Income for the 12 months ended
July 31, 1998 combines the results of operations for the Company's 12 months
ended July 31, 1998 with AHI's results for the nine months ended March 31,
1998. AHI's results of operations for the three months ended March 31, 1998
have been restated to reflect adjustments to revenues and cost of sales of
$2.7 million (related to customer credit memos) and $1.0 million (related to
an inventory write-off of scrap metal), respectively, which were taken by
AHI in April 1998. The Unaudited Pro Forma Condensed Combined Statements of
Income give effect to the AHI acquisition as if it had occurred on November
1, 1996. Purchase accounting values have been assigned on a preliminary
basis and will be adjusted upon the completion of a valuation study.
Management does not expect such adjustments to be material.
Due to the different fiscal year ends of the Company and AHI as discussed
above, AHI's results of operations for the three months ended December 31,
1997 are included in both the Unaudited Pro Forma Condensed Combined
Statements of Income for the nine months ended July 31, 1998 and fiscal year
ended October 31, 1997, and AHI's results of operations for the month ended
April 30, 1998 are excluded from the Unaudited Pro Forma Condensed Combined
Statements of Income for the nine months ended July 31, 1998 and the 12
months ended July 31, 1998. AHI's revenues and net income for the three
months ended December 31, 1997 were $111.5 million and $13.6 million,
respectively, which includes a nonrecurring pre-tax gain of $3.3 million
from insurance recoveries related to a plant fire. AHI's revenues and net
loss for the month ended April 30, 1998 were $37.2 million and $4.0 million,
respectively, which net loss includes a nonrecurring pre-tax charge related
to the acquisition of $8.6 million for payments to certain AHI management
required due to change in control of AHI.
In June 1998, the Company's Board of Directors approved a two-for-one split
of the Common Stock effective for stockholders of record on July 8, 1998.
Share and per share amounts have been restated to reflect the stock split.
(B) To reflect the purchase of AHI for consideration of $550.0 million in cash
plus 1,400,000 shares of Company common stock valued at $32.2 million issued
to AHI employees to replace the management incentive plan in place at AHI.
In addition, there are estimated to be $17.8 million in transaction costs.
Goodwill has been preliminarily calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase Price:
Cash................................................ $ 550,000
Equity issued....................................... 32,200
Estimated transaction costs........................... 17,800
Less: Net assets acquired............................. 207,000
----------
Goodwill.............................................. $ 393,000
</TABLE>
21
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (CONTINUED)
(C) Anticipated synergies and cost savings resulting from internal rather than
third party coating of NCI products, plant consolidations, sales and
marketing consolidation, purchasing efficiencies and administrative cost
savings and efficiencies of approximately $15 million annually have not been
reflected in the above Unaudited Pro Forma Condensed Combined Financial
Statements.
(D) To record additional amortization expense associated with the goodwill
generated from the AHI acquisition (assigned useful life of 40 years),
offset by elimination of a management incentive charge incurred by AHI on a
historical basis.
(E) To record additional interest expense and amortization of debt issuance
costs related to debt incurred in connection with the acquisition of AHI.
(F) To eliminate daily cash investment interest income for the portion of the
Company's excess cash utilized for the acquisition.
(G) To record the tax effect on the pro forma adjustments.
22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
THE COMPANY/NCI
The selected historical consolidated financial information presented below
for, and as of the end of, each of the years in the five-year period ended
October 31, 1997, is derived from NCI's audited consolidated financial
statements. The selected historical consolidated financial information for, and
as of the end of, the nine months ended July 31, 1997 and 1998, is derived from
the unaudited consolidated financial statements of the Company. In the opinion
of management, the unaudited results of operations for, and as of the end of,
the nine months ended July 31, 1997 and 1998, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information. The unaudited consolidated results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the full fiscal year. The selected historical financial
information is not necessarily indicative of the future results of operations.
The following financial information should be read in conjunction with and is
qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's/NCI's consolidated
historical financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<C> <C> <C> <C> <C> <C> <C>
STATEMENT
OF
INCOME
DATA:
Sales... $134.5 $167.8 $234.2 $332.9 $407.7 $287.0 $422.2
Cost
of
sales... 99.8 124.1 169.8 241.4 299.4 211.1 309.4
------ ------ ------ ------ ------ ------ ------
Gross
profit... 34.7 43.6 64.4 91.5 108.3 75.9 112.8
Operating
expenses... 25.1 28.2 38.1 53.1 66.0 47.9 64.1
Nonrecurring
acquisition
expenses(1)... -- -- -- -- -- -- 2.1
------ ------ ------ ------ ------ ------ ------
Income
from
operations... 9.6 15.4 26.3 38.4 42.3 28.0 46.6
Interest
expense... 0.2 0.1 0.1 0.1 0.2 0.1 10.3
Other
income... 0.4 0.7 0.8 1.6 2.0 1.2 2.4
------ ------ ------ ------ ------ ------ ------
Income
before
income
taxes... 9.8 16.0 27.0 39.9 44.1 29.1 38.7
Provision
for
income
taxes... 3.5 5.7 10.0 15.1 16.2 10.8 15.2
------ ------ ------ ------ ------ ------ ------
Net
income... $ 6.3 $ 10.3 $ 17.0 $ 24.8 $ 27.9 $ 18.3 $ 23.5
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Net
income
per
share:
Basic... $ 0.52 $ 0.82 $ 1.36 $ 1.60 $ 1.73 $ 1.14 $ 1.39
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Diluted... $ 0.48 $ 0.77 $ 1.26 $ 1.51 $ 1.64 $ 1.08 $ 1.31
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Weighted
average
number
of
common
shares:
Basic... 12.2 12.4 12.5 15.5 16.1 16.1 16.9
Diluted... 13.2 13.4 13.5 16.5 17.1 17.0 18.0
OTHER
FINANCIAL
DATA:
EBITDA... $ 11.6 $ 18.3 $ 30.3 $ 45.8 $ 52.2 $ 35.1 $ 60.1
Capital
expenditures... 8.2 5.9 5.8 10.3 11.3 5.4 7.4
BALANCE
SHEET
DATA
(AT
END
OF
PERIOD):
Working
capital... $ 15.5 $ 16.9 $ 31.7 $ 52.0 $ 76.7 $ 67.9 $ 68.8
Property,
plant
and
equipment,
net... 16.1 22.2 25.6 42.8 51.2 46.9 166.0
Total
assets... 46.7 63.4 83.1 158.3 196.3 185.9 809.6
Total
debt... 2.2 0.4 0.4 1.8 1.7 1.8 500.1
Shareholders'
equity... 28.7 39.7 57.7 116.2 147.8 137.4 209.5
</TABLE>
- ------------------------
(1) Nonrecurring acquisition expenses in the third quarter of fiscal 1998 for
severance and relocation expenses related to the consolidation of components
sales and marketing functions, estimated costs associated with announced
plant closures and consolidations and costs associated with the integration
of product lines.
23
<PAGE>
MBCI
The selected historical consolidated financial information presented below
for, and as of the end of, each of the three years in the period ended December
31, 1997, is derived from the audited consolidated financial statements of
Amatek. The selected historical consolidated financial information for, and as
of the end of, (i) the two years ended December 31, 1994, and (ii) the three
months ended March 31, 1997 and 1998, is derived from the unaudited consolidated
financial statements of Amatek. In the opinion of management, the unaudited
results of operations for the three months ended March 31, 1997 and 1998,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information. The unaudited results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the full fiscal year. The selected historical financial
information is not necessarily indicative of the future results of operations.
The following financial information should be read in conjunction with and is
qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations of MBCI" and Amatek's
historical consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<C> <C> <C> <C> <C> <C> <C>
STATEMENT
OF
INCOME
DATA:
Sales... $226.5 $279.8 $315.7 $362.9 $408.0 $ 82.5 $ 84.2
Cost
of
sales... 170.8 209.4 234.0 271.3 312.4 63.9 68.9
------ ------ ------ ------ ------ ------ ------
Gross
profit... 55.7 70.4 81.7 91.6 95.6 18.6 15.3
Operating
expenses... 20.7 24.8 24.9 29.7 36.7 8.5 9.6
------ ------ ------ ------ ------ ------ ------
Income
from
operations... 35.0 45.6 56.8 61.9 58.9 10.1 5.7
Interest
income,
net... 0.1 0.7 1.4 1.9 2.0 0.3 0.3
Unusual/nonrecurring
gain(1)... 0.0 0.0 0.0 0.0 3.3 0.0 0.0
Other
income
(expense)... 0.0 0.0 (1.3) (0.3) 0.1 (0.2) (0.2)
------ ------ ------ ------ ------ ------ ------
Income
before
income
taxes... 35.1 46.3 56.9 63.5 64.3 10.2 5.8
Provisions
(benefit)
for
income
taxes... 14.5 20.5 23.0 24.9 24.6 4.1 2.2
------ ------ ------ ------ ------ ------ ------
Net
income... $ 20.6 $ 25.8 $ 33.9 $ 38.6 $ 39.7 $ 6.1 $ 3.6
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
OTHER
FINANCIAL
DATA:
EBITDA... $ 38.3 $ 49.9 $ 61.0 $ 69.0 $ 71.2 $ 11.8 $ 9.3
Capital
expenditures... 5.2 13.1 12.5 21.1 27.2 5.8 1.6
BALANCE
SHEET
DATA
(AT
END
OF
PERIOD):
Working
capital... $ 20.4 $ 27.0 $ 28.0 $ 35.0 $ 72.3 $ 52.0 $ 76.1
Property,
plant
and
equipment,
net... 44.9 54.7 63.2 84.7 104.1 89.0 104.0
Total
assets... 96.6 137.8 166.9 220.5 249.8 210.7 243.2
Total
debt... 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Stockholder's
equity... 66.4 93.7 126.5 165.0 204.8 171.1 208.4
</TABLE>
- ------------------------------
(1) Unusual/nonrecurring gain reflects insurance recoveries for fire damage to
Lubbock, Texas plant in 1997.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S/NCI'S AND AMATEK'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES
THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
The Company is one of North America's largest integrated manufacturers of
metal products for the building industry, with 38 manufacturing and distribution
facilities located in 18 states and Mexico. The Company sells metal components
as well as complete, pre-engineered metal building systems, offering one of the
most extensive metal product lines in the building industry with well-recognized
brand names. The Company's consolidated results of operations for the nine
months ended July 31, 1998 reflect NCI's operations prior to the MBCI
Acquisition and combined NCI and MBCI operations for the third quarter of fiscal
1998. Following completion of the MBCI Acquisition, the Company immediately
began integrating NCI's and MBCI's operations by eliminating overlapping costs
and consolidating NCI's and MBCI's components operations, including sales and
marketing functions. This consolidation has resulted in the closure of one plant
and the reduction in operations at two other plants currently targeted for
closure by the end of 1999. As a result of the MBCI Acquisition, the Company's
product mix has shifted from metal building systems to metal components with
components sales constituting two-thirds of sales in the third quarter of fiscal
1998 as compared to one-third of sales in the third quarter of fiscal 1997.
RESULTS OF OPERATIONS OF THE COMPANY/NCI
Prior to the MBCI Acquisition, NCI designed, manufactured and marketed
pre-engineered metal building systems, self-storage buildings, overhead doors,
metal home framing systems and various metal components for metal buildings for
commercial, industrial, agricultural, governmental, community service and
residential uses. NCI marketed these products nationwide both through authorized
builder networks totaling over 1,200 builders and a direct sales force under
several brand names, including "Metallic Buildings," "Mid-West Steel Buildings,"
"A & S Buildings," "NCI Building Components," "All American Systems," "Steel
Systems," "DBCI" and "Mesco."
The following table presents, as a percentage of sales, certain selected
consolidated financial data of NCI for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER ENDED
31, JULY 31,
------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 72.5 72.5 73.4 73.6 73.3
----- ----- ----- ----- -----
Gross profit................................................ 27.5 27.5 26.6 26.4 26.7
Operating expenses.......................................... 16.3 16.0 16.3 16.7 15.2
Nonrecurring acquisition expenses........................... 0.0 0.0 0.0 0.0 0.5
----- ----- ----- ----- -----
Income from operations...................................... 11.2 11.5 10.3 9.7 11.0
Interest expense............................................ 0.0 0.0 0.0 0.0 2.4
Other income................................................ 0.4 0.5 0.5 0.4 0.6
----- ----- ----- ----- -----
Income before income taxes.................................. 11.6 12.0 10.8 10.1 9.2
Provision for income taxes.................................. 4.3 4.5 4.0 3.7 3.6
----- ----- ----- ----- -----
Net income.................................................. 7.3% 7.5% 6.8% 6.4% 5.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED JULY 31, 1997
Sales for the nine months ended July 31, 1998 increased by $135.2 million,
or 47%, over the same period a year ago. The MBCI Acquisition accounted for
substantially all of this increase. The Company
25
<PAGE>
believes that sales for the nine-month period without the inclusion of MBCI
would have increased by approximately 6%.
Gross profit for the nine-month period increased by $36.9 million, or 49%,
compared to the same period a year ago. As a percentage of sales, gross profit
was 26.7% in the nine-month period in fiscal 1998 compared to 26.4% in the same
period in the prior year. This increase in gross profit percentage resulted from
slightly lower raw material costs in the current period, improved plant
utilization and better cost controls, which improved plant efficiencies.
Operating expenses increased by $16.2 million, or 34%, for the nine months
ended July 31, 1998, compared to the same period last year. The dollar increase
was primarily due to the inclusion of MBCI for the third quarter of fiscal 1998.
As a percentage of sales, operating expenses were 15.2% and 16.7%, respectively,
for the nine-month periods ended July 31, 1998 and 1997. The decrease as a
percentage of sales resulted from the absence of engineering and drafting costs
in MBCI's operations (which are exclusively components operations), which
lowered the overall cost of engineering and drafting from 3.4% of sales in the
nine months ended July 31, 1997 to 2.6% in the nine months ended July 31, 1998.
The remainder of this improvement resulted primarily from the consolidation in
the third quarter of fiscal 1998 of the sales and marketing functions in
components sales for both NCI and MBCI and the elimination of some overlapping
costs.
Nonrecurring acquisition expenses of $2.1 million in the third quarter of
fiscal 1998 represented the one-time cost of severance and relocation expenses
related to the consolidation of components sales and marketing functions,
estimated costs associated with announced plant closures and consolidations and
costs associated with the integration of product lines.
Interest expense increased to $10.3 million for the nine months ended July
31, 1998 compared to $125,000 in the fiscal 1997 period. As discussed above,
this increase resulted from borrowings of $540.0 million on May 4, 1998 to
finance the MBCI Acquisition. The Company had outstanding total debt of $500.1
million at July 31, 1998.
Income before income taxes increased by $9.7 million, or 33%. Income before
income taxes increased at a slower rate than sales due to the increase in
interest expense, amortization of goodwill expense and nonrecurring acquisition
expenses recognized in the third quarter of fiscal 1998.
Provision for income taxes increased by 41% in the nine-month period ended
July 31, 1998, reflecting an effective tax rate of 39.2% compared to an
effective tax rate of 37.1% in the nine-month period ended July 31, 1997. The
increase in effective tax rate was due to the nondeductible amortization of $2.5
million of goodwill expense associated with the MBCI Acquisition.
FISCAL 1997 COMPARED TO FISCAL 1996
Sales in fiscal 1997 increased by $74.9 million, or 22%, compared to fiscal
1996. The acquisition of the facilities of Carlisle Engineered Metals ("ECI") in
February 1997 and the inclusion of Mesco Metal Buildings Division ("Mesco") for
the whole fiscal year 1997 accounted for approximately $23 million of this
increase. The remaining increase of approximately $50 million, or 15%, resulted
from growth of sales in NCI's door division due to geographic expansion,
building systems sales growth due to increased builder recruitment and a full
year's operation of NCI's Atwater plant and growth in NCI's components division.
Gross profit increased by $16.8 million, or 18%, compared to fiscal 1996.
Gross profit dollars increased at a slower rate than sales due to price
competition earlier in the year, bad weather in the first half of 1997, which
impacted plant efficiencies, and slightly higher raw material costs. In
addition, growth in the component and door sales, which have lower gross margins
than building systems, impacted gross profit. As a result, the gross profit
percentage in 1997 declined from 27.5% to 26.6%.
26
<PAGE>
Operating expenses increased by $13.0 million, or 24%, compared to fiscal
1996. These expenses increased at a slightly higher rate than sales due to the
additional expenses resulting from the acquisition of ECI, additional sales
expense to support the marketing of steel frame housing and continued geographic
expansion of NCI's sales and marketing effort.
Interest expense increased $55,000 in fiscal 1997 as a result of the $1.5
million debenture issued in April 1996 being outstanding all of 1997. Other
income, which consists primarily of interest income, increased by $413,000 in
fiscal 1997. This increase was the result of a higher level of cash invested
during the year.
Provision for income taxes increased by 8% in fiscal 1997 and decreased as a
percent of sales from 4.5% in fiscal 1996 to 4.0% in fiscal 1997. During the
year, NCI changed the corporate structure of certain operating units which
reduced the amount of state income paid by these units.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales in fiscal 1996 increased by $98.7 million, or 42%, compared to fiscal
1995. The acquisitions of Doors and Buildings Components, Inc. ("DBCI") in
November 1995 and Mesco from Anderson Industries, Inc. in April 1996 accounted
for $58.7 million of this increase. Excluding the fiscal 1996 sales of these two
acquisitions, sales increased in fiscal 1996 by 17% compared to the prior year.
This growth resulted from increased market penetration by NCI in the metal
building market, expansion into the western United States with the opening of a
new plant in California and growth of NCI's components division.
Gross profit increased in fiscal 1996 by $27.1 million, or 42%, compared to
fiscal 1995. This increase was in line with the increase in sales experienced
for the year. Gross profit percentage of 27.5% was the same as the margin
achieved in fiscal 1995. Slight increases in raw material costs during the year
were offset by spreading fixed manufacturing costs over a higher sales base.
Operating expenses increased $15.0 million, or 39%, compared to fiscal 1995.
Selling, general and administrative expenses increased slightly faster than
sales due to the establishment of a west coast sales function to support the new
plant location and additional expenses resulting from the two acquisitions made
in fiscal 1996. Engineering expenses as a component of operating expenses
increased at a slower rate than sales due to increased sales of products which
require less engineering effort such as DBCI products and components.
Interest expense increased by $52,000 as a result of the issuance of a $1.5
million subordinated debenture in connection with the acquisition of Mesco.
Other income, which consists primarily of interest income, increased by $764,000
in fiscal 1996 compared to fiscal 1995. This increase resulted primarily from
the higher level of cash invested during the year and slightly higher average
rates of return on invested cash.
Provision for income taxes increased by 50.4% in fiscal 1996 and increased
as a percent of sales from 4.3% to 4.5%. This increase was due to the increase
in state income taxes in fiscal 1996 compared to the prior year.
RESULTS OF OPERATIONS OF MBCI
Prior to the MBCI Acquisition, MBCI designed, manufactured, sold and
distributed metal components for the building industry, including one of the
widest selections of roofs, walls, fascia, mansard and various trim accessories
for commercial, industrial, agricultural and residential construction uses. In
addition, MBCI processed its own hot roll coil metal for use in metal components
manufacturing, as well as processing hot roll coil and toll coating light gauge
metal for use by other parties in the manufacture of metal components and
numerous other products, including heating and air conditioning systems, water
heaters, lighting fixtures and office furniture. MBCI marketed its products
nationwide through a direct
27
<PAGE>
sales force under several brand names, including "Metal Building Components,"
"American Building Components," "Metal Coaters of Georgia," "Metal-Prep" and
"DOUBLECOTE."
The following table presents, as a percentage of sales, certain selected
consolidated financial data of MBCI for the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 74.1 74.8 76.6 77.4 81.8
----- ----- ----- ----- -----
Gross profit................................................ 25.9 25.2 23.4 22.6 18.2
Operating expenses.......................................... 7.9 8.2 9.0 10.4 11.4
----- ----- ----- ----- -----
Income from operations...................................... 18.0 17.1 14.5 12.2 6.8
Interest income, net........................................ 0.4 0.5 0.5 0.3 0.3
Unusual/nonrecurring gain................................... 0.0 0.0 0.8 0.0 0.0
Other income (expense)...................................... (0.4) (0.1) 0.0 (0.2) (0.2)
----- ----- ----- ----- -----
Income before income taxes.................................. 18.0 17.5 15.8 12.3 6.9
Provision for income taxes.................................. 7.2 6.9 6.0 5.0 2.6
----- ----- ----- ----- -----
Net income.................................................. 10.7% 10.6% 9.7% 7.4% 4.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Sales for the three months ended March 31, 1998 increased by $1.7 million,
or 2%, from the same period in 1997. The additional revenues were attributable
to increased metal building components and hot roll coil sales. Light gauge
steel painting revenues declined 14% as major customers attempted to reduce
inventories. The increase in revenues was offset by an aggregate of $2.7 million
in credit memos written to customers in April 1998 to resolve invoices with
questioned or disputed items. Sales for the three months ended March 31, 1998
have been restated to reflect this subsequent adjustment.
Gross profit decreased by $3.3 million, or 18%, in the first quarter of
1998, and decreased as a percentage of sales from 22.6% for the same period in
1997 to 18.2%. This decrease in gross profit resulted primarily from the
adjustment of $1.0 million resulting from an inventory write-off of partial
metal coils in 1998. Cost of sales for the three months ended March 31, 1998
have been restated to reflect this subsequent inventory adjustment. The decrease
in gross profit was also due to a change in product mix as higher margin steel
painting decreased as a percentage of total sales.
Operating expenses increased $1.1 million, or 12%, for the first three
months of 1998 due to costs of opening new plants in the western United States
in 1997. These expenses were not offset by related sales, since the new plants
did not make a significant revenue contribution due to both the seasonality of
the business and limited operations in the period.
Other income decreased slightly in the first three months of 1998 due to
losses in MBCI's DOUBLECOTE joint venture offset by interest income on advances
to DOUBLECOTE.
1997 COMPARED TO 1996
Sales in 1997 increased by $45.1 million, or 12%, as MBCI furthered its
expansion into the western United States metal components market during the
year, opening plants in Boise, Idaho, Salt Lake City, Utah, and Phoenix,
Arizona. MBCI also expanded its architectural panel capacity in the Memphis,
Tennessee plant. Total metal components sales rose by $33.5 million, or 11%. The
largest increases came in commercial/industrial and agricultural products. Metal
coating and painting sales increased by $11.5 million, or 19%, as MBCI increased
its efforts to expand prepainted packaged coil sales. MBCI did not realize
28
<PAGE>
significant revenues from the new metal components plants during the year as
markets were being developed.
Gross profit increased by $4.1 million, or 4%, in 1997 compared to 1996. The
gross margin percentage declined from 25.2% in 1996 to 23.4% in 1997, primarily
because of competitive pressures in the metal components sector. The strength of
the construction market encouraged competition to add capacity and attempt to
expand market share with pricing. Metal coating and painting gross margins also
declined due to a change in product mix. Prepainted coil package sales, which
have lower gross margins than toll coil coating, increased as a percentage of
total metal coating and painting sales.
Operating expenses increased by $7.0 million, or 24%, in 1997 compared to
1996 due primarily to plant additions in Utah, Idaho and Arizona. This expansion
into the western U.S. market required additional sales and management personnel
and related administrative costs.
In February 1997, the Lubbock, Texas metal components plant sustained major
fire damage. The facility was rebuilt and resumed operations in July 1997.
Insurance recoveries over cost basis resulted in a nonrecurring gain of $3.3
million. Other income increased by $387,000 in 1997 based on positive results in
MBCI's DOUBLECOTE joint venture.
1996 COMPARED TO 1995
MBCI's sales in 1996 increased by $47.1 million, or 15%, compared to 1995
with new facilities driving growth. Metal building construction did not
experience the dynamic growth that occurred in 1995, but shipments remained
strong. MBCI added a metal components plant in Adel, Georgia to service the
growing southeast market, primarily commercial/industrial. MBCI's Atlanta
facility, which had served the region before the addition of the Adel plant,
continued to run at near capacity due to strong demand. In April 1996, MBCI
purchased the operating assets of Steelco Metal Products ("Steelco"), a division
of Alta Industries, Ltd. for approximately $22 million. This acquisition was the
first step in expansion into the western U.S. market and provided a solid base
for future growth. MBCI took advantage of Steelco's strong reputation and loyal
customer base while improving efficiency through MBCI's aggressive, centralized
management style. The Steelco acquisition added $21.7 million in sales of metal
components in 1996. Metal coating and painting sales were at approximately the
same level as 1995 with seasonal capacity limiting growth.
Gross profit increased by $9.9 million, or 12%, in 1996 compared to 1995.
Although competitive pricing in the metal components industry began to increase
in the last half of 1996, MBCI maintained a gross margin percentage in excess of
25%.
Operating expenses increased by $4.8 million, or 19%, in 1996 compared to
1995, with a majority of the increase being attributable to the new plant and
the Steelco acquisition. As a percentage of sales, operating expenses increased
from 7.9% in 1995 to 8.2% in 1996.
Other expense, which consisted of MBCI's equity in the losses of its
DOUBLECOTE joint venture, decreased by $1.0 million in 1996. This decrease was
the result of improved results of operations at DOUBLECOTE.
QUARTERLY RESULTS
The metal components and metal building systems businesses, as well as the
construction industry in general, are seasonal in nature. Sales and shipments
normally are lower in the first calendar quarter of each year compared to the
other three quarters because of unfavorable weather conditions for construction
(particularly in the northern United States) and typical business planning
cycles affecting construction. This seasonality adversely affects the Company's
results of operations for the first two fiscal quarters.
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<PAGE>
The following table sets forth selected unaudited quarterly financial
information for the Company/ NCI for the 1996 and 1997 fiscal years and the
first three quarters of fiscal 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997 FISCAL 1998
------------------------------------- ------------------------------------- ------------------
JAN. 31 APR. 30 JUL. 31 OCT. 31 JAN. 31 APR. 30 JUL. 31 OCT. 31 JAN. 31 APR. 30
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales......................... $67.4 $72.1 $92.0 $101.4 $82.9 $91.7 $112.5 $120.8 $97.3 $ 95.3
Gross profit.................. 17.4 19.5 25.5 29.1 22.4 23.7 29.8 32.5 25.4 26.6
Income before income taxes.... 6.5 8.1 11.5 13.8 8.3 8.2 12.7 15.0 9.4 10.0
Net income.................... 4.0 5.1 7.2 8.6 5.2 5.2 8.0 9.6 6.1 6.4
Net income per share--
diluted..................... 0.27 0.30 0.43 0.52 0.31 0.31 0.47 0.56 0.35 0.37
<CAPTION>
JUL. 31
--------
<S> <C>
Sales......................... $229.5
Gross profit.................. 60.7
Income before income taxes.... 19.3
Net income.................... 11.1
Net income per share--
diluted..................... 0.58
</TABLE>
The following table sets forth selected unaudited quarterly financial
information for MBCI for 1996, 1997 and the first quarter of 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
1996 1997 1998
------------------------------------- ------------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................. $69.1 $92.3 $102.3 $99.2 $82.5 $103.6 $110.4 $111.5 $84.2
Gross profit.......................... 17.6 23.5 25.7 24.7 18.6 24.8 25.2 27.1 15.3
Income before income taxes............ 12.0 17.3 17.5 16.6 10.2 16.2 16.9 21.1 5.8
Net income............................ 7.4 10.9 10.4 9.8 6.1 10.0 10.1 13.5 3.6
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $4.5 million at July 31, 1998,
compared to $32.2 million at October 31, 1997. Working capital was $68.8 million
at July 31, 1998 and $76.7 million at October 31, 1997.
MBCI had cash and cash equivalents of $1.3 million at March 31, 1998,
compared to $7.0 million at December 31, 1997. Working capital was $76.1 million
at March 31, 1998 and $72.3 million at December 31, 1997.
CASH FLOW
The Company has historically funded its operations with cash flow from
operations, bank borrowings and the sale of Common Stock. Internal cash
generation has been aided, in the opinion of management, by a compensation
program under which bonuses are earned based on achieving specified return on
assets goals. This program encourages management of the balance sheet as well as
the income statement.
The Company's net cash flow from operations increased to $51.6 million for
the nine months ended July 31, 1998 compared to $22.6 million for the same
nine-month period in 1997.
NCI's net cash flow from operations increased to $24.5 million in fiscal
1997 from $28.6 million in fiscal 1996. MBCI's net cash flow from operations
decreased to $11.6 million in 1997 from $44.2 million in 1996. The decrease was
primarily the result of an $11.1 million increase in inventories, a $2.9 million
increase in trade receivables and a $12.3 million decrease in accounts payable
and accrued liabilities.
Based on the current capitalization of the Company, it is expected future
cash flow from operations and availability of alternative sources of financing
should be sufficient to provide adequate liquidity for the foreseeable future.
Liquidity in future periods will be dependent on internally generated cash
flows, the ability to obtain adequate financing for capital expenditures and the
amount of increased working capital necessary to support expected growth. There
can be no assurance that liquidity would not be impacted by a
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<PAGE>
severe decline in general economic conditions and higher interest rates which
would affect the Company's ability to obtain external financing.
LONG-TERM DEBT
On May 4, 1998, the Company acquired all of the outstanding capital stock of
Amatek from BTR Australia Limited, a wholly owned subsidiary of BTR plc, for a
purchase price of $600 million, including cash of $550 million and 1.4 million
shares of Common Stock valued at $32.2 million. The Company financed the MBCI
Acquisition by obtaining a new $600 million Senior Credit Facility from a
syndicate of lenders. See "The MBCI Acquisition."
In March 1998, the Company entered into the Senior Credit Facility with the
lenders for the establishment of a $600 million credit facility. The Senior
Credit Facility consists of (i) the Five-Year Revolver, a five-year revolving
credit facility of up to $200 million, of which up to $20.0 million may be
utilized in the form of commercial and standby letters of credit, (ii) the Term
Loan, a five-year term loan facility in the principal amount of up to $200
million, and (iii) the 364-Day Revolver, a 364-day revolving credit facility of
up to $200 million. In addition to funding the MBCI Acquisition, borrowings
under the Senior Credit Facility may be used for working capital and other
general corporate purposes. The initial funding of $140.0 million under the
Five-Year Revolver, $200.0 million under the Term Loan and $200.0 million under
the 364-Day Revolver occurred on May 4, 1998, the date on which the MBCI
Acquisition was consummated (the "Acquisition Date"). Loans and letters of
credit under the Five-Year Revolver will be available, and amounts repaid under
the Five-Year Revolver may be reborrowed, at any time until July 1, 2003,
subject to the fulfillment of certain conditions precedent, including the
absence of default under the Senior Credit Facility. The Term Loan was fully
drawn down as of the Acquisition Date, and amounts repaid under the Term Loan
may not be reborrowed. The Company's obligations under the Senior Credit
Facility are secured by the pledge of all capital stock, partnership interests
and other equity interests of the Company's subsidiaries. All obligations under
the Senior Credit Facility are also guaranteed by each of the Company's
corporate subsidiaries and operating limited partnerships. The Senior Credit
Facility contains customary financial and restrictive covenants with amounts and
ratios negotiated between the Company and the lenders.
The Senior Credit Facility provides for loans bearing interest, at the
Company's option, as follows: (i) Base Rate loans, Base Rate plus a margin that
ranges from 0% to 0.50%; and (ii) LIBOR loans, Adjusted LIBOR plus a margin that
ranges from 0.75% to 2.00%. "Base Rate" is the higher of NationsBank, N.A.'s
prime rate or the overnight Federal funds rate plus 0.5%, and "Adjusted LIBOR"
is the applicable London interbank offered rate adjusted for reserves, if any.
In each case, the margin is adjusted based on the Company's most recently
determined ratio of funded debt to EBITDA (as defined in the Senior Credit
Facility). The Senior Credit Facility currently bears interest at LIBOR plus
2.00%. The Company currently has an interest rate swap agreement in place, which
limits the Company's variable interest rate exposure on the Term Loan. The
agreement applies to the full principal amount of the Term Loan and caps
interest on LIBOR loans at 5.89% plus the applicable LIBOR margin. In the third
quarter of fiscal 1998, the Company's effective interest rate on variable rate
loans was 7.7%. With the application of the net proceeds of the Offering to
repay a portion of the 364-Day Revolver, the Company anticipates the LIBOR
margin will decrease to 1.375% as a result of the matrix pricing.
Loans under the Five-Year Revolver mature on July 1, 2003. Loans under the
Term Loan are payable in successive quarterly installments beginning on October
31, 1998, in quarterly payments beginning with $7.5 million and gradually
increasing to $12.5 million on the maturity date. The 364-Day Revolver is part
of the Senior Credit Facility and matures on May 3, 1999. If the 364-Day
Revolver is not repaid by the Company or extended by the lenders, the Company
has the option to convert it to a three-year term note. Borrowings under the
Senior Credit Facility may be prepaid and voluntary reductions of the unutilized
portion of the Five-Year Revolver may be made at any time, in certain agreed
upon minimum amounts, without premium or penalty but subject to LIBOR breakage
costs. The Company is required to make
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<PAGE>
mandatory prepayments on the Senior Credit Facility upon the occurrence of
certain events, including the sale of assets and the issuance and sale of equity
securities, in each case subject to certain exceptions.
As of July 31, 1998, the Company had $498.4 million outstanding under the
Senior Credit Facility. Total debt at July 31, 1998 also included $1.7 million,
representing a convertible debenture issued in connection with the Mesco
acquisition and an industrial revenue bond. The Senior Credit Facility requires
the Company to use the estimated net proceeds of the offering to repay $76.2
million of the outstanding principal balance of the 364-Day Revolver. See "Use
of Proceeds."
CAPITAL EXPENDITURES
During fiscal 1997, NCI invested $11.3 million in capital additions,
including a new plant built in Monterrey, Mexico at a cost of approximately $2.0
million and expansion of its plant in Ennis, Texas for approximately $1.0
million. The remainder was spent primarily at other plant locations to increase
production capacity. All of these expenditures were paid from internally
generated cash.
During 1997, MBCI had capital expenditures of $27.2 million, including the
construction of new plants ($5.0 million), the purchase of real property in
Phoenix, Arizona ($5.3 million), the rebuilding of the Lubbock, Texas plant
destroyed by fire ($4.8 million) and the expansion of the Memphis, Tennessee
plant ($2.0 million).
For the nine months ended July 31, 1998, the Company invested $7.4 million
in capital additions for plant expansion and the development of new management
information systems. In addition, on May 21, 1998, the Company purchased the
plant and equipment of California Finished Metals, Inc. for $15.5 million in
order to expand its metal coating and painting operations to the western U.S.
The Company anticipates that capital expenditures for the remainder of 1998 will
be $14.0 million, including expansion of several facilities and expenditures for
two new plant locations expected to open in fiscal 1999. These projects, if not
delayed or canceled, would require $15.0 million in capital spending above the
amounts anticipated at the current time.
Acquisitions of additional assets and businesses are expected to continue to
be an important part of the Company's strategy for growth. The Company would,
under certain circumstances, need to obtain additional debt and/or equity
financing to fund such acquisitions.
INFLATION
Inflation has not significantly affected the Company's financial position or
operations. Metal building systems sales are affected more by the availability
of funds for financing construction than interest rates. No assurance can be
given that inflation or interest rates will not fluctuate significantly, either
or both of which could have an adverse effect on the Company's operations.
ACCOUNTING STANDARDS
During the first quarter of fiscal 1998, NCI adopted Financial Accounting
Standards Board ("FASB") Statement No. 128, Earnings Per Share, which is
effective for financial statements issued for periods ending after December 15,
1997. Prior period net income per share amounts have been restated to conform
with Statement No. 128.
During the third quarter of fiscal 1998, the Company adopted FASB Statement
No. 130, Comprehensive Income, which is effective for financial statements for
fiscal years beginning after December 15, 1997. The adoption of Statement No.
130 had no impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosure about Segments
of an Enterprise and Related Information, which is effective for the Company's
fiscal year ending October 31, 1999. The Company is evaluating the segments that
will be reported under Statement No. 131.
32
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the year 2000 issue and is attempting to
ensure that its management information systems and computer software are year
2000 compliant. This review is part of the Company's overall upgrade of its MIS,
which is currently in progress and includes the installation of new systems. As
a result, the Company has no separate budget for year 2000 compliance. Expenses
relating to reviewing and assessing systems are included in historical operating
expenses as part of management information expenses and have not been separately
identified. Management expects the upgrade to be completed with respect to a
substantial majority of the Company's operations by the end of 1998 and that the
upgrade for the remaining operating divisions will be completed in the first six
months of 1999. Management believes that with installation of the new systems,
conversion to new software and modifications to existing software, the year 2000
issue will pose no significant operational problems for the Company's MIS. The
Company expects to complete all new installations, conversions and necessary
systems modifications and conversions by mid-1999. There can be no assurance,
however, that the Company will be able to install and maintain year 2000
compliant MIS and software.
The Company is currently discussing with its vendors and customers the
possibility of any year 2000 interface difficulties that may affect the Company.
The ability of third parties with whom the Company transacts business to address
adequately their year 2000 issue is, however, outside the Company's control.
To date, the Company has not identified any information technology assets
under the control of the Company that present a material risk of not being year
2000 ready or for which a suitable alternative cannot be implemented or is not
being implemented. The Company does not have a contingency plan with respect to
the year 2000 issue if the MIS upgrade is not completed or is delayed beyond the
end of 1999. The failure of the Company to address adequately, and in a timely
manner, the year 2000 issue, including ensuring that the Company's MIS and
software are year 2000 compliant, could have a material adverse effect on the
Company's business, results of operations and financial condition. As the
Company's MIS upgrade is implemented, the Company may identify assets that
present a risk of a year 2000-related disruption. It is also possible that such
a disruption could have a material adverse effect on the Company's business
financial condition and results of operations. In addition, if any third parties
who provide goods or services that are critical to the Company's business
activities fail to appropriately address their year 2000 issues, there could be
a material adverse effect on the Company's business, results of operations and
financial condition.
33
<PAGE>
INDUSTRY OVERVIEW
The building industry encompasses a broad range of metal products,
principally composed of steel, sold through a variety of distribution channels
for use in diverse applications. These metal products include metal components
and complete metal building systems.
METAL COMPONENTS
Manufacturers of metal components for the building industry supply
pre-formed components, including roof and wall panels, doors, partitions,
related trim, accessories and other metal components used in metal building
systems and other repair, retrofit and new construction applications for
commercial, industrial, agricultural and residential uses. Metal components are
used in a wide variety of construction applications, including purlins and
girts, roofing, walls, doors, trim and other parts of traditional commercial,
industrial, agricultural and residential buildings as well as in architectural
applications and complete metal building systems. Management estimates the metal
components market (including roofing applications) to be a multi-billion dollar
market, although market data is limited. Metal components are used to a greater
extent in repair and retrofit applications than in new construction of metal
building systems and, therefore, management believes that the metal components
business exhibits less cyclicality than the metal building systems business.
Management believes that metal products have gained and continue to gain a
greater share of new construction and repair and retrofit markets due to
increasing acceptance and recognition of the benefits of metal products in
building applications.
Metal roofing accounts for a significant portion of the overall metal
components market, but a relatively small percentage (approximately 5%) of the
large commercial roofing market estimated at over $20 billion annually. As a
result, management believes that significant opportunities exist for metal
roofing, with its advantages over conventional roofing materials, to increase
its overall share of this market. Metal roofing systems have several advantages
over conventional roofing systems, including the following:
- LOWER LIFECYCLE COST. The total cost over the life of metal roofing
systems is lower than that of conventional roofing systems for both new
construction and retrofit roofing. For new construction, the cost of
installing metal roofing is greater than the cost of conventional roofing.
Yet, the longer life and lower maintenance costs of metal roofing make the
cost more attractive. For retrofit roofing, although installation costs
are 60-70% higher for metal roofing due to the need for a sloping support
system, the lower ongoing costs more than offset the initial expenditure.
- INCREASED LONGEVITY. Metal roofing systems generally last for 20 years
without requiring major maintenance or replacement, compared to five to
ten years for conventional roofs. The cost of leaks and roof failures
associated with conventional roofing can be very high, including damage to
building interiors and disruption of the functional usefulness of the
building. Metal roofing prolongs the intervals between costly and
time-consuming repair work.
- ATTRACTIVE AESTHETICS AND DESIGN FLEXIBILITY. Metal roofing systems allow
architects and builders to integrate colors and geometric design into the
roofing of new and existing buildings, providing an increasingly
fashionable means of enhancing a building's aesthetics. Conventional
roofing material is generally tar paper or a gravel surface, and building
designers tend to conceal roofs made with such materials.
METAL BUILDING SYSTEMS
Metal building systems consist of pre-engineered structural beams and panels
that are welded and roll formed in a factory and shipped to a construction site
complete and ready for assembly. Metal building systems manufacturers design an
integrated system that meets applicable building code requirements. These
systems consist of primary structural framing, secondary structural members
(i.e., purlins and girts) and covering for roofs and walls. Over the last
fifteen years, metal building systems have significantly
34
<PAGE>
increased penetration of the market for non-residential low rise structures and
are being used in a broad variety of other applications. According to the Metal
Building Manufacturers Association ("MBMA"), reported sales of metal building
systems have increased from approximately $1.5 billion in 1993 to $2.5 billion
in 1997. The Company believes this increase has resulted primarily from (i) the
significant cost advantages offered by these systems, (ii) increased
architectural acceptance of metal building systems for construction of
commercial and industrial building projects, (iii) advances in design
versatility and production processes and (iv) a strong general economic
environment. The Company believes the cost of a metal building system generally
represents approximately 15-20% of the total cost of constructing a building,
which includes land cost, labor, plumbing, electrical, heating and air
conditioning systems installation and interior finish. Technological advances in
products and materials, as well as significant improvements in engineering and
design techniques, have led to the development of structural systems that are
compatible with more traditional construction materials. Architects and
designers now often combine a metal building system with masonry, glass and wood
exterior facades in order to meet the aesthetic requirements of customers while
preserving the inherent characteristics of metal building systems. As a result,
the uses for metal building systems now include office buildings, showrooms,
retail stores, banks, schools, warehouses, factories and distribution centers,
government and community centers for which aesthetics and architectural features
are important considerations of the end users.
In its marketing efforts, the Company and other major manufacturers
generally emphasize the following characteristics of metal building systems to
distinguish them from other methods of construction:
- SHORTER CONSTRUCTION TIME. In many instances, it takes less time to
construct a metal building than other building types. In addition, since
most of the work is done in the factory, the likelihood of weather
interruptions is reduced.
- MORE EFFICIENT MATERIAL UTILIZATION. The larger metal building systems
manufacturers use computer-aided analysis and design to fabricate
structural members with high strength-to-weight ratios, minimizing raw
materials costs.
- LOWER CONSTRUCTION COSTS. The in-plant manufacture of metal building
systems, coupled with automation, allows the substitution of less
expensive factory labor for much of the skilled on-site construction labor
otherwise required for traditional building methods.
- GREATER EASE OF EXPANSION. Metal building systems can be modified quickly
and economically before, during or after the building is completed to
accommodate all types of expansion. Typically, a building system can be
expanded by removing the end or side walls, erecting new framework and
adding matching wall and roof panels.
- LOWER MAINTENANCE COSTS. Unlike wood, metal will not deteriorate because
of cracking, rot or insect damage. Furthermore, factory-applied roof and
siding panel coatings resist cracking, peeling, chipping, chalking and
fading.
CONSOLIDATION
Over the last several years, there has been consolidation in the metal
components and metal building systems industry, which includes a large number of
small local and regional firms. Management believes that this industry will
continue to consolidate, driven by the needs of manufacturers to increase
manufacturing capacity, achieve greater process integration and add geographic
diversity in order to meet customers' product and delivery needs, improve
production efficiency and manage costs.
35
<PAGE>
BUSINESS
GENERAL
The Company is one of North America's largest integrated manufacturers of
metal products for the building industry, with 38 manufacturing and distribution
facilities located in 18 states and Mexico. The Company sells metal components
as well as complete, pre-engineered metal building systems, offering one of the
most extensive metal product lines in the building industry with well-recognized
brand names. Management believes that the Company's leading market positions and
strong track record of growth and profitability have resulted from its focus on
improving manufacturing efficiency, controlling overhead costs, developing new
markets and successfully identifying and integrating strategic acquisitions. In
May 1998, NCI acquired MBCI, thereby doubling its sales, becoming the largest
domestic manufacturer of nonresidential metal components and significantly
improving its product mix. On a pro forma basis giving effect to the MBCI
Acquisition, the Company's sales and income from operations were $849.0 million
and $95.0 million, respectively, for the 12-month period ended July 31, 1998.
METAL COMPONENTS. With a market share at least twice that of its largest
competitor, the Company is the largest domestic supplier of metal components to
the nonresidential building industry. The Company designs, manufactures, sells
and distributes one of the widest selections of metal roof and wall systems,
overhead doors, fascia, mansard and various trim accessories for commercial,
industrial, architectural, agricultural and residential construction and repair
and retrofit uses. The Company is also one of the largest independent providers
of hot roll and light gauge metal coil coating and painting services and
products. The Company coats and paints hot roll coil metal for use in its own
metal components manufacturing, as well as processing hot roll coil metal and
toll coating light gauge metal for use by third parties. The Company markets its
metal components products and coating and painting services nationwide primarily
through a direct sales force under several brand names, including "Metal
Building Components," "American Building Components," "DBCI," "MBCI," "Metal
Coaters of Georgia," "Metal-Prep," "DOUBLECOTE" and "Metal Coaters of
California." On a pro forma basis giving effect to the MBCI Acquisition, the
Company's sales of metal components and coating and painting services were
$584.9 million, or 68.9% of total sales, for the 12-month period ended July 31,
1998.
PRE-ENGINEERED METAL BUILDING SYSTEMS. NCI is one of the largest domestic
suppliers of pre-engineered metal building systems. The Company designs,
manufactures and markets pre-engineered metal building systems, self-storage
building systems and metal home framing systems for commercial, industrial,
agricultural, governmental, community service and residential uses. The Company
markets these systems nationwide through authorized builder networks totaling
over 1,200 builders and a direct sales force under several brand names,
including "Metallic Buildings," "Mid-West Steel Buildings," "A & S Buildings,"
"All American Systems," "Steel Systems" and "Mesco." On a pro forma basis giving
effect to the MBCI Acquisition, the Company's sales of pre-engineered metal
building systems were $264.1 million, or 31.1% of total sales, for the 12-month
period ended July 31, 1998.
Prior to their combination, NCI and MBCI both demonstrated strong growth in
sales and income from operations. NCI has achieved five-year compound annual
growth rates of 38.9% and 49.6%, respectively, in sales and income from
operations. MBCI has achieved five-year compound annual growth rates of 15.3%
and 16.2%, respectively, in sales and income from operations.
COMPANY STRENGTHS
The Company believes that the combined NCI and MBCI operations will be able
to continue to grow sales income from operations, net income and net income per
share by capitalizing on the following strengths:
LEADING MARKET POSITIONS AND SCALE OF OPERATIONS. The Company is the
largest manufacturer of metal components for the nonresidential building
industry and one of the largest suppliers of pre-
36
<PAGE>
engineered metal building systems in the United States. In addition, the
Company is one of the largest independent providers of coated steel. As a
result of its leading market positions and scale of operations, the Company
has expanded its geographic scope to meet customer product and delivery
needs, realized production efficiencies and improved its ability to attract
builders and other customers.
BALANCE BETWEEN NEW CONSTRUCTION AND REPAIR AND RETROFIT
END-MARKETS. Prior to the MBCI Acquisition, NCI's business was focused
primarily on pre-engineered metal building systems, demand for which is
driven primarily by new building construction. The Company currently derives
a majority of its sales and net income from metal components sales, which
are used in a number of repair and retrofit applications as well as new
construction. Management believes that the balance between these end markets
reduces the impact on the Company of slowdowns in new construction activity
and provides enhanced growth opportunities.
LOW-COST SUPPLIER. The Company strives to be the low-cost supplier to
its customers by maintaining low production and distribution costs. The
Company's large scale manufacturing capabilities provide purchasing
efficiencies and enhance productivity through the sharing of best practices
between metal components and pre-engineered metal building systems
operations. In addition, the Company's "hub and spoke" system of satellite
manufacturing facilities places the locations for the manufacture of
secondary structural framing and covering systems and final distribution
closer to the customer, thereby reducing transportation costs and delivery
times. The MBCI Acquisition also provided the Company with in-house coil
painting and coating operations, a significant cost element in metal
components manufacturing. The Company is shifting its coating needs from
third-party providers to its own production, thereby increasing coating
utilization and recapturing margin paid to third parties.
BROAD PRODUCT LINES AND DIVERSE CUSTOMER BASE. The addition of MBCI's
metal components operations, including metal coating and painting, to NCI's
pre-engineered metal building systems has enabled the Company to become one
of the largest integrated suppliers in the industry, offering a wider
variety of products and services. In addition, the Company has a broad and
diversified customer base with significant cross-selling opportunities. The
Company's integrated and expanded product lines provide the Company with
significant new marketing opportunities to increase sales to existing
customers and obtain new customers by offering single-source metal building
solutions to all of its customer base.
NATIONWIDE COVERAGE. The MBCI Acquisition provides the Company with the
opportunity to expand substantially its manufacturing, selling and
distribution presence into new geographic markets. The Company's
pre-engineered metal building systems facilities in the South, Southwest and
West complement its metal components facilities nationwide. The addition of
MBCI's metal components locations in the Northeast and Northwest provide the
Company with access to new regional markets for the Company's pre-engineered
metal building systems. Management believes that the Company's geographic
diversity will limit the impact from an economic downturn in any particular
region.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team has
an average of over 20 years of industry experience and has significantly
increased its depth as a result of the MBCI Acquisition. The management
teams of NCI and MBCI share similar business philosophies and historically
have demonstrated an ability to grow sales and net income in times of
strong, as well as adverse, economic conditions. Management attributes this
ability to effectively marketing its products, strategically locating new
manufacturing facilities, controlling expenses, maintaining flexibility in
capital budgeting, reducing production and distribution costs and
successfully completing and integrating acquisitions. In addition, the two
management teams have successfully identified and completed nine
acquisitions in the last five years. The Company's senior management team
will own approximately 12.3% of the Common Stock after giving effect to the
Offering.
37
<PAGE>
BUSINESS STRATEGY
The Company's management has developed business strategies to capitalize on
the Company's strengths. The Company's primary business strategies include the
following:
PURSUE STRATEGIC GROWTH OPPORTUNITIES. Throughout its history, the
Company has increased its sales and net income through a combination of
selective acquisitions and internal growth. Since 1993, the Company has
successfully acquired and integrated seven companies and is in the process
of integrating MBCI and a subsequently acquired metal coating and painting
operation. Management's disciplined acquisition strategy is focused on the
identification of suppliers of metal products and services that can be
relatively quickly assimilated into the Company's operations and that offer
opportunities to expand the Company's product line, further vertically
integrate its operations or broaden its geographic reach. In order to expand
its geographic coverage and increase manufacturing capacity, the Company has
also constructed nine new manufacturing facilities in the last five years
and has formed four joint ventures to expand into new markets and to
increase market penetration of existing markets.
LEVERAGE EXISTING DISTRIBUTION CHANNELS TO INCREASE SALES OF METAL
COMPONENTS. The Company seeks to penetrate further the metal components
market, primarily for metal roofing and wall systems. Currently, the Company
sells its products under well-recognized brand names through various
distribution channels to a broad range of end users. These channels include,
among others, (i) authorized builders, (ii) building materials
manufacturers, distributors and retailers, (iii) roofing systems installers,
(iv) contractors and end users and (v) builders of self-storage facilities.
The Company plans to increase sales and net income by utilizing its multiple
distribution channels to market its expanded range of metal components
products to existing and new customers.
CONTINUE TO ENHANCE FLEXIBLE, COST-EFFECTIVE PRODUCTION FACILITIES AND
PROCESSES. The Company's commitment to providing its customers with quality
products on a timely basis at competitive prices remains a key element of
its business strategy. As a result, management is focused on continuous cost
reduction including realization of opportunities to (i) aggressively manage
the purchase of raw materials, (ii) further automate its manufacturing
operations to reduce process costs and improve product quality and (iii)
capitalize on the breadth of the Company's geographic coverage to provide
customers with rapid delivery.
INCREASE SALES OF PRE-ENGINEERED METAL BUILDING SYSTEMS IN NEW AND
EXISTING GEOGRAPHIC MARKETS. The addition of MBCI's metal components
locations nationwide provides the Company with an opportunity to expand
sales of the Company's pre-engineered metal building systems in existing
markets and provides access to new regional markets in the Northeast and
Northwest. By utilizing MBCI's nationwide metal components manufacturing
facilities as platforms for expansion, the Company is well positioned to
increase sales of pre-engineered metal building systems in markets that
previously had been difficult for NCI to serve on a cost-effective basis.
38
<PAGE>
ACQUISITIONS AND JOINT VENTURES
ACQUISITIONS. The following table describes NCI's and MBCI's combined
acquisition activity since 1993:
<TABLE>
<CAPTION>
PURCHASE
PRICE
SELLER DATE ACQUIRED (IN MILLIONS) BUSINESS ACQUIRED LOCATIONS
- ------------------------------------- ------------- --------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
Ellis Building Components, Inc. Oct. 1994 $ 4.9 Metal building systems Tallapoosa, GA
and metal components
Royal Metal Buildings, Inc. Mar. 1995 0.9 Metal building systems Hobbs, NM
and metal components
Doors & Building Components, Inc. Nov. 1995 14.7 Doors and interior metal Douglasville, GA;
components Chandler, AZ
Carlisle Engineered Metals, Inc. Mar. 1996 2.8 Metal components (West Lodi, CA
coast division)
Anderson Industries, Inc. Apr. 1996 22.3 Metal building systems, Southlake, TX;
metal components, metal Chester, SC
roofs and components
(Mesco division)
Alta Industries Apr. 1996 19.0 Metal components Salt Lake City, UT;
(Steelco division) Boise, ID
Carlisle Engineered Metals, Inc. Feb. 1997 6.2 Insulated panels and Stratford, TX;
metal components Jemison, AL
(division)
BTR plc May 1998 600.0 Metal components and Houston, TX
metal coating and headquarters and 21
painting (MBCI) other facilities in
U.S.
Chicago Metallic Corporation May 1998 15.0 Metal coating and Rancho Cucamonga, CA
painting (California
Finished Metals)
</TABLE>
JOINT VENTURES. The Company has also formed the following joint ventures:
<TABLE>
<CAPTION>
OPERATIONS PERCENTAGE
JOINT VENTURE BEGUN OWNERSHIP BUSINESS LOCATION
- ------------------------------------- ------------- --------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
DOUBLECOTE, L.L.C. Apr. 1995 50% Metal coating and Jackson, MS
painting
Metallic de Mexico, S.A. de C.V. Nov. 1995 50% Drafting and marketing Monterrey, Mexico
Building Systems de Mexico, S.A. de July 1997 51% Primary structures for Monterrey, Mexico
C.V. metal building systems
Midwest Metal Coating, L.L.C. (1) 50% Metal coating and Granite City, IL
painting
</TABLE>
- ------------------------------
(1) Expected to commence operations in the first quarter of 1999.
39
<PAGE>
PRODUCTS AND MARKETS
The Company's product lines consist of metal components for the building
industry and pre-engineered metal building systems. On an actual and pro forma
basis, giving effect to the MBCI Acquisition, NCI's and the Company's sales,
respectively, for the periods indicated attributable to these product lines were
approximately as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1997
---------------------- ---------------------- ---------------------- ----------------------
(IN MILLIONS)
Metal components............... $ 60.3 25.8% $ 119.9 36.0% $ 161.2 39.5% $ 569.1 69.8%
Metal building systems......... 173.9 74.2 213.0 64.0 246.6 60.5 246.6 30.2
--------- ----- --------- ----- --------- ----- --------- -----
Total sales................ $ 234.2 100.0% $ 332.9 100.0% $ 407.8 100.0% $ 815.7 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
METAL COMPONENTS. The Company's metal components consist of individual
components, including secondary structural framing, covering systems and
associated metal trims, that are sold directly to contractors or end users for
use in the building industry, including the construction of metal buildings. The
Company also stocks and markets metal component parts for use in the maintenance
and repair of existing buildings. Specific component products consist of end and
side wall panels, roof panels, purlins, girts, partitions, header panels and
related trim and screws. The Company believes it offers the widest selection of
metal components in the building industry.
Purlins and girts, which are medium gauge, roll formed steel components, are
supplied to builders for secondary structural framing. The Company custom
produces purlins and girts for its customers and offers the widest selection of
sizes and profiles of purlins and girts in the United States. Covering systems,
consisting of wall and roof panels, protect the rest of the structure and the
contents of the building from the weather, while also contributing to the
structural integrity of the building.
The Company's metal roofing products are attractive and durable. The Company
uses standing seam roof technology to replace traditional built-up and
single-ply roofs as well as to provide a distinctive look to new construction.
The Company manufactures and designs metal roofing systems for sales to regional
metal building manufacturers, general contractors and subcontractors. The
Company believes it has the broadest line of standing seam roofing products in
the building industry. The Company has also developed and patented a retrofit
metal panel, Retro-R-Registered Trademark-, that is used to replace wall and
roof panels of metal buildings. Retro-R-Registered Trademark- can be installed
over the top of existing metal panels to remodel or preserve a standing
structure. Although metal roofing is somewhat more expensive than traditional
roofing in upfront costs, its durability and low maintenance costs make metal
roofing a lower cost roofing product after the first 10 years.
The Company manufactures overhead doors and interior and exterior doors for
use in metal and other buildings. The Company is one of the largest suppliers in
the U.S. of roll-up doors to builders of self-storage facilities.
The Company provides its own metal coating and painting products and
services for use in component manufacturing. As a toll coater of hot roll steel
coils, the Company also provides pre-painted hot roll coils to manufacturers of
metal building systems and metal components. Either a customer provides coils
through its own supply channels, which are processed by the Company, or the
Company purchases hot roll coils and processes them for sale as a packaged
product. The Company also pre-paints light gauge steel coils for steel mills,
which supply the painted coils to various industrial users, including metal
building systems and metal components manufacturers and manufacturers of
lighting fixtures.
The Company's metal coating and painting operations apply a variety of paint
systems to metal coils. The process generally includes cleaning and painting the
coil and slitting it to customer specifications. The
40
<PAGE>
Company believes that pre-painted metal coils are a better quality product,
environmentally cleaner and more cost-effective than painted metal products
prepared in other manufacturers' in-house painting operations. Painted metal
coils also offer manufacturers the opportunity to produce a broader and more
aesthetically pleasing range of products.
PRE-ENGINEERED METAL BUILDING SYSTEMS. Pre-engineered metal building
systems consist of pre-engineered structural beams and panels that are welded
and roll formed in a factory and shipped to a construction site complete and
ready for assembly. The Company designs an integrated metal building system that
meets customer specifications and allows easy on-site assembly by the builder or
independent contractor. Pre-engineered metal building systems typically consist
of three systems:
- PRIMARY STRUCTURAL FRAMING. Primary structural framing, fabricated from
heavy-gauge steel, supports the secondary structural framing, roof, walls
and all externally applied loads. Through the primary framing, the force
of all applied loads is structurally transferred to the foundation.
- SECONDARY STRUCTURAL FRAMING. Secondary structural framing consists of
medium-gauge, roll-formed steel components called purlins and girts.
Purlins are attached to the primary frame to support the roof. Girts are
attached to the primary frame to support the walls. The secondary
structural framing is designed to strengthen the primary structural
framing and efficiently transfer applied loads from the roof and walls to
the primary structural framing.
- COVERING SYSTEMS. Covering systems consist of roof and wall panels. These
panels not only lock out the weather but also contribute to the structural
integrity of the overall building system. Roof and siding panels are
fabricated from light-gauge, roll-formed steel. Accessory components
complete the pre-engineered metal building system. These components
include doors, windows, gutters and interior partitions.
[ART--SIMPLIFIED STRUCTURE WITH BASIC SUBSYSTEMS SHOWN]
41
<PAGE>
SALES, MARKETING AND CUSTOMERS
METAL COMPONENTS. The Company sells metal components directly to regional
manufacturers, contractors, subcontractors, distributors, lumberyards,
cooperative buying groups and other customers under the brand names "Metal
Building Components," "American Building Components" and "MBCI." Roll-up doors,
interior and exterior doors, interior partitions and walls, header panels and
trim are sold directly to contractors and other customers under the brand names
"Doors & Building Components" or "DBCI." These components also are produced for
integration into self storage and pre-engineered metal building systems sold by
of the Company.
The Company markets its components products within four product lines: (i)
commercial/industrial; (ii) architectural; (iii) wood frame builders; and (iv)
residential. Customers include regional metal building systems manufacturers,
general contractors, subcontractors, roofing installers, architects and
end-users. Commercial and industrial businesses are heavy users of metal
components and metal buildings systems. Standing seam roof and architectural
customers are growing in importance. As metal buildings become a more acceptable
building alternative and aesthetics become an increasingly important
consideration for end users of metal buildings, the Company believes that
architects are participating in metal building design and purchase decisions to
a greater extent. Wood frame builders also purchase the Company's metal
components through distributors, lumberyards, cooperative buying groups and
chain stores for various uses, including agricultural buildings. Residential
customers are generally contractors building upscale homes that require an
architect-specified product.
The Company's metal components sales operations are organized into four
geographic regions. Each region is headed by a general sales manager supported
by individual plant sales managers. Each local sales office is located adjacent
to a manufacturing plant and is staffed by a direct sales force responsible for
contacting customers and architects and a sales coordinator who supervises the
sales process from the time the order is received until it is shipped and
invoiced. The regional and local focus of the Company's customers requires
extensive knowledge of local business conditions.
The Company provides its customers with product catalogs tailored to its
product lines, which include product specifications and suggested list prices.
Certain of the Company's catalogs are available on-line through the Internet,
which enables architects and other customers to download drawings for use in
developing project specifications. Customers place orders via telephone or
facsimile to a sales coordinator at the regional office who enters it onto a
standard order form. The form is then sent via computer to the plant and
downloaded automatically to the production machines.
The Company has a small number of national accounts for its coating and
painting products and services and relies on a single sales manager. The Company
also has a metal coating joint venture, which has an independent sales force.
PRE-ENGINEERED METAL BUILDING SYSTEMS. The Company sells pre-engineered
metal building systems to builders nationwide under the brand names "Metallic
Buildings," "A&S Buildings" and "Mesco," respectively. The Company markets
pre-engineered metal building systems through an in-house sales force to
authorized builder networks of over 1,200 builders. The Company markets
pre-engineered metal building systems under the brand name "Mid-West Steel
Buildings" directly to contractors in Texas and surrounding states using an
in-house sales force. The Company also sells pre-engineered metal building
systems under the name "All American Systems" and various private labels.
The Company's authorized builder networks consist of independent general
contractors which market the Company's Metallic Buildings, A&S Buildings and
Mesco products to end users. Most of the Company's sales of pre-engineered metal
building systems outside of Texas and surrounding states are through its
authorized builder networks. The Company relies upon maintaining a satisfactory
business relationship for the continued receipt of job orders from its
authorized builders and does not consider the builder agreements to be material
to its business. During fiscal 1997, the Company's largest customer for
pre-engineered metal building systems accounted for less than 2% of the
Company's total sales.
42
<PAGE>
The Company enters into an agreement with an authorized builder, which
generally grants the builder the non-exclusive right to market the Company's
products in a specified territory and which is cancelable by either party on 60
days notice. The agreements do not prohibit the builder from marketing metal
building systems of other manufacturers. The Company establishes an annual sales
goal for each builder and provides to the builder sales and pricing information,
design and engineering manuals, drawings and assistance, application programs
for estimating and quoting jobs and advertising and promotional literature. The
Company also defrays a portion of the builder's advertising costs and provides
volume purchasing and other pricing incentives to encourage them to deal
exclusively or principally with the Company. The builder is required to maintain
a place of business in its designated territory, provide a sales organization,
conduct periodic advertising programs and perform construction, warranty and
other services for customers and potential customers. An authorized builder
usually is hired by an end user to erect a metal building system on the
customer's site and provide general contracting and other services ancillary to
the completion of the project. The Company sells its products to the builder,
which generally includes the price of the building as a part of its overall
construction contract with its customer.
MANUFACTURE AND DESIGN
METAL COMPONENTS. The Company operates 37 facilities used for manufacturing
of metal components for the building industry, including its metal coating and
painting operations. The Company believes this broad geographic penetration
gives it an advantage over its components competitors because major elements of
a customer's decision are the speed and cost of delivery from the manufacturing
facility to the product's ultimate destination. With the exception of the
Company's architectural and standing seam products, the Company is not involved
in the design process for the components it manufactures. The Company also owns
a fleet of trucks to deliver its products to its customers in a more timely
manner than most of its competitors.
The Company's doors, interior partitions and other related panels and trim
products are manufactured at dedicated plants in Georgia, Texas and Arizona. The
products are roll-formed or fabricated at each plant using roll-formers and
other metal working equipment. Orders are processed at the Georgia plant and
sent to the appropriate plant, which is generally determined in a manner to
obtain the lowest shipping cost.
METAL COATING AND PAINTING. The Company operates two metal coating and
painting facilities from which it primarily services its own needs and the needs
of other metal components manufacturers through the processing of hot rolled
steel coils. Metal coating and painting processes involve applying various types
of chemical treatments and paint systems to flat rolled continuous coils of
metal, including steel and aluminum, giving the coils a baked-on finish that
both protects the metal and makes it more attractive. Initially, various metal
substrates in coil form are flattened, cleaned and pretreated. The metal is then
coated, oven cured, cooled, recoiled and packaged for shipment. Slitting and
embossing services can also be performed on the coated metal prior to shipping
pursuant to customer specifications. Hot roll steel coils typically are used in
the production of secondary structural framing of metal buildings and other
structure applications. Painted light gauge steel coils are used in the
manufacture of products for building exteriors, metal doors, lighting fixtures
and appliances. The Company's metal coating operation is one of only two metal
coaters in the United States to receive the Supplier Excellence Award from
Bethlehem Steel Corporation.
The Company is a joint venture partner in two metal coating operations. The
Company owns 50% of an existing metal coating joint venture with a processing
plant in Jackson, Mississippi. The Company also owns 50% of a new joint venture,
which has acquired land in Granite City, Illinois and is building a hot rolled
coil coating facility that is expected to commence operations in the first
quarter of 1999. The new facility will be used to slit and coat hot rolled coils
of medium gauge steel for use in manufacturing purlins and girts. The Company
has agreed to purchase a substantial portion of its production requirements for
that product from the new joint venture.
43
<PAGE>
PRE-ENGINEERED METAL BUILDING SYSTEMS. After the Company receives an order,
the Company's engineers design the metal building system to meet the customer's
requirements and to satisfy applicable building codes and zoning requirements.
In order to expedite this process, the Company uses computer-aided design and
engineering systems to generate engineering and erection drawings and a bill of
materials for the manufacture of the pre-engineered metal building system. The
Company employs approximately 185 engineers and draftsmen in this area.
Once the specifications and designs of the customer's project have been
finalized, the manufacturing process of frames and other building systems begins
at one of the Company's six manufacturing facilities in Texas, Georgia, South
Carolina or Tennessee or its joint venture facility in Mexico. The fabrication
of the primary structural framing consists of a process in which pieces of rigid
steel plates are punched and sheared and then routed through an automatic
welding machine and sent through further fitting and welding processes. The
secondary structural framing and the covering subsystem are roll-formed steel
products that are manufactured at the Company's full manufacturing facilities as
well as its regional satellite plants. In roll forming, pre-finished coils of
steel are unwound and passed through a series of progressive forming rolls which
form the steel into various profiles of medium-gauge structural shapes and
light-gauge sheets and panels.
Once manufactured, structural framing members and covering systems are
shipped to the job site for assembly. The Company generally is not responsible
for any on-site construction. The time elapsed between the Company's receipt of
an order and shipment of a completed building system has typically ranged from
four to eight weeks, although delivery can extend somewhat longer if engineering
and drafting requirements are extensive.
The Company owns 51% of a joint venture, which began operation of a framing
facility in Monterrey, Mexico in July 1997. The Company purchases substantially
all of the framing systems produced by the Mexico joint venture.
RAW MATERIALS
The principal raw material used in the manufacture of the Company's
pre-engineered metal building systems and component products is steel.
Components are fabricated from common steel products produced by mills including
bars, plates, sheets and galvanized sheets. On a combined basis for their
respective 1997 fiscal years, NCI and MBCI purchased an aggregate of
approximately 80% of their steel requirements from National Steel Corporation
and Bethlehem Steel Corporation. No other steel supplier accounted for more than
10% of the combined steel purchases for the same period. The Company believes
concentration of its steel purchases among a small group of suppliers that have
mills and warehouse facilities in close proximity to the Company's facilities
enables it, as a large customer of those suppliers, to obtain better service and
delivery. These suppliers generally maintain an inventory of the types of
materials required by the Company, enabling the Company to utilize a form of
"just-in-time" inventory management with regard to raw materials.
The Company does not have any long-term contracts for the purchase of raw
materials. A prolonged labor strike against one of its principal domestic
suppliers could have a material adverse effect on the Company's operations.
Alternative sources, however, including foreign steel, are currently believed to
be sufficient to maintain required deliveries.
BACKLOG
At July 31, 1998, the total backlog for orders for the Company's products
believed by the Company to be firm was $167.9 million. This compares with a
total backlog for NCI's products of $110.0 million at October 31, 1997, and
$85.6 million at October 31, 1996, and for MBCI's products of $16.1 million at
December 31, 1997, and $14.9 million at December 31, 1996. The increases in
backlog reflect the results of the marketing activities of the Company and
market demand. Backlog primarily consists of pre-engineered
44
<PAGE>
metal building systems. Job orders generally are cancelable by customers at any
time for any reason and, occasionally, orders in the backlog are not completed
and shipped for reasons that include changes in the requirements of the
customers and the inability of customers to obtain necessary financing or zoning
variances. None of the backlog at July 31, 1998, currently is scheduled to
extend beyond July 31, 1999.
COMPETITION
The Company competes with a number of other manufacturers of metal
components and metal building systems for the building industry, ranging from
small local firms to large national firms. Most of these competitors operate on
a regional basis, although the Company believes that at least four other
manufacturers of metal building systems and several manufacturers of metal
components have nationwide coverage. In addition, the Company and other
manufacturers of metal components and metal building systems compete with
alternative methods of building construction, which may be perceived as more
traditional, more aesthetically pleasing or having other advantages. Competition
is based primarily on price, speed of construction, quality of builder/dealer
networks, the ability to provide added value in the design and engineering of
buildings and, among manufacturers of metal components and metal building
systems, service, quality and delivery times.
REGULATORY MATTERS
The Company's operations are subject to a wide variety of federal, state and
local laws and regulations governing, among other things, emissions to air,
discharges to waters, the generation, handling, storage, transportation,
treatment, and disposal of hazardous substances and other materials and health
and safety matters. Laws protecting the environment generally have become more
stringent than in the past and are expected to continue to do so. Environmental
laws and regulations generally impose "strict liability," which means that in
some situations the Company could be exposed to liability for cleanup costs, and
"toxic tort" or other damages as a result of conduct that was lawful at the time
it occurred or conduct of, or conditions caused by, prior operators or other
third parties, regardless of fault on the part of the Company. The Company
believes it is in substantial compliance with all environmental standards
applicable to its operations. However, there can be no assurance that cleanup
costs, natural resource damages, criminal sanctions, "toxic tort" or other
damages arising as a result of environmental laws and costs associated with
complying with changes in environmental laws and regulations will not be
substantial and will not have a material adverse effect on the Company's
financial condition. From time to time, claims have been made against the
Company under environmental laws. The Company has insurance coverage for certain
environmental claims and certain locations after payment of the applicable
deductible. The Company does not anticipate material capital expenditures to
meet current environmental quality control standards. There can be no assurance
that more stringent regulatory standards will not be established that might
require such expenditures.
The Company is also subject to federal, state and local laws and regulations
governing occupational safety and health, including review by the federal
Occupational Health and Safety Administration and similar state agencies. The
Company believes it is in substantial compliance with applicable laws and
regulations, and compliance does not have a material adverse affect on the
Company's business.
The pre-engineered metal building systems manufactured by the Company must
meet zoning and building code requirements promulgated by local governmental
agencies.
45
<PAGE>
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company has a number of United States patents and pending patent
applications, including patents relating to metal roofing systems and metal
overhead doors. The Company does not, however, consider patent protection to be
a material competitive factor in its industry. The Company also has several
registered trademarks and pending registrations in the United States.
EMPLOYEES
As of July 31, 1998, the Company had approximately 3,700 employees, of whom
over 2,700 were manufacturing and engineering personnel. The Company regards its
employee relations as satisfactory.
The Company's employees are not represented by a labor union or collective
bargaining agreement, although the United Steel Workers of America petitioned
the National Labor Relations Board to be recognized as the collective bargaining
representative of the production and maintenance employees of the Company's
Tallapoosa, Georgia facility. An election for that purpose was held in January
1996 and the union lost the election to be recognized as the collective
bargaining representative of such employees. A similar election was held at the
Company's Mattoon, Illinois facility in November 1997 and the United Steel
Workers of America lost that election.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that the Company
considers to be in the normal course of business. Management believes that such
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
PROPERTIES
The Company conducts manufacturing operations at the following facilities:
<TABLE>
<CAPTION>
SQUARE OWNED
FACILITY PRODUCTS FEET OR LEASED
- ---------------------------- --------------------------------- --------- ---------
<S> <C> <C> <C>
Chandler, Arizona Doors and related metal 35,000 Leased
components
Tomlinson, Arizona Metal components(1) 65,980 Owned
Atwater, California Metal components(2) 85,700 Owned
Rancho Cucamonga, California Metal coating and painting 98,000 Owned
Tampa, Florida Metal components(3) 28,775 Owned
Adel, Georgia Metal components(1) 59,550 Owned
Douglasville, Georgia Metal components(4) 110,536 Owned
Douglasville, Georgia Doors and related metal 60,000 Owned
components
Marietta, Georgia Metal coating and painting 125,700 Owned
Tallapoosa, Georgia Metal building systems(5) 246,000 Leased
Metal components
Napa, Idaho Metal components(6) 42,900 Owned
Mattoon, Illinois Metal components(2) 90,600 Owned
Shelbyville, Indiana Metal components(6) 66,450 Owned
Nicholasville, Kentucky Metal components(7) 41,280 Owned
Monterrey, Mexico(8) Metal building systems(9) 64,125 Owned
Jackson, Mississippi Metal components(2) 96,000 Owned
Jackson, Mississippi(10) Metal coating and painting 363,200 Owned
Omaha, Nebraska Metal components(7) 51,750 Owned
Hobbs, New Mexico(11) Metal components(2) 60,800 Leased
Rome, New York Metal components(6) 57,700 Owned
Oklahoma City, Oklahoma Metal components(1) 59,695 Owned
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED
FACILITY PRODUCTS FEET OR LEASED
- ---------------------------- --------------------------------- --------- ---------
<S> <C> <C> <C>
Chester, South Carolina Metal building systems(5) 124,000 Owned
Metal components
Caryville, Tennessee Metal building systems(5) 193,800 Owned
Metal components
Memphis, Tennessee Metal coating and painting 61,500 Owned
Nesbitt, Tennessee Metal components(1) 71,720 Owned
Ennis, Texas Metal components and studs 33,000 Owned
Grand Prairie, Texas Metal components(1) 48,027 Owned
Houston, Texas Metal components 97,000 Owned
Houston, Texas Metal components(4) 209,355 Owned
Houston, Texas Metal coating and painting 39,550 Owned
Houston, Texas(12) Metal building systems(5) 382,000 Owned
Metal components
Doors
Lubbock, Texas Metal components(1)(7) 64,320 Owned
San Antonio, Texas Metal components(6) 52,360 Owned
Southlake, Texas Metal building systems(5) 123,000 Owned
Metal components
Stafford, Texas Metal components 105,000 Leased
Stafford, Texas(11) Metal components 56,840 Leased
Salt Lake City, Utah Metal components(1) 93,150 Owned
Colonial Heights, Virginia Metal components(1) 37,000 Owned
</TABLE>
- ------------------------------
(1) Secondary structures and covering systems.
(2) Includes secondary structures and covering systems.
(3) Covering products.
(4) Full product range.
(5) Primary structures, secondary structures and covering systems.
(6) Covering systems.
(7) Specialized products.
(8) The Company owns a 51% interest in a joint venture.
(9) Primary structures.
(10) The Company owns a 50% interest in a joint venture.
(11) Currently targeted for closure by the end of 1999.
(12) Includes 33,600 square feet used for the Company's principal executive
offices.
The Company also maintains several drafting office facilities and retail
locations in various states. These additional facilities are subject to
short-term leases.
The Company believes that its present facilities are adequate for its
current and projected operations. As part of the integration plan implemented in
connection with the MBCI Acquisition, the Company is reviewing its manufacturing
facilities and considering the consolidation or closure of certain facilities as
part of its efforts to maximize production efficiencies.
47
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY MANAGERS
The directors, executive officers and other key managers of the Company, and
their ages as of August 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
C. A. Rundell, Jr...................... 66 Chairman of the Board and Class II Director
Johnie Schulte, Jr..................... 63 President, Chief Executive Officer, President and Chief Executive
Officer of Metal Buildings Division and Class III Director
A. R. Ginn............................. 59 Executive Vice President and Chief Operating Officer, President and
Chief Executive Officer of Metal Components Division, Chief
Executive Officer of Metal Coaters Division and Class I Director
Leonard F. George...................... 46 Executive Vice President of Metal Buildings Division and Class III
Director
Robert J. Medlock...................... 58 Vice President, Treasurer and Chief Financial Officer and Vice
President, Chief Financial Officer and Treasurer of Metal
Buildings Division
Kenneth W. Maddox...................... 51 Vice President, Vice President and Chief Financial Officer of Metal
Components Division and Metal Coaters Division and Class I
Director
Donnie R. Humphries.................... 48 Secretary and Vice President, Human Relations of Metal Buildings
Division
Thomas C. Arnett....................... 65 Class I Director
William D. Breedlove................... 58 Class III Director
Gary L. Forbes......................... 54 Class II Director
Robert N. McDonald..................... 70 Class II Director
Daniel D. Zabcik....................... 69 Class I Director
OTHER KEY MANAGERS:
Jerry D. Boen.......................... 51 Vice President, Marketing of Metal Components Division
David B. Curtis........................ 38 President of Doors & Building Components Division
Charles W. Dickinson................... 47 Vice President, Sales of Metal Components Division
John T. Eubanks........................ 58 President of Mesco Metal Buildings Division
Kelly R. Ginn.......................... 37 Vice President, Manufacturing of Metal Components Division
John W. Holmes......................... 48 President of Metal Prep Division
Richard F. Klein....................... 59 President and Chief Operating Officer of Metal Coaters Division
Fredrick D. Koetting................... 39 Vice President, Operations of Metal Buildings Division
Alvan E. Richey, Jr.................... 62 Vice President, Sales and Marketing of Metal Buildings Division
</TABLE>
48
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS:
C.A. Rundell, Jr. has served as a director and Chairman of the Board of the
Company since April 1989. Since October 1997, Mr. Rundell has been President,
Chief Executive Officer and a director of Tyler Corporation, a provider of
information management systems and services for county governments and other
enterprises and a distributor of automotive aftermarket parts. Mr. Rundell
served as Chairman of the Board of Tyler Corporation from October 1996 until
October 1997, and as its temporary Chief Executive Officer from October 1996 to
March 1997. Since May 1988, Mr. Rundell has owned and operated Rundell
Enterprises, a sole proprietorship engaged in providing acquisition and
financial consulting services to various business enterprises. From 1977 to
1988, Mr. Rundell was the President, Chief Executive Officer and a director of
Cronus Industries, Inc. (now Business Records Corporation) ("Cronus"). Mr.
Rundell is also a director of Dain Rauscher Corporation, a holding company for a
full-service regional brokerage and investment banking company, and Tandy Brands
Accessories, Inc., a manufacturer of accessories for men, women and boys.
Johnie Schulte, Jr. a founder of the Company, has been a director, President
and Chief Executive Officer of the Company since 1984 and as the President and
Chief Executive Officer of the Metal Buildings Division since May 1998. Mr.
Schulte founded and was President of Mid-West Steel Buildings Co., Inc. from
1970 until its sale to American Buildings Company ("ABC"), a metal building
manufacturer, in 1980. Mr. Schulte remained as President of the Mid-West
Metallic Division of ABC until 1984, when he left to form the Company. Mr.
Schulte has spent 44 years in the metal building industry.
A. R. Ginn has served as a director and as Executive Vice President and
Chief Operating Officer of the Company, President and Chief Executive Officer of
the Metal Components Division and Chief Executive Officer of the Metal Coaters
Division since May 1998. Previously, he served as a director and the President
of MBCI since 1976 and was Chief Executive Officer of the Metal Coaters Division
of MBCI from 1987 to 1998. Mr. Ginn has over 40 years of experience in the metal
building and components industry. Mr. Ginn worked for four years with A&S Steel
Buildings and spent 14 years with Metallic Building Company, where he was Vice
President of Operations for seven years. Mr. Ginn is the father of Kelly R.
Ginn.
Leonard F. George has served as a director of the Company since March 1993
and as an Executive Vice President of the Metal Buildings Division since May
1998. Previously, Mr. George served as Executive Vice President of the Company
since September 1992 and as the President of the A&S Division from October 1992
until December 1992. From 1987 to September 1992, Mr. George was employed as
President, Vice President of Engineering, Assistant Vice President of
Engineering and Regional Sales Manager of ABC. Mr. George has spent over 20
years in the metal building industry.
Robert J. Medlock has served as Vice President and Chief Financial Officer
of the Company since February 1992 and as Vice President, Chief Financial
Officer and Treasurer of the Metal Buildings Division since May 1998. Mr.
Medlock served as the Chief Financial Officer and Treasurer of Enviropact, Inc.,
an environmental services company, from 1989 to 1991. He was the Vice President
and Chief Financial Officer of ABC from 1973 to 1978. After the acquisition of
ABC by Cronus, he became Vice President and Controller of Cronus and served in
that capacity from 1979 until 1981. Mr. Medlock is a certified public
accountant.
Kenneth W. Maddox has served as a director and as Vice President of the
Company and Vice President and Chief Financial Officer of the Metal Components
Division and the Metal Coaters Division since May 1998. Previously, he served as
the Chief Financial Officer and Treasurer of MBCI since 1980. Mr. Maddox is a
certified public accountant.
Donnie R. Humphries has been Secretary of the Company since 1985 and Vice
President, Human Relations of the Metal Buildings Division since May 1998. Mr.
Humphries previously served as Vice President, Human Relations of the Company
since 1997. Mr. Humphries was employed by Mid-West Steel
49
<PAGE>
Buildings Co., Inc. from 1976 to 1980 and by ABC from 1980 to 1985. Mr.
Humphries has over 21 years of experience in the metal building industry.
Thomas C. Arnett has served as a director of the Company since April 1989.
Mr. Arnett is currently retired and manages his own investments. Mr. Arnett was
an Executive Vice President of Cronus from 1977 to 1985 and served as a director
of Cronus from 1977 to 1988.
William D. Breedlove has served as a director of the Company since March
1992. Mr. Breedlove has been Vice Chairman of Hoak Breedlove Wesneski & Co., an
investment banking firm, since August 1996. Previously, he served as Chairman
and Managing Director of Breedlove Wesneski & Co., a private merchant banking
firm, for over five years. In addition, Mr. Breedlove served as a director of
Cronus from 1984 to 1988.
Gary L. Forbes has served as a director of the Company since December 1991.
Mr. Forbes has been a Vice President of Equus II Incorporated, an investment
company, since November 1991. Mr. Forbes is also a director of Consolidated
Graphics, Inc., a commercial printing company, Advanced Technical Products,
Inc., a manufacturer of high performance composite parts, and Drypers
Corporation, a manufacturer of disposable diapers. Mr. Forbes is a certified
public accountant.
Robert N. McDonald has served as a director since March 1992. Mr. McDonald
was a marketing consultant for ABC from 1985 until February 1992 and served as a
director of that company from 1989 to 1990. From 1956 to 1970, Mr. McDonald was
employed by Butler Manufacturing Company, a metal building manufacturer, and
served as Vice President of Marketing for ABC from 1970 to 1978.
Daniel D. Zabcik has been a director of the Company since April 1989 and
served as an Executive Vice President of the Company from April 1989 until
October 1993, when he resigned as an officer and assumed part-time employee
status. Since 1986, Mr. Zabcik has also served as a director of Southwest Bolt,
Inc., a distributor of structural bolts. From 1980 until April 1989, Mr. Zabcik
was employed as President, Executive Vice President and Vice Chairman of the
Mid-West Metallic division of ABC. Mr. Zabcik has spent over 40 years in the
metal building industry. Mr. Zabcik is a licensed engineer and served on the
Executive Committee of the MBMA in 1993.
The Board of Directors is comprised of four Class I Directors, three Class
II Directors and three Class III Directors. The terms of the Class I, Class II,
and Class III directors will expire at the annual meeting of stockholders held
in 2000, 2001 and 1999, respectively. At each of those annual meetings and
thereafter, directors will be elected for a three-year term to succeed the
directors of the same class whose terms are then to expire. Officers of the
Company serve at the discretion of the Board of Directors.
OTHER KEY MANAGERS:
Jerry D. Boen has served as Vice President, Marketing of the Metal
Components Division since May 1998. Previously, he served as Vice President of
Marketing of MBCI since 1980. Prior to joining MBCI, Mr. Boen was a sales
manager for another building components company.
David B. Curtis has served as President of the Doors & Building Components
Division of the Company since it was acquired from Doors & Building Components,
Inc. in November 1995. Mr. Curtis was the founder of Doors & Building
Components, Inc. and served as its President and Chief Executive Officer for
more than five years.
Charles W. Dickinson has served as Vice President, Sales of the Metal
Components Division since May 1998. Previously, he served as Vice President of
Sales of MBCI since 1991 and was employed by MBCI for more than 16 years. Mr.
Dickinson has over 23 years of experience in the metal building and components
industry.
50
<PAGE>
John T. Eubanks has served as President of the Mesco Metal Buildings
Division of the Company since 1989. Mesco Metal Buildings was a division of
Anderson Industries, Inc. prior to April 1, 1996, at which time it was acquired
by a subsidiary of the Company.
Kelly R. Ginn has served as Vice President, Manufacturing of the Metal
Components Divisions since May 1998. Previously, he served as Vice President of
Manufacturing of MBCI since 1990. Prior to joining MBCI in 1985, Mr. Ginn worked
as a Plant Superintendent for a large metal building manufacturer. Mr. Ginn has
19 years of experience in the metal building and components industry. Mr. Ginn
is the son of A.R. Ginn.
John W. Holmes has served as President of the Metal Prep Division since May
1998. Previously, he served as President of Metal Prep, Inc., a subsidiary of
MBCI, since 1996. Mr. Holmes was employed by MBCI for over 16 years and served
as Sales Manager for two of MBCI's plants and as President of American Building
Company, a subsidiary of MBCI. Before joining MBCI in 1981, Mr. Holmes was a
Regional Manager for a metal building components manufacturer.
Richard F. Klein has served as President and Chief Operating Officer of the
Metal Coaters Division since May 1998. Previously, he served as President of
Metal Coaters, Inc., a subsidiary of MBCI, since 1987. Before joining MBCI in
1987, Mr. Klein spent nine years as Vice President of a large coil coating
concern.
Fredrick D. Koetting has been Vice President, Operations of the Metal
Building Division since May 1998. He previously served as a Vice President of
the Company since May 1994. Prior to joining the Company in May 1994, Mr.
Koetting served as an Account Manager for National Steel Corporation, a steel
supplier of the Company, from 1991 until May 1994. Mr. Koetting served as a
Manager of Customer Service for Granite City Steel, a division of National Steel
Corporation, from 1989 until 1991.
Alvan E. Richey, Jr. has been Vice President, Sales and Marketing of the
Metal Buildings Division since May 1998. He previously served as Vice President,
Sales and Marketing of the Company since July 1995. Mr. Richey has also been
President of the A&S Division since December 1992. Prior to joining the Company
in September 1992, Mr. Richey was employed by ABC for over 22 years. Mr. Richey
has over 29 years of experience in the metal building industry.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Southwest Bolt, Inc., a corporation of which Mr. Zabcik is a director and
owns 25% of the capital stock, is the Company's primary supplier of structural
bolts. In fiscal 1997, the Company made purchases from Southwest Bolt, Inc., in
the amount of $1.9 million.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of August 31, 1998 (the "Ownership
Date"), by (i) each person or group known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director,
(iii) the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers for fiscal 1997, and (iv) all
directors and executive officers as a group. Except as otherwise indicated, each
of the persons or groups named below has sole voting power and investment power
with respect to such Common Stock.
<TABLE>
<CAPTION>
SHARES OWNED
SHARES OWNED BEFORE AFTER THE
THE OFFERING(1) OFFERING(1)
--------------------- SHARES BEING ---------------
NAME NUMBER PERCENT OFFERED NUMBER
- --------------------------------------------------------------- ---------- --------- ------- ---------------
<S> <C> <C> <C> <C>
Johnie Schulte, Jr.(2)......................................... 933,698 5.1%
A. R. Ginn..................................................... 500,000 2.8%
Daniel D. Zabcik(3)............................................ 312,010 1.7%
C.A. Rundell, Jr.(4)........................................... 256,218 1.4%
Kenneth W. Maddox.............................................. 238,000 1.3%
Gary L. Forbes(5).............................................. 200,500 1.1%
Leonard F. George(6)........................................... 146,028 *
John T. Eubanks(7)............................................. 125,250 *
Alvan E. Richey, Jr.(8)........................................ 71,554 *
Robert J. Medlock(9)........................................... 61,948 *
Thomas C. Arnett(10)........................................... 40,574 *
William D. Breedlove(11)....................................... 32,078 *
Robert N. McDonald(11)......................................... 18,078 *
All directors and executive officers as a group (12
persons)(12).................................................. 2,944,132 15.9%
<CAPTION>
NAME PERCENT
- --------------------------------------------------------------- -------
<S> <C>
Johnie Schulte, Jr.(2).........................................
A. R. Ginn.....................................................
Daniel D. Zabcik(3)............................................
C.A. Rundell, Jr.(4)...........................................
Kenneth W. Maddox..............................................
Gary L. Forbes(5)..............................................
Leonard F. George(6)...........................................
John T. Eubanks(7).............................................
Alvan E. Richey, Jr.(8)........................................
Robert J. Medlock(9)...........................................
Thomas C. Arnett(10)...........................................
William D. Breedlove(11).......................................
Robert N. McDonald(11).........................................
All directors and executive officers as a group (12
persons)(12)..................................................
</TABLE>
- ------------------------------
* Less than 1%
(1) Includes shares beneficially owned by such persons, including shares owned
pursuant to the NCI 401(k) Profit Sharing Plan. If a person has the right to
acquire beneficial ownership of any shares by exercise of options within 60
days after the Ownership Date, such shares are deemed beneficially owned by
such person and are deemed to be outstanding solely for the purpose of
determining the percentage of the Common Stock that he owns. Such shares are
not included in the computations for any other person.
(2) Includes options to purchase 168,666 shares held by Mr. Schulte that were
exercisable within 60 days after the Ownership Date. Mr. Schulte also holds
options to purchase an additional 77,500 shares that were not exercisable.
The principal business address of Mr. Schulte is 7301 Fairview, Houston,
Texas 77041.
(3) Includes 90,000 shares held in a testamentary trust, of which Mr. Zabcik is
sole trustee, for the benefit of his children, 38,294 shares held by a
family general partnership, of which Mr. Zabcik has management authority and
options to purchase 40,500 shares held by Mr. Zabcik that were exercisable
within 60 days after the Ownership Date. Mr. Zabcik also holds options to
purchase an additional 3,500 shares that were not exercisable.
(4) Includes options to purchase 12,500 shares held by Mr. Rundell that were
exercisable within 60 days after the Ownership Date. Mr. Rundell also holds
options to purchase an additional 77,500 shares that were not exercisable.
(5) Includes 200,000 shares held by Equus II Incorporated, of which Mr. Forbes
is a Vice President and may be deemed to share voting and investment power
with respect to such shares. Mr. Forbes disclaims beneficial ownership of
such shares. Also includes options to purchase 500 shares held by Mr. Forbes
that were exercisable within 60 days after the Ownership Date. Mr. Forbes
also holds options to purchase an additional 3,500 shares that were not
exercisable.
(6) Includes options to purchase 146,028 shares held by Mr. George that were
exercisable within 60 days after the Ownership Date. Mr. George also holds
options to purchase an additional 65,500 shares that were not exercisable.
52
<PAGE>
(7) Includes 100,250 shares issuable with respect to a convertible debenture
that was exercisable as of the Ownership Date and options to purchase 25,000
shares held by Mr. Eubanks that were exercisable within 60 days after the
Ownership Date. Mr. Eubanks also holds options to purchase an additional
45,000 shares that were not exercisable.
(8) Includes options to purchase 71,554 shares held by Mr. Richey that were
exercisable within 60 days after the Ownership Date. Mr. Richey also holds
options to purchase an additional 52,000 shares that were not exercisable.
(9) Includes options to purchase 61,948 shares held by Mr. Medlock that were
exercisable within 60 days after the Ownership Date. Mr. Medlock also holds
options to purchase an additional 49,000 shares that were not exercisable.
(10) Includes 40,074 shares held by La Plaza Partnership, of which Mr. Arnett is
a general partner and may be deemed to share voting and investment power
with respect to such shares. Also includes options to purchase 500 shares
held by Mr. Arnett that were exercisable within 60 days after the Ownership
Date. Mr. Arnett also holds options to purchase an additional 3,500 shares
that were not exercisable.
(11) Includes options to purchase 12,078 and 18,078 shares held by Messrs.
Breedlove and McDonald, respectively, that were exercisable within 60 days
after the Ownership Date. Each of Messrs. Breedlove and McDonald also holds
options to purchase an additional 3,500 shares that were not exercisable.
(12) In addition to the shares identified in notes (2) through (11), includes
options to purchase 5,000 shares held by other officers that were
exercisable within 60 days after the Ownership Date. These other officers
also hold options to purchase an additional 5,000 shares that were not
exercisable.
53
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares that each severally has agreed to purchase
from the Company and the Selling Stockholders, subject to the terms and
conditions specified in the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Warburg Dillon Read LLC...........................................................
J.C. Bradford & Co................................................................
Wheat First Securities, Inc.......................................................
Dain Rauscher Wessels.............................................................
-----------
Total...........................................................................
-----------
-----------
</TABLE>
The Managing Underwriters are Warburg Dillon Read LLC, J.C. Bradford & Co.,
Wheat First Union, a division of Wheat First Securities, Inc., and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher Wessels").
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby, if any Underwriter defaults in its
obligation to purchase such shares, and the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The shares of Common Stock offered hereby are being initially offered
severally by the Underwriters for sale at the price set forth on the cover page
of this Prospectus or at such price less a concession not in excess of $
per share on sales to certain dealers. The Underwriters may allow, and such
dealers may re-allow, a concession not to exceed $ per share on sales to
certain other dealers. The Offering of shares is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
shares of Common Stock are released for sale to the public, the offering price
and such concessions may be changed by the Managing Underwriters.
The Company and certain of the Selling Stockholders have granted to the
Underwriters an option, which may be exercised within 30 days after the date of
this Prospectus, to purchase up to an additional 570,000 shares of Common Stock
to cover over-allotments, if any, on the same terms per share. To the extent the
Underwriters exercise this option, each of the Underwriters will be obligated,
subject to certain conditions, to purchase the number of additional shares of
Common Stock proportionate to such Underwriter's initial commitment.
The Company and certain of the Selling Stockholders have agreed in the
Underwriting Agreement to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company, each of its directors and members of the senior management team
(other than, with respect to shares of Common Stock included in the Offering,
the Selling Stockholders) and certain of the Company's principal stockholders
have agreed that they will not sell, contract to sell, grant any option to sell
or otherwise dispose of, directly or indirectly, any shares of Common Stock, or
securities convertible into or exercisable or exchangeable for, any shares of
Common Stock or warrants or other rights to
54
<PAGE>
purchase shares of Common Stock, or permit the registration of any shares of
Common Stock for a period of 90 days after the date of this prospectus, without
the prior consent of Warburg Dillon Read LLC, except that the Company may issue
shares of Common Stock upon exercise of outstanding options and in connection
with acquisition transactions and may issue options to purchase shares of Common
Stock pursuant to its Employee Stock Option Plan.
Warburg Dillon Read LLC acted as financial advisor to the Company in
connection with the MBCI Acquisition and provided a fairness opinion to the
Company in such capacity, for which it received customary fees and reimbursement
of expenses. In connection with the Company's repayment of the 364-Day Revolver
with the net proceeds of the Offering, UBS AG and First Union National Bank,
lenders for the 364-Day Revolver and affiliates of Warburg Dillon Read LLC and
Wheat First Union, respectively, may receive more than 10% of the proceeds of
the Offering. Accordingly, the Offering is being made in compliance with Rule
2710(c)(8) of the conduct Rules of the National Association of Securities
Dealers, Inc. Certain Underwriters and their affiliates have provided from time
to time, and expect to provide in the future, investment or financial services
to the Company, for which such Underwriters or their affiliates have received or
will receive customary fees and commissions. C.A. Rundell, Jr., the Company's
Chairman of the Board, is a director of Dain Rauscher Corporation, the parent
company of Dain Rauscher Incorporated.
The Managing Underwriters, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Managing
Underwriters to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on Nasdaq
or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the share of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholders by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters will be passed upon for the Underwriters by
Gibson, Dunn & Crutcher LLP, New York, New York. Partners of Gardere & Wynne,
L.L.P., who participated in the preparation of this Prospectus and Registration
Statement beneficially own an aggregate of 14,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of (i) NCI as of October 31, 1996 and
1997, and for each of the three years in the period ended October 31, 1997, and
(ii) Amatek as of December 31, 1996 and 1997, and for each of the three years in
the period ended December 31, 1997, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere in this
Prospectus and Registration Statement and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files periodic reports, proxy statements and other
information with the Commission. Reports,
55
<PAGE>
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Suite 1400, Northwestern Atrium Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material may also
be obtained at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
such information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., Listing Section, 1735 K Street,
Washington, D.C. 20006. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Such reports, proxy
and information statements and other information may be found on the
Commission's Web site address, HTTP://WWW.SEC.GOV.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all exhibits, schedules, amendments and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth or incorporated by reference in the Registration Statement
(certain parts of which have been omitted in accordance with the rules and
regulations of the Commission). Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and each such statement is qualified in all respects by
reference to the copy of such contract or document filed as an exhibit to the
Registration Statement. For further information with respect to the Company and
the Common Stock reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof, which may be inspected and
copied at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Room 1024, Judiciary Plaza, Washington, D. C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions thereof filed by the Company with the
Commission (Commission File No. 0-14315) pursuant to the Exchange Act are hereby
incorporated by reference in this Prospectus:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1997, including the information required by Item 402 (executive
compensation) from the Company's Proxy Statement dated January 30, 1998,
filed in definitive form on January 28, 1998;
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended January 31, April 30 and July 31, 1998;
(iii) the Company's Current Report on Form 8-K dated May 4, 1998, and
filed with the Commission on May 19, 1998, with respect to the MBCI
Acquisition, as amended by Current Report on Form 8-K/A filed with the
Commission on July 20, 1998, and Current Report on Form 8-K/A, Amendment No.
2, filed with the Commission on August 5, 1998 and Current Report on Form
8-K/A, Amendment No. 3, filed with the Commission on August 25, 1998;
(iv) the Company's Current Report on Form 8-K dated June 24, 1998, and
filed with the Commission on July 9, 1998, with respect to the dividend of
preferred stock purchase rights; and
(v) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
July 20, 1998; and
(vi) the Company's Current Report on Form 8-K dated and filed with the
Commission on August 21, 1998, with respect to the Company's audited
consolidated financial statements.
All reports and documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of
56
<PAGE>
Common Stock made hereby shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for the purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or schedules
are specifically incorporated by reference into such documents). Such requests
should be directed to Robert J. Medlock, Vice President and Chief Financial
Officer, NCI Building Systems, Inc., 7301 Fairview, Houston, Texas 77041, or by
telephone at (713) 466-7788.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of the Company:
Report of Ernst & Young LLP.............................................................................. F-2
Consolidated Balance Sheets--October 31, 1996 and 1997, and July 31, 1998 (Unaudited).................... F-3
Consolidated Statements of Income--Years Ended October 31, 1995, 1996 and 1997, and for the Nine Months
Ended July 31, 1997 and 1998 (Unaudited)............................................................... F-4
Consolidated Statements of Shareholders' Equity--Years Ended October 31, 1995, 1996 and 1997, and for the
Nine Months Ended July 31, 1998 (Unaudited)............................................................ F-5
Consolidated Statements of Cash Flows--Years Ended October 31, 1995, 1996 and 1997 and for the Nine
Months Ended July 31, 1997 and 1998 (Unaudited)........................................................ F-6
Notes to Consolidated Financial Statements............................................................... F-7
Consolidated Financial Statements of Amatek
Report of Ernst & Young LLP.............................................................................. F-16
Consolidated Balance Sheets--December 31, 1996 and 1997, and March 31, 1998 (Unaudited).................. F-17
Consolidated Statements of Operations--Years Ended December 31, 1995, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)....................................................... F-18
Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)....................................................... F-19
Consolidated Statements of Stockholder's Equity--Years Ended December 31, 1995, 1996 and 1997, and for
the Three Months Ended March 31, 1998 (Unaudited)...................................................... F-20
Notes to Consolidated Financial Statements............................................................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
NCI Building Systems, Inc.
We have audited the accompanying consolidated balance sheets of NCI Building
Systems, Inc. as of October 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 NCI Building
Systems, Inc. at October 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
December 8, 1997
except for Note 9, as to which the date is
July 31, 1998
F-2
<PAGE>
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1996 1997
---------- ---------- JULY 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 20,944 $ 32,166 $ 4,477
Accounts receivable--Trade................................................ 35,477 45,946 90,382
Other receivables--Note 11................................................ 2,272 1,060 1,730
Inventories--Note 1....................................................... 28,693 37,381 74,686
Deferred income taxes--Note 5............................................. 2,925 3,463 6,183
Prepaid expenses.......................................................... 299 942 4,480
---------- ---------- -----------
Total current assets...................................................... 90,610 120,958 181,938
Property, plant and equipment, net--Note 1.................................. 42,752 51,223 166,034
Other assets:
Excess of cost over fair value of acquired net assets--Note 1............. 22,673 21,072 433,340
Other..................................................................... 2,292 3,079 28,240
---------- ---------- -----------
Total other assets........................................................ 24,965 24,151 461,580
---------- ---------- -----------
Total assets................................................................ $ 158,327 $ 196,332 $ 809,552
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... $ 48 $ 47 $ 30,047
Accounts payable.......................................................... 21,527 23,921 43,801
Accrued compensation and benefits......................................... 7,762 9,688 9,031
Other accrued expense..................................................... 6,738 8,538 27,943
Accrued income taxes...................................................... 2,577 2,018 2,278
---------- ---------- -----------
Total current liabilities................................................. 38,652 44,212 113,100
Long-term debt, noncurrent portion--Note 3.................................. 1,730 1,679 470,041
Deferred income taxes--Note 5............................................... 1,770 2,626 16,931
---------- ---------- -----------
Contingencies--Note 8
Shareholders' equity--Note 7
Preferred stock, $1 par value, 1,000 shares authorized, none
outstanding............................................................. -- -- --
Common stock, $.01 par value, 25,000 shares authorized, 15,934, 16,251 and
18,034 shares issued and outstanding, respectively...................... 80 82 180
Additional paid-in capital................................................ 47,358 51,109 89,130
Retained earnings......................................................... 68,737 96,624 120,170
---------- ---------- -----------
Total shareholders' equity................................................ 116,175 147,815 209,480
---------- ---------- -----------
Total liabilities and shareholders' equity.................................. $ 158,327 $ 196,332 $ 809,552
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See Independent Auditor's Report and
Accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE>
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, JULY 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................................ $ 234,215 $ 332,880 $ 407,751 $ 286,996 $ 422,219
Cost of sales........................................ 169,815 241,374 299,407 211,118 309,452
---------- ---------- ---------- ---------- ----------
Gross profit....................................... 64,400 91,506 108,344 75,878 112,767
---------- ---------- ---------- ---------- ----------
Operating expenses................................... 38,111 53,095 66,055 47,922 64,084
Nonrecurring acquisition expense..................... -- -- -- -- 2,060
---------- ---------- ---------- ---------- ----------
Income from operations............................. 26,289 38,411 42,289 27,956 46,623
Interest expense..................................... (56) (108) (163) (125) (10,307)
Other income......................................... 822 1,586 1,999 1,251 2,424
---------- ---------- ---------- ---------- ----------
Income before income taxes......................... 27,055 39,889 44,125 29,082 38,740
---------- ---------- ---------- ---------- ----------
Provision (benefit) for income taxes--Note 5
Current............................................ 10,493 15,899 15,920 10,760 15,239
Deferred........................................... (470) (823) 318 17 (45)
---------- ---------- ---------- ---------- ----------
Total income tax..................................... 10,023 15,076 16,238 10,777 15,194
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 17,032 $ 24,813 $ 27,887 $ 18,305 $ 23,546
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income per share--Basic--Note 9.................. $ 1.36 $ 1.60 $ 1.73 $ 1.14 $ 1.39
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income per share--Diluted--Note 9................ $ 1.26 $ 1.51 $ 1.64 $ 1.08 $ 1.31
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See Independent Auditor's Report and
Accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE>
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, October 31, 1994....................................... $ 62 $ 12,729 $ 26,891 $ 39,682
Proceeds from exercise of stock options, including tax benefit
thereon....................................................... 145 -- 145
Shares issued for contribution to 401(k) plan................... 1 822 -- 823
Net income...................................................... -- -- 17,032 17,032
----- ----------- ---------- -------------
Balance, October 31, 1995....................................... 63 13,696 43,923 57,682
Proceeds from stock offering.................................... 11 24,759 -- 24,770
Proceeds from exercise of stock options, including tax benefit
thereon....................................................... 2 2,723 -- 2,725
Shares issued for contribution to 401(k) plan................... 1 1,008 -- 1,009
Shares issued in connection with the purchase of DBCI........... 3 5,172 -- 5,175
Net income...................................................... -- -- 24,814 24,814
----- ----------- ---------- -------------
Balance, October 31, 1996....................................... 80 47,358 68,737 116,175
Proceeds from exercise of stock options, including tax benefit
thereon....................................................... 1 2,234 -- 2,235
Shares issued for contribution to 401(k) plan................... 1 1,517 -- 1,518
Net income...................................................... -- -- 27,887 27,887
----- ----------- ---------- -------------
Balance, October 31, 1997....................................... 82 51,109 96,624 147,815
Two-for-one split of common stock............................... 82 (82) -- --
Shares issued in connection with the purchase of Metal Building
Components, Inc. ............................................. 14 32,186 -- 32,200
Proceeds from exercise of stock options, including tax benefit
thereon....................................................... 1 3,958 -- 3,959
Shares issued for contribution to 401(k) plan................... 1 1,959 -- 1,960
Net income...................................................... -- -- 23,546 23,546
----- ----------- ---------- -------------
Balance, July 31, 1998 (unaudited).............................. 180 89,130 120,170 209,480
----- ----------- ---------- -------------
----- ----------- ---------- -------------
</TABLE>
See Independent Auditor's Report and
Accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE>
NCI BUILDING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, JULY 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................................... $ 17,032 $ 24,814 $ 27,887 18,305 23,546
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization.......................... 3,226 5,791 7,876 5,906 11,065
(Gain)/loss on sale of fixed assets.................... 4 2 (3) (3) (16)
Provision for doubtful accounts........................ 1,101 681 1,223 861 1,809
Deferred income tax (benefit)/provision................ (470) (823) 318 (45) (188)
Changes in current assets and liability accounts net of
effects of acquisitions:
Increase in accounts, notes and other receivable......... (3,097) (9,857) (10,481) (4,018) (1,607)
Increase (decrease) in inventories....................... (2,483) (4,521) (5,552) (6,297) 2,677
(Increase) decrease in prepaid expenses.................. 97 (35) (625) (509) (157)
Increase (decrease) in accounts payable.................. (2,009) 3,043 2,394 4,794 21,115
Increase in accrued expenses............................. 4,858 1,603 5,244 3,342 (8,533)
Increase (decrease) in income taxes payable.............. (245) 3,843 335 264 1,910
--------- --------- --------- --------- ---------
Net cash provided by operating activities.............. 18,014 24,541 28,616 22,600 51,621
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from the sale of fixed assets................... 7 115 25 25 76
Acquisition of Royal Buildings........................... (910) -- -- -- --
Acquisition of Mesco Metal Buildings..................... -- (20,631) -- -- --
Acquisition of Doors & Building Components, Inc. ........ -- (11,000) -- -- --
Acquisition of Carlisle Engineered Metals, Inc. ......... -- (2,840) (6,230) (6,230) --
Acquisition of Metal Building Components, Inc. .......... -- -- -- -- (553,265)
Acquisition of California Finished Metals, Inc. ......... -- -- -- -- (15,458)
(Increase) decrease in other noncurrent assets........... 8 (1,988) (1,147) (2,695) (3,908)
Capital expenditures..................................... (5,837) (10,319) (11,332) (5,376) (7,426)
--------- --------- --------- --------- ---------
Net cash applied to investing activities............... (6,732) (46,663) (18,684) (14,276) (579,981)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net proceeds from sale of stock.......................... -- 24,770 -- -- --
Exercise of stock options................................ 71 750 1,340 931 2,310
Borrowings on line of credit and notes................... -- -- -- -- 578,900
Principal payments on long-term debt, line of credit and
notes payable.......................................... (47) (85) (50) 23 (80,539)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.... 24 25,435 1,290 954 500,671
--------- --------- --------- --------- ---------
Net increase (decrease) in cash........................ 11,306 3,313 11,222 9,278 (27,689)
Cash beginning of period................................... 6,325 17,631 20,944 20,944 32,166
--------- --------- --------- --------- ---------
Cash at end of period...................................... $ 17,631 $ 20,944 $ 32,166 $ 30,222 $ 4,477
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Independent Auditor's Report and
Accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) REPORTING ENTITY
These financial statements include the operations and activities of NCI
Building Systems, Inc. and its wholly-owned subsidiaries (Company) after the
elimination of all material intercompany accounts and balances. The Company
designs, manufactures and markets metal building systems and components for
commercial, industrial, agricultural and community service use. The Company
recognizes revenues as jobs are shipped.
(B) ACCOUNTS RECEIVABLE
The Company reports accounts receivable net of the allowance for doubtful
accounts of $1,971,000, $1,629,000 and $1,498,000 at July 31, 1998, October 31,
1996 and 1997, respectively. Trade accounts receivable are the result of sales
of buildings and components to customers throughout the United States and
affiliated territories including international builders who resell to end users.
Although the Company's sales historically have been concentrated in Texas and
surrounding states, in recent years it has been expanding its authorized builder
organization and customer base into the midwestern states and, to a lesser
extent, into south central, southeastern and coastal states. All sales are
denominated in United States dollars. Credit sales do not normally require a
pledge of collateral; however, various types of liens may be filed to enhance
the collection process. Company management is not aware of any significant
concentrations of credit or market risks related to receivables or other
financial instruments reported in these financial statements.
(C) INVENTORIES
Inventories are stated at the lower of cost or market value, using specific
identification for steel coils and the weighted-average method for other raw
materials. A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
--------- --------- JULY 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 21,515 $ 28,943 $ 54,134
Work-in-process and finished goods......................... 7,178 8,438 20,552
--------- --------- -----------
$ 28,693 $ 37,381 $ 74,686
--------- --------- -----------
--------- --------- -----------
</TABLE>
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated over their
estimated useful lives. Depreciation is computed using the straight-line method
for financial reporting purposes and both straight-line and accelerated methods
for income tax purposes. Depreciation expense for the nine months
F-7
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ended July 31, 1998 and the years ended October 31, 1995, 1996, and 1997 was
$11,065,000, $2,995,000, $4,236,000, and $5,893,000, respectively.
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1996 1997
----------- ----------
JULY 31,
1998
-----------
(IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C>
Land.................................................... $ 3,174 $ 3,969 $ 11,184
Buildings and improvements.............................. 20,136 23,600 69,872
Machinery, equipment and furniture...................... 31,866 41,393 105,593
Transportation equipment................................ 911 1,089 4,687
Computer software....................................... 156 481 448
----------- ---------- -----------
$ 56,243 $ 70,532 $ 191,784
----------- ---------- -----------
Less accumulated depreciation........................... (13,492) (19,309) (25,750)
----------- ---------- -----------
$ 42,751 $ 51,223 $ 166,034
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
<TABLE>
<S> <C>
Estimated useful lives for depreciation are:
10-20
Buildings and improvements...................................... years
Machinery, equipment and furniture.............................. 5-10 years
Transportation equipment........................................ 3-10 years
Computer software............................................... 5 years
</TABLE>
(E) CASH FLOWS STATEMENT
For purposes of the cash flows statement, the Company considers all highly
liquid investments with an original maturity date of three months or less to be
cash equivalents. Total interest paid for the nine months ended July 31, 1998
and the years ended October 31, 1995, 1996 and 1997 was $3,940,000, $56,000,
$108,000 and $163,000, respectively. Income taxes paid for the nine months ended
July 31, 1998 and the years ended October 31, 1995, 1996 and 1997 was
$12,363,000, $11,033,000, $12,763,000 and $15,776,000 respectively. Non-cash
investing or financing activities included: $1,518,000 for the 1996 contribution
for the 401k plan which was paid in common stock in 1997, and $1,009,000 for the
1995 contribution for the 401k plan which was paid in common stock in 1996.
(F) EXCESS OF COST OVER FAIR VALUE OF ACQUIRED NET ASSETS
Excess of cost over fair value of acquired net assets is amortized on a
straight-line basis over fifteen years. Accumulated amortization as of July 31,
1998 was $4,557,000, as of October 31, 1997 was $3,042,000 and as of October 31,
1996 was $1,441,000. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill would be reduced by the estimated
shortfall of cash flows.
F-8
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(H) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was
$1,844,000, $1,196,000, $1,267,000 and $1,416,000 for the nine months ended July
31, 1998 and for the years ended October 31, 1995, 1996 and 1997, respectively.
(I) LONG-LIVED ASSETS
In fiscal 1997, the Company adopted SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Impairment losses are recognized when indicators of impairment are present and
the estimated undiscounted cash flows are not sufficient to recover the assets
carrying amount. Assets held for disposal are measured at the lower of carrying
value or estimated fair value, less costs to sell. The effect of adopting SFAS
No. 121 was not material to the financial statements.
(J) STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which encourages companies to apply a new fair value
approach allowing the recognition of compensation cost related to stock options
using an option pricing model. Under Statement No. 123, companies are permitted
to continue using current accounting rules for employee stock options, but are
required to disclose pro forma net income and earnings per share information as
if the new fair value approach had been adopted. The Company has elected to
continue to use the intrinsic value method under Accounting Principles Board
Opinion No. 25 ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock options. The pro forma
information regarding net income and earnings per share, as required by
Statement No. 123, has been disclosed as if the Company had accounted for its
employee stock options under the fair value method of that Statement.
(K) PENDING ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
is effective for the Company's fiscal year ending October 31, 1999. The Company
does not anticipate that the adoption of this standard will have a material
impact on the financial statements.
(2) NOTES PAYABLE (SHORT-TERM BORROWINGS)
The Company has a revolving unsecured credit line of $6 million with a bank
bearing interest that fluctuates with prime, (commitment fee 1/4% on unused
portion) all of which was unused at October 31, 1996 and 1997, respectively. The
revolving credit line expires in February, 1999.
F-9
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(3) LONG-TERM DEBT
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Six year reducing revolving credit line of $.7 million with a
bank bearing interest that fluctuates with prime, with
$73,000 quarterly reducing borrowing base.................. $ -- $ -- $ --
Five year revolving credit line with a bank bearing interest
at variable rates (effective rate of 7.7% at July 31, 1998)
maturing at July 1, 2003................................... -- -- 98,388
Five year term loan payable to a bank bearing interest at
LIBOR plus 2% (7.89% at July 31, 1998), repayable in
successive quarterly installments beginning on October 31,
1998, in quarterly payments beginning with $7.5 million and
gradually increasing to $12.5 million on the maturity
date....................................................... -- -- 200,000
364-day revolving credit facility with a bank bearing
interest at variable rates (effective rate of 7.7% at July
31, 1998) maturing on May 3, 1999.......................... -- -- 200,000
Notes payable to City of Mattoon bearing interest at 3%
secured by certain equipment, repayable in aggregate
monthly installments of $4,828 maturing through November
2001....................................................... 277 226 200
Note payable to employee bearing interest at 7% maturing
April 1, 2001, with an option to convert into common stock
at $14.9625 per share...................................... 1,500 1,500 1,500
--------- --------- -----------
1,777 1,726 500,088
Current portion of long-term debt............................ (47) (47) (30,047)
--------- --------- -----------
$ 1,730 $ 1,679 $ 470,041
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-10
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(3) LONG-TERM DEBT (CONTINUED)
Aggregate required principal reductions as of October 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 47
1999................................................................................. 53
2000................................................................................. 55
2001................................................................................. 1,557
2002................................................................................. 14
---------
$ 1,726
---------
---------
</TABLE>
The loan agreements related to the revolving line and short-term borrowings
contain, among other things, provisions relative to additional borrowings and
restrictions on the amount of retained earnings available for the payment of
dividends and the repurchase of common stock and provisions requiring the
maintenance of certain net worth and other financial ratios.
Under the most restrictive of these covenants, such dividends or stock
repurchases are limited to 20% of the Company's net income for any 12-month
period, which is further restricted on a quarterly basis, based on the ratio of
cash flow (net income plus depreciation and amortization) for the previous
12-month period to current maturities of long-term debt plus dividends and stock
repurchases.
The carrying amount of the Company's long-term debt approximates its fair
value.
(4) RELATED PARTY TRANSACTIONS
During the nine months ended July 31, 1998 and in the years ended October
31, 1995, 1996 and 1997, the Company purchased $1,307,000, $1,053,000,
$1,417,000 and $1,869,000 respectively, of materials from a related party under
arm's length transactions.
(5) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-11
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
Taxes on income from continuing operations consist of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.............................. $ 9,733 $ 14,531 $ 15,479 $ 10,179 $ 14,077
State................................ 760 1,368 441 581 1,162
--------- --------- --------- --------- ---------
Total current.......................... 10,493 15,899 15,920 10,760 15,239
Deferred:
Federal.............................. (445) (746) 304 16 (42)
State................................ (25) (77) 14 1 (3)
--------- --------- --------- --------- ---------
Total deferred......................... (470) (823) 318 17 (45)
--------- --------- --------- --------- ---------
Total provision........................ $ 10,023 $ 15,076 $ 16,238 $ 10,777 $ 15,194
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The reconciliation of income tax computed at the United States federal
statutory tax rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY
YEAR ENDED OCTOBER 31, 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate............. 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes............................ 1.8 2.4 1.2 1.3 2.0
Goodwill and other............................ 0.3 0.4 0.6 0.7 2.2
--- --- --- --- ---
Effective tax rate.......................... 37.1% 37.8% 36.8% 37.0% 39.2%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
F-12
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- --------- NINE MONTHS
ENDED JULY
31, 1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Capitalized overhead in inventory......................... $ 1,211 $ 1,632 $ 1,544
Bad debt reserve.......................................... 603 527 1,049
Accrued reserves.......................................... 637 595 2,246
Other..................................................... 573 709 1,344
--------- --------- ------------
Total deferred tax assets................................... 3,024 3,463 6,183
--------- --------- ------------
Deferred tax liabilities
Depreciation and amortization............................. 1,427 1,675 15,950
Other..................................................... 442 951 981
--------- --------- ------------
Total deferred tax liabilities.............................. 1,869 2,626 16,931
--------- --------- ------------
Net deferred tax asset (liability).......................... $ 1,155 $ 837 $ (10,748)
--------- --------- ------------
--------- --------- ------------
</TABLE>
(6) OPERATING LEASE COMMITMENTS
Total rental expense incurred from operating leases for the nine months
ended July 31, 1998 and the years ended October 31, 1995, 1996 and 1997 was
$4,631,000, $2,639,000, $3,990,000 and $4,644,000 respectively.
Aggregate minimum required annual payments on long-term operating leases at
October 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 2,573
1999.............................................................................. 1,806
2000.............................................................................. 914
2001.............................................................................. 508
2002.............................................................................. 252
-----------
$ 6,053
-----------
-----------
</TABLE>
(7) STOCK OPTIONS
The Board of Directors has approved a non-statutory employee stock option
plan. This plan includes the future granting of stock options to purchase up to
4,100,000 shares as an incentive and reward for key management personnel.
Options expire ten years from date of grant. The right to acquire the option
shares
F-13
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(7) STOCK OPTIONS (CONTINUED)
is earned in 25% increments over the first four years of the option period.
Stock option transactions during 1995, 1996 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -------------
<S> <C> <C>
Balance, October 31, 1994........................................... 1,393 $ 2.73
Granted........................................................... 159 8.64
Canceled.......................................................... 0 0
Exercised......................................................... (28) (2.51)
----- -------------
Balance, October 31, 1995........................................... 1,524 $ 3.35
Granted........................................................... 630 12.75
Canceled.......................................................... (46) (9.82)
Exercised......................................................... (492) (1.52)
----- -------------
Balance, October 31, 1996........................................... 1,616 $ 7.39
Granted........................................................... 314 15.23
Canceled.......................................................... (10) (12.09)
Exercised......................................................... (211) (6.34)
----- -------------
Balance, October 31, 1997........................................... 1,709 $ 8.93
----- -------------
----- -------------
</TABLE>
Options exercisable at October 31, 1995, 1996, and 1997 were 1,095,000,
783,000, and 841,000, respectively. The weighted average exercise prices for
options exercisable at October 31, 1995, 1996 and 1997 were $1.88, $3.00 and
$4.60, respectively. Exercise prices for options outstanding at October 31, 1997
range from $.80 to $18.62. The weighted average remaining contractual life of
options outstanding at October 31, 1997 is 6.3 years.
In accordance with the terms of APB No. 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of the grant, the Company records no compensation expense for
its stock option awards. As required by SFAS No. 123, the Company provides the
following disclosure of hypothetical values for these awards. The weighted
average grant-date fair value of options granted during 1996 was $6.05 and
during 1997 was $7.33. These values were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
dividend of 0%, expected volatility of 32.7%, risk free interest rates ranging
from 5.5% to 6.7% for 1996 and from 6.4% to 6.9% for 1997, and expected lives of
7 years. Had compensation expense been recorded based on these hypothetical
values, the Company's 1997 net income would have been $27.1 million or $1.59 per
share. A similar computation for 1996 would have resulted in net income of $24.4
million, or $1.48 per share. Because options vest over several years and
additional options grants are expected, the effects of these hypothetical
calculations are not likely to be representative of similar future calculations.
(8) LITIGATION
The Company is involved in certain litigation that the Company considers to
be in the normal course of business. Management of the Company believes that
such litigation will not result in any material losses.
F-14
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(9) NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, which requires the
presentation of basic and diluted earnings per share. Under the new statement,
the dilutive effect of stock options is excluded from basic earnings per share,
but included in the computation of diluted earnings per share. The new statement
is effective for periods ending after December 15, 1997. The Company adopted the
new statement during the first quarter of fiscal year 1998. Earnings per share
amounts for all periods presented have been restated. The computations are as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31, 1998
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income...................................... $ 17,032 $ 24,814 $ 27,887 $ 18,305 $ 23,546
Add: Interest, net of tax, on convertible
debenture assumed converted................... -- 38 66 50 50
--------- --------- --------- --------- ---------
Adjusted net income............................. $ 17,032 $ 24,852 $ 27,953 $ 18,355 $ 23,596
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding...... 12,545 15,499 16,127 16,091 16,930
Add: Common stock equivalents
Stock option plan............................. 985 898 858 851 935
Convertible debenture......................... -- 58 100 100 100
--------- --------- --------- --------- ---------
Weighted average common shares outstanding,
assuming dilution............................. 13,530 16,455 17,085 17,042 17,965
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share--basic..................... $ 1.36 $ 1.60 $ 1.73 $ 1.14 $ 1.39
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share--diluted................... $ 1.26 $ 1.51 $ 1.64 $ 1.08 $ 1.31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan (the "Savings Plan") which
covers all eligible employees. The Savings Plan requires the Company to match
employee contributions up to a certain percentage of a participant's salary. No
other contributions may be made to the Savings Plan. Contributions accrued for
the Savings Plan for the years ended October 31, 1995, 1996 and 1997 were
$775,000, $1,155,000 and $1,604,000 respectively.
(11) ACQUISITIONS
In November 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Doors and Building Components, Inc. ("DBCI"), a
manufacturer of roll-up steel overhead doors used primarily in self-storage and
commercial/industrial applications, for approximately $12 million in cash and
300,000 shares of common stock of the Company, valued at $5.2 million. Based on
the final determination of book value of the purchased assets, the price was
reduced by approximately $2.5 million of which $1.5 million is due from the
seller and was recorded as a receivable in the October 31, 1996 balance sheet.
This amount was settled in cash in December, 1996. The excess of cost over fair
value of the acquired net assets recorded was $11.4 million.
F-15
<PAGE>
NCI BUILDING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PRESENTED FOR THE NINE MONTH PERIODS ENDED JULY 31, 1997 AND 1998
IS UNAUDITED)
(11) ACQUISITIONS (CONTINUED)
In April, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Mesco Metal Buildings, a division of Anderson
Industries, Inc. ("Mesco"), a manufacturer of metal building systems and
components, for approximately $20.8 million in cash and a $1.5 million 7%
convertible subordinated debenture due April, 2001. The excess of cost over fair
value of the acquired net assets recorded was $10.9 million.
Accordingly, the consolidated results of operations include DBCI and Mesco
since the date of acquisition. Both acquisitions were accounted for using the
purchase method. Assuming the acquisition of DBCI and Mesco had been consummated
as of November 1, 1995, the pro forma unaudited results of operations for the
year ended October 31, 1996 are as follows (in millions, except per share data):
<TABLE>
<S> <C>
Sales................................................................ $ 347
Net income........................................................... 26
Net income per share................................................. $ 1.60
</TABLE>
(12) SUBSEQUENT EVENTS (UNAUDITED)
On May 4, 1998, the Company acquired Metal Buildings Components, Inc.
("MBCI") through the purchase of all of the outstanding capital stock of Amatek
Holdings, Inc. from BTR Australia Limited, a wholly owned subsidiary of BTR plc,
for a purchase price of approximately $600 million including cash of $550
million (plus transaction costs) and 1.4 million shares of the Company's common
stock valued at $32.2 million. MBCI designs, manufactures, sells and distributes
metal components for commercial, industrial, architectural, agricultural and
residential construction uses. MBCI also processes its own hot roll coil metal
for use in component manufacturing, as well as processing hot roll coil metal
and toll coating light gauge metal for use by other parties in the construction
of metal building components and numerous other products. The funds for this
acquisition were provided from the proceeds of a new $600 million credit
facility from several banks under which the Company initially borrowed $540
million. The facility includes a $200 million five-year term loan, a $200
million five-year revolving loan and a $200 million 364-day revolving loan which
is convertible into a three-year term loan under certain conditions. The
acquisition was accounted for using the purchase method of accounting. The
excess of cost over the fair value of the acquired assets was approximately $393
million.
The consolidated results of operations for 1998 include MBCI since the date
of acquisition. Assuming the acquisition of MBCI had been consummated November
1, 1997, the pro forma unaudited results of operations are as follows (in
millions, except per share data):
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED OCTOBER ENDED JULY
31, 1997 31, 1998
--------------- -------------
<S> <C> <C>
Sales................................................. $ 816 $ 618
Net income............................................ $ 31 $ 23
Net income per share - basic.......................... $ 1.79 $ 1.27
Net income per share - diluted........................ $ 1.70 $ 1.20
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholder
Amatek Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Amatek
Holdings, Inc. and subsidiaries (the "Company"), as of December 31, 1997, and
1996, and the related consolidated statements of operations, cash flows, and
stockholder's equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amatek
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
August 5, 1998
F-17
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ---------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 3,622 $ 7,012 $ 1,345
Accounts receivable:
Trade, net of allowance for doubtful accounts of $576, $658, and $395... 41,942 44,599 43,162
Other................................................................... 2,835 6,659 3,737
Inventories............................................................... 32,410 43,479 47,516
Prepaid expenses.......................................................... 2,004 2,715 3,419
Income taxes receivable................................................... -- 437 --
Deferred tax asset........................................................ 853 1,186 1,186
---------- ---------- -----------
Total current assets........................................................ 83,666 106,087 100,365
Property, plant, and equipment:
Land...................................................................... 4,390 5,916 6,227
Buildings and improvements................................................ 31,104 40,845 41,425
Machinery and equipment................................................... 72,381 88,354 90,283
Construction-in-progress.................................................. 11,659 8,272 7,116
---------- ---------- -----------
119,534 143,387 145,051
Less accumulated depreciation............................................. (34,813) (39,252) (41,088)
---------- ---------- -----------
84,721 104,135 103,963
Receivable from affiliate................................................... 19,261 1,364 --
Investments in and advances to DOUBLECOTE................................... 19,031 19,200 19,415
Intangible assets........................................................... 13,822 13,652 13,612
Other assets................................................................ -- 5,325 5,871
---------- ---------- -----------
Total assets................................................................ $ 220,501 $ 249,763 $ 243,226
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................................... $ 32,638 $ 18,174 $ 9,288
Accrued liabilities....................................................... 13,495 15,659 11,526
Income taxes payable...................................................... 2,544 -- 3,426
---------- ---------- -----------
Total current liabilities............................................. 48,677 33,833 24,240
Deferred tax liability...................................................... 6,776 11,142 10,588
Stockholder's equity:
Common stock--par value $-0-; 119,500, 3,500, 3,500 shares issued and
outstanding at March 31, 1998, December 31, 1997, and December 31,
1996.................................................................... 2,600 2,600 182,172
Additional paid-in capital................................................ 4,380 4,380 4,380
Retained earnings......................................................... 158,068 197,808 21,846
---------- ---------- -----------
Total stockholder's equity.................................................. 165,048 204,788 208,398
---------- ---------- -----------
Total liabilities and stockholder's equity.................................. $ 220,501 $ 249,763 $ 243,226
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-18
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales............................................. $ 315,737 $ 362,867 $ 407,967 $ 82,505 $ 84,172
Cost of sales..................................... (234,042) (271,299) (312,329) (63,896) (68,864)
----------- ----------- ----------- ---------- ----------
Gross profit...................................... 81,695 91,568 95,638 18,609 15,308
Selling, general, and administrative
expenses........................................ (24,900) (29,652) (36,637) (8,543) (9,598)
Equity in income (losses) of DOUBLECOTE........... (1,293) (304) 83 (170) (161)
Interest income, net.............................. 1,379 1,871 2,019 267 267
Unusual/nonrecurring gain......................... -- -- 3,284 -- --
----------- ----------- ----------- ---------- ----------
Income before income taxes........................ 56,881 63,483 64,387 10,163 5,816
Provision for income taxes........................ (22,993) (24,920) (24,647) (4,096) (2,206)
----------- ----------- ----------- ---------- ----------
Net income........................................ $ 33,888 $ 38,563 $ 39,740 $ 6,067 $ 3,610
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes.
F-19
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................................... $ 33,888 $ 38,563 $ 39,740 $ 6,067 $ 3,610
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization................................ 4,136 5,477 6,844 1,639 2,019
Provision for deferred income taxes.......................... 82 716 4,033 1,866 (554)
Provision for losses on accounts receivable.................. 71 (266) 262 1,867 (82)
Changes in operating assets and liabilities:
Increase in accounts receivable--trade..................... (1,980) (5,517) (2,919) 924 1,519
Increase in other accounts receivable...................... 134 (2,326) (3,824) (1,357) 2,922
Increase in inventories.................................... 5,383 (6,744) (11,069) 102 (4,037)
Increase in prepaid expenses............................... (123) (1,163) (711) 208 (704)
(Increase) decrease in other assets........................ (432) 1,018 (5,962) 84 (546)
(Decrease) increase in accounts payable and accrued
liabilities.............................................. 2,307 13,169 (12,300) (18,808) (13,019)
(Decrease) increase in income taxes payable................ (1,438) 1,239 (2,544) 1,053 3,426
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities............ 42,028 44,166 11,550 (6,355) (5,446)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment..................... (12,501) (21,146) (27,166) (5,847) (1,646)
Proceeds from sale of property, plant, and equipment........... 32 73 1,632 -- --
Advances to and investments in DOUBLECOTE...................... (2,835) (2,000) (86) (369) (376)
Cash paid for acquired business................................ -- (21,221) -- -- --
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities.......................... (15,304) (44,294) (25,620) (6,216) (2,022)
FINANCING ACTIVITIES
Net borrowings under credit facilities......................... (4,754) -- -- -- --
Proceeds to related party...................................... (21,471) 1,080 17,460 13,549 1,801
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities............ (26,225) 1,080 17,460 13,549 1,801
---------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents........... 499 952 3,390 978 (5,667)
Cash and cash equivalents at beginning of year................. 2,171 2,670 3,622 3,622 7,012
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of year....................... $ 2,670 $ 3,622 $ 7,012 $ 4,600 $ 1,345
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................................... $ 2,600 $ 4,380 $ 85,617 $ 92,597
Net income................................................... -- -- 33,888 33,888
---------- ----------- ----------- -----------
Balance at December 31, 1995................................... 2,600 4,380 119,505 126,485
Net income................................................... -- -- 38,563 38,563
---------- ----------- ----------- -----------
Balance at December 31, 1996................................... 2,600 4,380 158,068 165,048
Net income................................................... -- -- 39,740 39,740
---------- ----------- ----------- -----------
Balance at December 31, 1997................................... 2,600 4,380 197,808 204,788
Net income................................................... -- -- 3,610 3,610
Dividend to Parent............................................. -- -- (179,572) (179,572)
Capital contribution from Parent............................... 179,572 -- -- 179,572
---------- ----------- ----------- -----------
Balance at March 31, 1998 (UNAUDITED).......................... $ 182,172 $ 4,380 $ 21,846 $ 208,398
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OWNERSHIP AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All outstanding common stock of Amatek Holdings, Inc. ("AHI"), is owned by
Amatek Limited (the "Parent," which is an Australian company), a wholly owned
subsidiary of BTR Nylex (an Australian company), which is ultimately owned by
BTR plc (a British company). AHI is a manufacturer of steel roofing and siding
products. Principal markets are in the continental United States.
The consolidated financial statements include the accounts of AHI and all
majority-owned subsidiaries (the "Company"). The Company's investment in
DOUBLECOTE, L.L.C. ("DOUBLECOTE"), is accounted for using the equity method (see
Note 9). All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid
investments which have a maturity of three months or less when acquired.
INVENTORY
Inventories are valued at the lower of cost or market, determined on the
first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. The cost of repairs and
maintenance is charged to operations as incurred. Depreciation of property,
plant, and equipment is provided on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements..................................... 40 years
4 to 13
Machinery and equipment....................................... years
3 to 10
Computer and office equipment................................. years
</TABLE>
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
generally requires a periodic review of long-lived assets for indications that
their carrying amounts may not be recoverable, and governs the measurement and
disclosure of any resulting impairment loss. Its application did not have a
material impact on the Company's financial position or results of operations.
INCOME TAXES
The Company uses SFAS No. 109, ACCOUNTING FOR INCOME TAXES, in accounting
for income taxes. This statement requires an asset and liability approach for
financial accounting and reporting of income taxes.
INTANGIBLE ASSETS
Goodwill of $15,479,000, $15,333,000, and $14,777,000, which relates to the
acquisition of certain assets and other stockholder interest at March 31, 1998
and December 31, 1997 and 1996, respectively, is being amortized on a
straight-line basis over 20 years. Accumulated amortization of goodwill was
$1,867,000, $1,681,000, and $955,000 as of March 31, 1998 and December 31, 1997
and 1996, respectively.
F-22
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. OWNERSHIP AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments (cash, accounts
receivable, and accounts payable) approximates fair value.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 financial information in
order to conform to 1997 presentation.
In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial position as of
March 31, 1998, and the results of operations and cash flows for each of the
three-month periods ended March 31, 1998 and 1997. Although management believes
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in annual audited financial statements prepared in
accordance with generally accepted accounting principals have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of operations and the cash flows for the three-month
period ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
--------- --------- MARCH 31
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 22,581 $ 34,638 $ 35,247
Finished goods............................................. 9,829 8,841 12,269
--------- --------- -----------
Total...................................................... $ 32,410 $ 43,479 $ 47,516
--------- --------- -----------
--------- --------- -----------
</TABLE>
3. NOTES PAYABLE TO BANK
The Company had an overdraft line of credit facility for $10 million which
terminated on March 31, 1998. There were no advances outstanding at March 31,
1998 and December 31, 1997 and 1996.
F-23
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
The Company periodically advances funds to its Parent and charges the Parent
interest at a rate which approximates prime for net advances. In addition, the
Company remits its federal income taxes payable to the Parent (see Notes 5 and
7). Based on intercompany lending rates for advances and payables with similar
terms, the fair value of these advances approximates their carrying values.
5. FEDERAL INCOME TAX
The provisions for federal income taxes are composed of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current income taxes......................................... $ 22,917 $ 24,203 $ 20,612 $ 2,229 $ 2,761
Deferred income taxes........................................ 76 717 4,035 1,867 (555)
--------- --------- --------- --------- ---------
Total........................................................ $ 22,993 $ 24,920 $ 24,647 $ 4,096 $ 2,206
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The effective income tax rate of the Company approximates the sum of the
statutory federal income tax rate and certain state income tax rates less
related federal tax benefit.
Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------------------------------------- ------------------------
1996 1997 1998
------------------------ ------------------------ ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Property....................................... $ -- $ (9,442) $ -- $ (14,069) $ -- $ (14,368)
Insurance reserves............................. 461 -- 782 -- 782 --
Bad debt reserve............................... 147 -- 248 -- 248 --
Inventory...................................... 245 -- 183 -- 183 --
Deferred compensation and incentive
plan......................................... -- 2,660 -- 2,931 -- 3,780
Other.......................................... -- 11 (27) -- (27)
----- ----------- ----------- ----------- ----------- -----------
Total.......................................... $ 853 $ (6,771) $ 1,186 $ (11,138) $ 1,186 $ (10,588)
----- ----------- ----------- ----------- ----------- -----------
----- ----------- ----------- ----------- ----------- -----------
Total deferred tax assets...................... $ 3,524 $ 4,346 $ 4,993
Total deferred tax liabilities................. (9,442) (14,298) (14,395)
----------- ----------- -----------
Net deferred tax liability..................... $ (5,918) $ (9,952) $ (9,402)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
6. LEASES
The Company leases certain equipment (primarily vehicles) and operating
facilities under operating leases expiring at various dates through 2000. Total
rental expense under operating leases was $1,514,000, $1,291,000, and $1,096,000
in 1997, 1996, and 1995, respectively.
F-24
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LEASES (CONTINUED)
Aggregate minimum lease payments under operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1998................................................................ $ 508
1999................................................................ 567
2000................................................................ 391
2001................................................................ 72
---------
$ 1,538
---------
---------
</TABLE>
7. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest during the years ended December 31, 1997, 1996, and
1995 was $81,000, $80,000, and $131,000, respectively. Cash paid for income
taxes during the years ended December 31, 1997, 1996, and 1995 was $24,349,000,
$21,402,000, and $23,639,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) savings plan for its full-time employees. The
Company matches 100% of employee-elected pre-tax contributions to a maximum of
4% of their salaries. The Company's contributions were $1,132,000, $943,000, and
$830,000 in 1997, 1996, and 1995, respectively.
An Incentive Compensation Plan (the "Plan") was established in 1992, in part
because of the purchase of the minority interest of a partnership of which
certain officers of the Company were limited partners. Under the terms of the
Plan, an annual contribution is determined based upon the Company's earnings and
revenues. Annual contributions are placed in trust (with the trustee,
NationsBank) and vest to participants over a seven- to ten-year period. In the
event that a participant voluntarily leaves the Company or is terminated for
"good cause," the unvested portion of contributions to the Plan is forfeited to
the Company. The contributions were $4,302,000, $3,714,000, and $2,766,000 for
1997, 1996, and 1995, respectively.
9. INVESTMENT IN DOUBLECOTE
The Company, through a subsidiary, owns 50% of the common stock in
DOUBLECOTE, a corporate joint venture.
F-25
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INVESTMENT IN DOUBLECOTE (CONTINUED)
Summarized financial information of DOUBLECOTE is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ---------- MARCH 31
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets............................................................... $ 7,266 $ 8,165 $ 9,210
Noncurrent assets............................................................ 30,524 28,601 28,102
---------- ---------- -----------
Total assets................................................................. $ 37,790 $ 36,766 $ 37,312
---------- ---------- -----------
---------- ---------- -----------
Liabilities--advances from stockholder....................................... $ 36,232 $ 36,404 $ 37,157
Other liabilities............................................................ 2,753 1,390 1,505
Stockholder's equity:
Contributed capital........................................................ 2,000 2,000 2,000
Accumulated deficit........................................................ (3,195) (3,028) (3,350)
---------- ---------- -----------
Total liabilities and stockholder's equity................................... $ 37,790 $ 36,766 $ 37,312
---------- ---------- -----------
---------- ---------- -----------
Sales........................................................................ $ 28,034 $ 30,348 $ 6,427
Cost of sales................................................................ (24,682) (26,150) (5,722)
---------- ---------- -----------
Gross profit................................................................. 3,352 4,198 705
Selling, general, and administrative expenses................................ (964) (1,080) (303)
Interest expense............................................................. (2,997) (2,952) (724)
---------- ---------- -----------
Net income (loss)............................................................ $ (609) $ 166 $ (322)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The facility owned by DOUBLECOTE was completed and began operations in 1995.
DOUBLECOTE is charged interest at prime for advances by the Company. Total
interest income earned by the Company was $1,500,000 in 1997 and 1996 and
$1,465,000 in 1995.
10. LUBBOCK PLANT FIRE
In February 1997, the Company's Lubbock, Texas, plant sustained major damage
from a fire. The Company has since rebuilt the plant, and resumed operations in
July 1997.
The Company maintains insurance under one policy for both property damage
and business interruption applicable to its production facilities. The policy
provides coverage subject to a $25,000 deductible. Insurance recoveries as of
December 31, 1997 included $1.5 million for property damage and $500,000 for
business interruption. The Company is pursuing additional recoveries of $4
million related to the damage of the Lubbock plant.
Insurance recoveries for property damage associated with events of this type
require the recognition of a new cost basis for the rebuilt facility. As a
result, the Company has recognized a $3.3 million unusual/ nonrecurring
adjustment in its income statement for the year ended December 31, 1997. Total
spending to restore the Lubbock plant was approximately $4.8 million.
F-26
<PAGE>
AMATEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITION OF BUSINESS
On April 1, 1996, the Company purchased certain assets of Steelco Metal
Construction Products and Construction Metals ("Steelco") for a total cost of
approximately $21,221,000. Steelco was engaged in the manufacturing of steel
roofing and siding products. The acquisition was accounted for as a purchase.
The excess of the purchase price over the fair values of the net assets acquired
of $11,266,000 has been recorded as goodwill and is being amortized over a
period of 20 years. The statement of operations for 1996 includes the operating
results of Steelco since the date of acquisition.
12. YEAR 2000 (UNAUDITED)
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
implementing its plan to resolve the issue. The Year 2000 problem is a result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major system failure or miscalculation. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted.
However, if such modifications or conversions are not made, or not completed
timely, the Year 2000 issue could have a material impact on the Company's
operations.
13. COMMITMENTS AND CONTINGENCIES
In March 1998, the Company entered into an agreement with NCI Building
Systems, Inc. to purchase 100% of the stock of the Company, which was effective
May 4, 1998. Upon the successful completion of this acquisition, certain
executives of the Company will receive compensation payments totaling
approximately $8.5 million.
F-27
<PAGE>
[Graphics]
The inside back cover of the Prospectus includes a map of the United States
on the upper half of the page with symbols placed on the map to represent the
Company's manufacturing facilities and various of the Company's trademarks on
the lower half of the page.
<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, shares of Common Stock in any jurisdiction to any person to whom it is
not lawful to make such offer or solicitation in such jurisdiction or in which
the person making such offer or solicitation is not qualified to do so. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
- ------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The MBCI Acquisition...................................................... 14
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Price Range of Common Stock............................................... 16
Dividend Policy........................................................... 16
Unaudited Pro Forma Condensed Combined Financial Statements............... 17
Selected Historical Consolidated Financial Information.................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 25
Industry Overview......................................................... 34
Business.................................................................. 36
Management................................................................ 48
Certain Relationships and Related Transactions............................ 51
Principal and Selling Stockholders........................................ 52
Underwriting.............................................................. 54
Legal Matters............................................................. 55
Experts................................................................... 55
Available Information..................................................... 55
Incorporation of Certain Documents by Reference........................... 56
Index to Financial Statements............................................. F-1
</TABLE>
PROSPECTUS , 1998
[LOGO]
3,800,000 Shares
Common Stock
WARBURG DILLON READ LLC
J.C. BRADFORD & CO.
WHEAT FIRST UNION
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the Commission registration fee and the Nasdaq additional listing fee are
estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Commission registration fee....................................................... 28,845
National Association of Securities Dealers, Inc. filing fee....................... 10,267
Nasdaq additional listing fee..................................................... 17,500
Legal fees and expenses........................................................... 200,000
Accounting fees and expenses...................................................... 150,000
Printing expenses................................................................. 75,000
Fees and expenses for qualification under state securities laws (including legal
fees)........................................................................... 5,000
Transfer agent's fees and expenses................................................ 2,500
Miscellaneous..................................................................... 10,888
----------
Total......................................................................... 500,000*
----------
----------
</TABLE>
- ------------------------
* None of this amount is to be borne by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated By-Laws provide that the directors and officers of the
Registrant shall be indemnified by the Registrant against certain liabilities
that those persons may incur in their capacities as directors or officers.
Furthermore, the Registrant's Restated Certificate of Incorporation eliminates
the liability of directors of the Registrant, under certain circumstances, to
the maximum extent permitted by the Delaware General Corporation Law.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act and in
certain circumstances provides for indemnification of the Registrant's directors
and officers.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement
**4.1 Form of certificate representing shares of Registrant's common stock
*4.2 Stock Registration Agreement dated April 10, 1989, between Registrant and
Equus II Incorporated, formerly Equus II, L.P. (filed as Exhibit 4.2 to
Registrant's Form S-1 registration statement no. 33-45612 and
incorporated by reference herein)
*4.3 Credit Agreement, dated March 25, 1998 (the "Credit Agreement"), by and
among the Registrant, NationsBank, N.A. (as successor in interest to
NationsBank of Texas, N.A.), as administrative agent ("NationsBank"),
NationsBanc Montgomery Securities LLC, as arranger and syndication
agent, Swiss Bank Corporation, as documentation agent ("Swiss Bank"),
and the several lenders named therein
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
*4.4 First Amendment to Credit Agreement, dated May 1, 1998, among the
Registrant, NationsBank, Swiss Bank and the parties named therein
*4.5 Second Amendment to Credit Agreement, dated May 5, 1998, among the
Registrant, NationsBank, Swiss Bank and the parties named therein
*4.6 Master Assignment and Acceptance, dated as of May 6, 1998, among
NationsBank, Swiss Bank and the several lenders named therein
*4.7 Facility A Notes (Revolving Credit), dated May 6, 1998, of the Registrant
in favor of lenders named therein
*4.8 Facility B Notes (Term Loan), dated May 6, 1998, of the Registrant in
favor of lenders named therein
*4.9 Facility C Notes (364-day Revolving Facility), dated May 6, 1998, of the
Registrant in favor of lenders named therein
*4.10 Guaranty, dated May 1, 1998, between NationsBank and A&S Business
Interests, Inc.
*4.11 Guaranty, dated May 1, 1998, between NationsBank and A&S Building Systems,
L.P.
*4.12 Guaranty, dated May 1, 1998, between NationsBank and NCI Building Systems,
L.P.
*4.13 Guaranty, dated May 1, 1998, between NationsBank and NCI Holding Corp.
*4.14 Guaranty, dated May 1, 1998, between NationsBank and NCI Operating Corp.
*4.15 Guaranty, dated May 1, 1998, between NationsBank and Metal Building
Components Holding, Inc.
*4.16 Guaranty, dated May 1, 1998, between NationsBank and Metal Coaters
Holding, Inc.
*4.17 Guaranty, dated May 1, 1998, between NationsBank and Metal Building
Components, L.P. (formerly MBCI Operating, L.P.)
*4.18 Guaranty, dated May 1, 1998, between NationsBank and Metal Coaters
Operating, L.P.
*4.19 Guaranty, dated May 13, 1998, between NationsBank and Metal Coaters of
California, Inc.
*4.20 Pledge Agreement, dated May 1, 1998, between the Registrant and
NationsBank
*4.21 Pledge Agreement, dated May 1, 1998, between NCI Holding Corp. and
NationsBank
*4.22 Pledge Agreement, dated May 13, 1998, between the Metal Coaters Holding,
Inc. and NationsBank
*4.23 Assignment of Partnership Interests, dated May 1, 1998, between NCI
Operating Corp. and NationsBank
*4.24 Assignment of Partnership Interests, dated May 1, 1998, between NCI
Holding Corp. and NationsBank
*4.25 Assignment of Partnership Interests, dated May 1, 1998, between Metal
Building Components Holding, Inc. and NationsBank
*4.26 Assignment of Partnership Interests, dated May 1, 1998, between Metal
Coaters Holding, Inc. and NationsBank
*4.27 Promissory Note, dated May 5, 1998, of NCI Holding Corp. in favor of the
Registrant
*4.28 Note Pledge Agreement, dated May 5, 1998, between the Registrant and
NationsBank
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*4.29 Loan Agreement "A," dated September 1, 1991, between the City of Mattoon
and the Company (filed as Exhibit 4.11 to the Registrant's registration
statement no. 33-45612 and incorporated by reference herein)
*4.30 $250,000 Promissory Note A, dated October 31, 1991, in favor of the City
of Mattoon executed by the Company (filed as Exhibit 4.12 to the
Registrant's registration statement no. 33-45612 and incorporated by
reference herein)
*4.31 Loan Agreement "B," dated September 1, 1991, between the City of Mattoon
and the Company (filed as Exhibit 4.13 to the Registrant's registration
statement no. 33-45612 and incorporated by reference herein)
*4.32 $250,000 Promissory Note B, dated January 20, 1992, in favor of the City
of Mattoon executed by the Company (filed as Exhibit 4.14 to the
Registrant's registration statement no. 33-45612 and incorporated by
reference herein)
*4.33 Stock Retention and Registration Agreement, dated November 13, 1995, by
and between the Company, Doors & Building Components, Inc., and David B.
Curtis (filed as Exhibit 4.14 to the Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1995, and incorporated by
reference herein)
*4.34 7% Convertible Subordinated Debenture dated April 1, 1996, Due April 1,
2001, between NCI Building Systems, Inc. and John T. Eubanks (filed as
Exhibit 4.15 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1996, and incorporated by reference
herein)
*4.35 Rights Agreement, dated June 24, 1998, between the Registrant and Harris
Trust and Savings Bank (filed as Exhibit 2 to the Registrant's
registration statement on Form 8-A and incorporated by reference herein)
**5.1 Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of securities
being registered
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
*24.1 Power of Attorney (set forth on page II-5 of initial filing)
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefits plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If 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,
II-3
<PAGE>
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
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe it meets all of the requirements for
filing on Form S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas on the 2nd day of September, 1998.
<TABLE>
<S> <C> <C>
NCI BUILDING SYSTEMS, INC.
By: /s/ ROBERT J. MEDLOCK
-----------------------------------------
Robert J. Medlock,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons and in the capacities
indicated on the 2nd day of September, 1998.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
* Officer and Director
- ------------------------------ (principal executive
Johnie Schulte officer)
Vice President and Chief
/s/ ROBERT J. MEDLOCK Financial Officer
- ------------------------------ (principal financial and
Robert J. Medlock accounting officer)
*
- ------------------------------ Director
Thomas C. Arnett
*
- ------------------------------ Director
William D. Breedlove
*
- ------------------------------ Director
Gary L. Forbes
*
- ------------------------------ Director and Executive
Leonard F. George Vice President
*
- ------------------------------ Director and Executive
A.R. Ginn Vice President
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director and Vice
Kenneth W. Maddox President
*
- ------------------------------ Director
Robert N. McDonald
*
- ------------------------------ Director
C.A. Rundell, Jr.
*
- ------------------------------ Director
Daniel D. Zabcik
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROBERT J. MEDLOCK
-------------------------
Robert J. Medlock
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement
**4.1 Form of certificate representing shares of Registrant's common stock
*4.2 Stock Registration Agreement dated April 10, 1989, between Registrant and
Equus II Incorporated, formerly Equus II, L.P. (filed as Exhibit 4.2 to
Registrant's Form S-1 registration statement no. 33-45612 and
incorporated by reference herein)
*4.3 Credit Agreement, dated March 25, 1998 (the "Credit Agreement"), by and
among the Registrant, NationsBank, N.A. (as successor in interest to
NationsBank of Texas, N.A.), as administrative agent ("NationsBank"),
NationsBanc Montgomery Securities LLC, as arranger and syndication
agent, Swiss Bank Corporation, as documentation agent ("Swiss Bank"),
and the several lenders named therein
*4.4 First Amendment to Credit Agreement, dated May 1, 1998, among the
Registrant, NationsBank, Swiss Bank and the parties named therein
*4.5 Second Amendment to Credit Agreement, dated May 5, 1998, among the
Registrant, NationsBank, Swiss Bank and the parties named therein
*4.6 Master Assignment and Acceptance, dated as of May 6, 1998, among
NationsBank, Swiss Bank and the several lenders named therein
*4.7 Facility A Notes (Revolving Credit), dated May 6, 1998, of the Registrant
in favor of lenders named therein
*4.8 Facility B Notes (Term Loan), dated May 6, 1998, of the Registrant in
favor of lenders named therein
*4.9 Facility C Notes (364-day Revolving Facility), dated May 6, 1998, of the
Registrant in favor of lenders named therein
*4.10 Guaranty, dated May 1, 1998, between NationsBank and A&S Business
Interests, Inc.
*4.11 Guaranty, dated May 1, 1998, between NationsBank and A&S Building Systems,
L.P.
*4.12 Guaranty, dated May 1, 1998, between NationsBank and NCI Building Systems,
L.P.
*4.13 Guaranty, dated May 1, 1998, between NationsBank and NCI Holding Corp.
*4.14 Guaranty, dated May 1, 1998, between NationsBank and NCI Operating Corp.
*4.15 Guaranty, dated May 1, 1998, between NationsBank and Metal Building
Components Holding, Inc.
*4.16 Guaranty, dated May 1, 1998, between NationsBank and Metal Coaters
Holding, Inc.
*4.17 Guaranty, dated May 1, 1998, between NationsBank and Metal Building
Components, L.P. (formerly MBCI Operating, L.P.)
*4.18 Guaranty, dated May 1, 1998, between NationsBank and Metal Coaters
Operating, L.P.
*4.19 Guaranty, dated May 13, 1998, between NationsBank and Metal Coaters of
California, Inc.
*4.20 Pledge Agreement, dated May 1, 1998, between the Registrant and
NationsBank
*4.21 Pledge Agreement, dated May 1, 1998, between NCI Holding Corp. and
NationsBank
*4.22 Pledge Agreement, dated May 13, 1998, between the Metal Coaters Holding,
Inc. and NationsBank
*4.23 Assignment of Partnership Interests, dated May 1, 1998, between NCI
Operating Corp. and NationsBank
*4.24 Assignment of Partnership Interests, dated May 1, 1998, between NCI
Holding Corp. and NationsBank
*4.25 Assignment of Partnership Interests, dated May 1, 1998, between Metal
Building Components Holding, Inc. and NationsBank
</TABLE>
<PAGE>
<TABLE>
<C> <S>
*4.26 Assignment of Partnership Interests, dated May 1, 1998, between Metal
Coaters Holding, Inc. and NationsBank
*4.27 Promissory Note, dated May 5, 1998, of NCI Holding Corp. in favor of the
Registrant
*4.28 Note Pledge Agreement, dated May 5, 1998, between the Registrant and
NationsBank
*4.29 Loan Agreement "A," dated September 1, 1991, between the City of Mattoon
and the Company (filed as Exhibit 4.11 to the Registrant's registration
statement no. 33-45612 and incorporated by reference herein)
*4.30 $250,000 Promissory Note A, dated October 31, 1991, in favor of the City
of Mattoon executed by the Company (filed as Exhibit 4.12 to the
Registrant's registration statement no. 33-45612 and incorporated by
reference herein)
*4.31 Loan Agreement "B," dated September 1, 1991, between the City of Mattoon
and the Company (filed as Exhibit 4.13 to the Registrant's registration
statement no. 33-45612 and incorporated by reference herein)
*4.32 $250,000 Promissory Note B, dated January 20, 1992, in favor of the City
of Mattoon executed by the Company (filed as Exhibit 4.14 to the
Registrant's registration statement no. 33-45612 and incorporated by
reference herein)
*4.33 Stock Retention and Registration Agreement, dated November 13, 1995, by
and between the Company, Doors & Building Components, Inc., and David B.
Curtis (filed as Exhibit 4.14 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995, and incorporated by
reference herein)
*4.34 7% Convertible Subordinated Debenture dated April 1, 1996, Due April 1,
2001, between NCI Building Systems, Inc. and John T. Eubanks (filed as
Exhibit 4.15 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1996, and incorporated by reference
herein)
*4.35 Rights Agreement, dated June 24, 1998, between the Registrant and Harris
Trust and Savings Bank (filed as Exhibit 2 to the Registrant's
registration statement on Form 8-A and incorporated by reference herein)
**5.1 Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of securities
being registered
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
*24.1 Power of Attorney (set forth on page II-5)
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
NCI BUILDING SYSTEMS, INC.
COMMON STOCK
($0.01 Par Value)
UNDERWRITING AGREEMENT
____________, 1998
<PAGE>
UNDERWRITING AGREEMENT
____________, 1998
Warburg Dillon Read LLC
535 Madison Avenue
New York, New York 10022
J.C. Bradford & Co.
330 Commerce Street
Nashville, Tennessee 37201
Wheat First Union
Riverfront Plaza
Richmond, Virginia 23219
Dain Rauscher Wessels
(a division of Dain Rauscher Incorporated)
2711 North Haskell Avenue
Suite 2400
Dallas, Texas 75204-2936
as Managing Underwriters
Dear Sirs:
NCI Building Systems, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell and the persons named in Schedule B (the "Selling
Shareholders") propose to sell to the underwriters named in Schedule A (the
"Underwriters") an aggregate of 3,800,000 shares (the "Firm Shares") of
Common Stock, par value $ 0.01 per share (the "Common Stock"), of the
Company, of which 3,500,000 shares are to be issued and sold by the Company
and an aggregate of 300,000 shares are to be sold by the Selling Shareholders
in the respective amounts set forth opposite their names in Schedule B. In
addition, solely for the purpose of covering overallotments, the Company
[and the Selling Shareholders] propose[s] to issue and sell, at the
Underwriters' option, up to 570,000 additional shares of the Common Stock
(the "Additional Shares") [of which _________ shares may be issued and sold by
the Company and an aggregate of ____________ shares may be sold by the Selling
Shareholders
<PAGE>
in the respective amounts set forth opposite their names in Schedule B]. The
Additional Shares and the Firm Shares are collectively referred to as the
"Shares". The Shares are described in the Prospectus which is referred to
below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"), with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3, including a prospectus,
relating to the Shares, which incorporates by reference documents that the
Company has filed in accordance with the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively, the "Exchange Act"). The Company has furnished to you, for
use by the Underwriters and by dealers, copies of one or more preliminary
prospectuses and all documents incorporated by reference therein
(collectively, the "Preliminary Prospectus") relating to the Shares. Except
where the context otherwise requires, the registration statement as in effect
at the time of execution of this Agreement or, if the registration statement
is not yet effective, as amended when it becomes effective, including all
documents filed as a part thereof or incorporated by reference therein, and
including any registration statement filed pursuant to Rule 462(b) under the
Act increasing the size of the offering registered under the Act and any
information contained in a prospectus subsequently filed with the Commission
pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A
under the Act, is herein called the "Registration Statement", and the
prospectus, including all documents incorporated therein by reference, in the
form filed by the Company with the Commission pursuant to Rule 424(b) under
the Act or, if no such filing is required, in the form of final prospectus
included in the Registration Statement at the time it became effective, is
herein called the "Prospectus".
The Company, the Selling Shareholders and the Underwriters agree as
follows:
1. SALE AND PURCHASE. On the basis of the representations and
warranties and the other terms and conditions herein set forth, the Company
and each Selling Shareholder, severally and not jointly, agrees to sell to
the respective Underwriters and each of the Underwriters, severally and not
jointly, agrees to purchase from the Company and each Selling Shareholder the
respective number of Firm Shares (subject to such adjustment as you may
determine to avoid fractional shares) which bears the same
2
<PAGE>
proportion to the number of Firm Shares to be sold by the Company or by that
Selling Shareholder, as the case may be, as the number of Firm Shares set
forth opposite the name of such Underwriter on Schedule A bears to the total
number of Firm Shares to be sold by the Company and the Selling Shareholders,
in each case at a purchase price of $____ per Share. You may release the
Firm Shares for public sale promptly after this Agreement becomes effective.
You may from time to time increase or decrease the public offering price
after the initial public offering to such extent as you may determine.
In addition, on the basis of the representations and warranties and the
other terms and conditions herein set forth, the Company [and each Selling
Shareholder, severally and not jointly,] hereby grants to the several
Underwriters an option to purchase, and the Underwriters shall have the right
to purchase, severally and not jointly, from the Company all or a portion of
the Additional Shares as may be necessary to cover overallotments made in
connection with the offering of the Firm Shares, at the same purchase price
per share to be paid by the several Underwriters to the Company and the
Selling Shareholders for the Firm Shares. This option may be exercised in
whole or in part from time to time on or before the thirtieth day following
the date hereof, by written notice to the Company. Any such notice shall set
forth the aggregate number of Additional Shares as to which the option is
being exercised, and the date and time when the Additional Shares are to be
delivered (any such date and time being herein referred to as an "additional
time of purchase"); PROVIDED, HOWEVER, that no additional time of purchase
shall occur earlier than the time of purchase (as defined below) nor earlier
than the second business day * after the date on which the option shall have
been exercised nor later than the eighth business day after the date on which
the option shall have been exercised. The number of Additional Shares to be
sold to each Underwriter at an additional time of purchase shall be the
number which bears the same proportion to the aggregate number of Additional
Shares being purchased at such additional time of purchase as the number of
Firm Shares set forth opposite the name of such Underwriter on Schedule A
bears to the total number of Firm Shares (subject, in each case, to such
adjustment as you may determine to eliminate fractional shares).
- -------------------------
* As used herein, "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
3
<PAGE>
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Firm
Shares shall be made to the Company and to the Attorney-in-fact referred to
in Section 4(d) on behalf of the Selling Shareholders by certified or
official bank checks, in immediately available funds, at the office of
Warburg Dillon Read LLC in New York City, against delivery of the
certificates for the Firm Shares to you for the respective accounts of the
Underwriters. Such payment and delivery shall be made at 9:30 A.M., New York
City time, on ____________, 1998 (unless another time shall be agreed to by
you, the Company and the Selling Shareholders or unless postponed in
accordance with the provisions of Section 10). The time at which such
payment and delivery are actually made is called the "time of purchase".
Certificates for the Firm Shares shall be delivered to you in definitive form
in such names and in such denominations as you shall specify on the second
business day preceding the time of purchase. For the purpose of expediting
the checking of the certificates for the Firm Shares by you, the Company and
the Selling Shareholders agree to make such certificates available to you for
such purpose at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made at
the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares
shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the
additional time of purchase. For the purpose of expediting the checking of
the certificates for the Additional Shares by you, the Company and the
Selling Shareholders agree to make such certificates available to you for
such purpose at least one full business day preceding the additional time of
purchase.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS. The Company and each of the Selling Shareholders, jointly and
severally, represent and warrant to each of the Underwriters that:
(a) Each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; when the Registration Statement becomes or became
effective and at all times subsequent thereto up to the time of purchase
and the additional time of purchase, the Registration Statement and the
Prospectus, and any supplements or amendments thereto, complied and will
comply in all material
4
<PAGE>
respects with the provisions of the Act; and the Registration Statement at
all such times did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
the Prospectus at all such times did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company and the Selling Shareholders make no
representation or warranty with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in conformity
with information concerning the Underwriters and furnished in writing by or
on behalf of any Underwriter through you to the Company expressly for use
in the Registration Statement or the Prospectus and set forth in the
section of the Registration Statement and the Prospectus entitled
"Underwriting"; the documents incorporated by reference in the Prospectus,
at the time they were filed with the Commission, complied in all material
respects with the requirements of the Exchange Act, and do not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(b) As of the date of this Agreement, the Company has an authorized
capitalization as set forth under the column entitled "April 30, 1998
Actual" in the section of the Registration Statement and the Prospectus
entitled "Capitalization" and, as of the time of purchase, the
capitalization of the Company will be as set forth under the column
entitled "April 30, 1998 As Adjusted" in the section of the Registration
Statement and the Prospectus entitled "Capitalization"; all of the issued
and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are
free of statutory and contractual preemptive rights.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
full power and authority to (i) own its properties and conduct its business
as described in the Registration Statement and the Prospectus and
(ii) execute and deliver this Agreement and to issue, sell and deliver the
Shares as herein contemplated.
5
<PAGE>
(d) Except as described in the Prospectus with respect to Doublecote,
L.L.C., Metallic de Mexico, S.A. de C.V., Building Systems de Mexico, S.A.
de C.V. and Midwest Metal Coating, L.L.C., all of the issued and
outstanding shares of capital stock of each of the subsidiaries of the
Company (the "Subsidiaries") are owned directly by the Company; all of such
shares have been duly authorized and validly issued and are fully paid and
nonassessable and, except as described in the Prospectus, are owned free
and clear of any pledge, lien, encumbrance, security interest or other
claim; there are no outstanding rights, subscriptions, warrants, calls,
preemptive rights, options or other agreements of any kind with respect to
the capital stock of any of the Subsidiaries.
(e) Each of the corporate Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation, with full corporate power and
authority to own its respective properties and to conduct its respective
businesses. Each of the limited partnership Subsidiaries has been duly
organized and is validly existing as a limited partnership in good standing
(or the equivalent thereto) under the laws of its respective jurisdiction
of organization, with full limited partnership power and authority to own
its respective properties and to conduct its respective businesses.
(f) Each of the Company and each of the Subsidiaries is duly
qualified or licensed by and is in good standing (or the equivalent
thereto) in each jurisdiction in which it owns or leases property or
conducts its business and in each other jurisdiction in which the failure,
individually or in the aggregate, to be so qualified or licensed could have
a material adverse effect on the properties, assets, operations, business,
business prospects or condition (financial or other) of the Company and the
Subsidiaries taken as a whole; each of the Company and each of the
Subsidiaries is in compliance in all material respects with the laws,
orders, rules, regulations and directives issued or administered by each
such jurisdiction.
(g) Neither the Company nor any of the Subsidiaries is in breach of,
or in default under (nor has any event occurred which with notice, lapse of
time or both would constitute a breach of, or default under), its charter
or bylaws, or in the performance or observance of any obligation,
agreement, covenant or condition contained in any license, indenture,
lease,
6
<PAGE>
mortgage, deed of trust, bank loan or credit agreement, material supply
agreement or other agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them may be bound or
affected. The execution, delivery and performance of this Agreement,
the issuance and sale of the Shares, the application of the net proceeds
thereof as described in the Prospectus and the consummation of the
transactions contemplated hereby will not conflict with, or result in
any breach of or constitute a default under (nor constitute any event
which with notice, lapse of time or both would constitute a breach of,
or default under), the charter bylaws or other organizational document
of the Company or any of the Subsidiaries or under any provision of any
license, indenture, lease, mortgage, deed of trust, bank loan or credit
agreement, material supply agreement or other agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which any
of them or their properties may be bound or affected, or under any
federal, state, local or foreign law, regulation or rule or any decree,
judgment or order applicable to the Company or any of the Subsidiaries.
(h) The Firm Shares and the Additional Shares, when issued and
delivered to and paid for by the Underwriters as contemplated hereby,
will be duly authorized and validly issued and fully paid and
nonassessable, free and clear of any pledge, lien, encumbrance, security
interest, preemptive right or other claim.
(i) This Agreement has been duly authorized, executed and
delivered by the Company.
(j) The capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and the Prospectus; and the certificates
for the Shares are in due and proper form and the holders of the Shares
after making payment therefor will not be subject to personal liability
by reason of being such holders.
(k) No approval, authorization, consent or order of or filing with
any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares as contemplated hereby, other
than registration of the Shares under the Act, clearance of the offering
of the Shares with the National Association of Securities Dealers, Inc.
(the
7
<PAGE>
"NASD") and any necessary qualification under the securities or blue sky
laws of the various jurisdictions in which the Shares are being offered
by the Underwriters.
(l) Each person who has the right, contractual or otherwise, to
cause the Company to register pursuant to the Act any securities of the
Company in consequence of the issue and sale of the Shares to the
Underwriters hereunder either included such securities in the
Registration Statement or duly waived such right and each person who has
the right, contractual or otherwise, to cause the Company to issue to it
any securities of the Company in consequence of the issue and sale of
the Shares to the Underwriters hereunder has duly waived such right.
(m) Ernst & Young LLP, whose reports on the consolidated financial
statements of the Company and the Subsidiaries are included or
incorporated by reference in the Registration Statement and the
Prospectus, are independent public accountants with respect to the
Company as required by the Act and the applicable published rules and
regulations thereunder.
(n) All legal or governmental proceedings, contracts or documents
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration
Statement have been so described or filed as required.
(o) There is no action, suit or proceeding pending or threatened
against the Company or any of the Subsidiaries or any of their
properties, at law or in equity, or before or by any federal, state,
local or foreign governmental or regulatory commission, board, body,
authority or agency that could result in a judgment, decree or order
having a material adverse effect on the properties, assets, operations,
business, business prospects or condition (financial or other) of the
Company and the Subsidiaries taken as a whole.
(p) The audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly the
consolidated financial condition of the Company and the Subsidiaries as
of the dates indicated and the consolidated results of operations and
cash flows of the Company and the Subsidiaries for the periods
specified; such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a
8
<PAGE>
consistent basis during the periods involved. The pro forma financial
statements contained in the Registration Statement and Prospectus have
been prepared on a basis consistent with the financial statements
referred to above and, except for the pro forma adjustments specified
therein, include all material adjustments to the historical financial
data required by Rule 11-02 of Regulation S-X to reflect the MBCI
Acquisition and the Offering (as defined in the Prospectus), and give
effect to assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by the Prospectus and
this Agreement.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
may be otherwise stated in the Registration Statement or the Prospectus,
there has not been: (A) any material adverse change in the properties,
assets, operations, business, business prospects or condition (financial
or other), present or prospective, of the Company and the Subsidiaries
taken as a whole; (B) any transaction, that is material to the Company
and the Subsidiaries taken as a whole, contemplated or entered into by
the Company or any of the Subsidiaries; or (C) any obligation,
contingent or otherwise, directly or indirectly incurred by the Company
or any of the Subsidiaries that is material to the Company and the
Subsidiaries taken as a whole.
(r) The Company has obtained the agreement of the shareholders
listed on Schedule C not to sell, contract to sell, grant any option to
sell, transfer or otherwise dispose of, directly or indirectly, any
shares of Common Stock, or securities convertible into or exchangeable
for Common Stock or warrants or other rights to purchase Common Stock
for a period of 90 days from the date of the Prospectus without the
prior written consent of Warburg Dillon Read LLC.
(s) Neither the Company nor any of the Subsidiaries has violated
any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or
state wages and hours laws, nor any provisions of the Employee
Retirement Income Security Act or the rules and regulations promulgated
9
<PAGE>
thereunder, which in each case might result in any material adverse
effect on the properties, assets, operations, business, business
prospects or condition (financial or other) of the Company and the
Subsidiaries taken as a whole.
(t) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including without limitation under any
applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business; the
Company and each of the Subsidiaries has fulfilled and performed all of
its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except
as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company or any of the Subsidiaries.
(u) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and the Subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including without limitation any capital or operating
expenditure required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company reasonably has
concluded that such associated costs and liabilities, singly or in the
aggregate, would not have a material adverse effect on the properties,
assets, operations, business, business prospects or condition (financial
or other) of the Company and the Subsidiaries taken as a whole.
(v) Neither the Company nor any of the Subsidiaries, nor any
employee of the Company or any of the Subsidiaries, has made any payment
of funds of the Company or any of the Subsidiaries prohibited by law,
and no funds of the Company or any of the Subsidiaries have been set
aside to be used for any payment prohibited by law.
(w) The Company and the Subsidiaries have filed all federal or
state income or franchise tax returns required to be filed and have paid
all taxes shown
10
<PAGE>
thereon as due, and there is no material tax deficiency which has been
or might be asserted against the Company or any of the Subsidiaries; all
material tax liabilities are adequately provided for on the books of the
Company and the Subsidiaries.
(x) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions herein
contemplated.
(y) The Company and the Subsidiaries have good title to all
properties and assets owned or leased by them, in each case free and
clear of all liens, security interests, pledges, charges, encumbrances,
mortgages and defects (except such as are described or referred to in
the Prospectus and the financial statements and the notes thereto
contained therein or such as do not interfere with the use made and
proposed to be made of such property by the Company and the
Subsidiaries).
(z) Neither the Company nor any of the Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, or is subject to regulation under such Act.
4. FURTHER REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder, severally and not jointly, further represents and
warrants to each Underwriter that:
(a) Such Selling Shareholder is and at the time of delivery of the
Shares to be sold by such Selling Shareholder will be the lawful owner
of the number of Shares or securities convertible into or warrants
exercisable for the number of Shares to be sold by such Selling
Shareholder pursuant to this Agreement and, at the time of delivery
thereof, will have valid and marketable title to such Shares, and upon
delivery of and payment for such Shares the Underwriters will acquire
valid and marketable title to such Shares free and clear of any claim,
lien, encumbrance, security interest, community property right,
restriction on transfer or other defect in title, assuming each of the
Underwriters has purchased the Shares purchased by it in good faith and
without notice of any adverse claim.
(b) Such Selling Shareholder has and at the time of delivery of
such Shares will have full legal right, power and capacity, and any
approval required by law to sell, assign, transfer and deliver such
Shares in the manner provided in this Agreement.
11
<PAGE>
(c) This Agreement has been duly authorized, executed and
delivered by such Selling Shareholder. The Power of Attorney executed
by the Selling Shareholders (the "Power of Attorney") and the Custody
Agreement among the Selling Shareholders and Harris Trust and Savings
Bank (the "Custody Agreement") have been duly executed and delivered by
such Selling Shareholder and are legal, valid and binding agreements of
such Selling Shareholder, enforceable in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity.
(d) Such Selling Shareholder has duly and irrevocably authorized
the Attorney-in-Fact (as defined in the Power of Attorney), on behalf of
such Selling Shareholder, to execute and deliver this Agreement and any
other document necessary or desirable in connection with the
transactions contemplated hereby and to deliver the Shares to be sold by
such Selling Shareholder and receive payment therefor pursuant hereto.
(e) The sale of the Shares by such Selling Shareholder pursuant
hereto is not prompted by any material adverse information concerning
the Company; and all information furnished in writing by or on behalf of
such Selling Shareholder specifically for use in the Registration
Statement and the Prospectus, and any supplement or amendment thereto,
is and will be when the Registration Statement became effective and at
all times subsequent thereto up to the time of purchase [AND THE
ADDITIONAL TIME OF PURCHASE], true and correct and complete and at all
such times did not and will not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(f) The consummation of the transactions contemplated hereby and
by the Power of Attorney and by the Custody Agreement and the
fulfillment of the terms hereof and thereof will not constitute a breach
or violation of or default under any trust, indenture, agreement or
other instrument to which any such Selling Shareholder is a party or by
which any such Selling Shareholder is bound.
12
<PAGE>
5. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise
to cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect as long as required for the
distribution of the Shares, provided that the Company shall not be
required to qualify as a foreign corporation or to consent to the
service of process under the laws of any such state (except service of
process with respect to the offering and sale of the Shares); promptly
to advise you of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and to use its best efforts to obtain the withdrawal of
any order of suspension at the earliest practicable moment;
(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective, and
thereafter from time to time to furnish to the Underwriters, as many
copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendment or supplement
thereto after the effective date of the Registration Statement) as the
Underwriters may request for the purposes contemplated by the Act;
(c) to advise you promptly and if requested by you to confirm such
advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes
effective and (ii) when the Prospectus is filed with the Commission
pursuant to Rule 424(b) under the Act, if required under the Act (which
the Company agrees to file in a timely manner under such Rule);
(d) to advise you promptly, confirming such advice in writing, of
any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information
with respect thereto, or of notice of institution of proceedings for or
the entry of a stop order suspending the effectiveness of the
Registration Statement and, if the Commission should enter a stop order
suspending the effectiveness of the Registration Statement, to use its
best efforts to obtain the lifting or removal of such order as soon as
possible; to advise you promptly of any proposal to amend or supplement
the Registration
13
<PAGE>
Statement or the Prospectus, including by filing any document that would
be incorporated therein by reference, and to file no such amendment or
supplement to which you shall object in writing;
(e) to furnish to you and, upon request to each of the other
Underwriters, for a period of five years from the date of this Agreement
(i) copies of all reports or other communications that the Company shall
send to its shareholders or from time to time shall publish or publicly
disseminate and (ii) copies of all annual, quarterly and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar form as may be designated by the Commission, and any other
document filed by the Company pursuant to Section 12, 13, 14 or 15(d) of
the Exchange Act;
(f) to advise the Underwriters promptly of the happening of any
event known to the Company within the time during which a prospectus
relating to the Shares is required to be delivered under the Act that,
in the reasonable judgment of the Company, would require the making of
any change in the Prospectus then being used, or in the information
incorporated therein by reference, so that the Prospectus, as then
supplemented, would not include an untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they are made,
not misleading and, during such time, promptly to prepare and furnish,
at the Company's expense, to the Underwriters such amendments or
supplements to such Prospectus as may be necessary to reflect any such
change in such quantities as requested by the Underwriters, and to
furnish to you a copy of such proposed amendment or supplement before
filing any such amendment or supplement with the Commission;
(g) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which need not be
audited and which will satisfy the provisions of Section 11(a) of the
Act including, at the option of the Company, Rule 158) covering a period
of 12 months beginning after the effective date of the Registration
Statement but ending not later than 15 months after the date of the
Registration Statement, as soon as is reasonably practicable after the
termination of such 12-month period;
(h) to furnish to you five signed copies of the Registration
Statement, as initially filed with the
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Commission, and of all amendments thereto (including all exhibits thereto
and documents incorporated by reference therein) and sufficient conformed
copies of the foregoing (other than exhibits) for distribution of a copy
to each of the other Underwriters;
(i) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but
not later than two business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements, if any,
of the Company and the Subsidiaries that have been read by the Company's
independent certified public accountants as stated in their letter to be
furnished pursuant to Section 8(b);
(j) to apply the net proceeds from the sale of the Shares sold by
the Company in the manner set forth under the caption "Use of Proceeds"
in the Registration Statement and the Prospectus;
(k) to use its best efforts to cause the Shares to be approved for
listing on the New York Stock Exchange;
(l) whether or not the transactions contemplated in this Agreement
are consummated or this Agreement otherwise becomes effective or is
terminated, to pay all expenses, fees and taxes (other than (x) any
transfer taxes and (y) fees and disbursements of your counsel except as
set forth under Section 5 and clauses (iv) and (vi) below) in connection
with (i) the preparation and filing of the Registration Statement, each
Preliminary Prospectus, the Prospectus and any amendment or supplement
thereto, and the printing and furnishing of copies of each thereof to
you and to dealers (including costs of mailing and shipment), (ii) the
issuance, sale and delivery of the Shares, (iii) the word processing or
printing of this Agreement and any dealer agreements, and the
reproduction or printing and furnishing of copies of each thereof to you
and to dealers (including costs of mailing and shipment), (iv) the
qualification of the Shares for offering and sale under state laws as
aforesaid (including legal fees and filing fees and other disbursements
of your counsel) and the printing and furnishing of copies of any blue
sky surveys to you and to dealers, (v) any listing of the Shares on any
securities exchange or qualification of the Shares for listing on the
New York Stock Exchange and any registration thereof under the Exchange
Act, (vi) any filing for review of the public offering of the Shares
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by the NASD and (viii) the performance of the Company's and the Selling
Shareholders' other obligations hereunder;
(m) not to sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock or permit the
registration under the Act of any shares of Common Stock, except for the
registration of the Shares and the sales to you pursuant to this
Agreement for a period commencing on the date hereof and continuing for
90 days after the date of the Prospectus, without the prior written
consent of Warburg Dillon Read LLC; and
(n) to refrain from investing the proceeds from the sale of the
Shares in a manner to cause the Company or any of the Subsidiaries to
become an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
6. CERTAIN COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder agrees with each Underwriter that such Selling Shareholder will
not sell, contract to sell, grant any option to sell, transfer or otherwise
dispose of, directly or indirectly, any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights
to purchase Common Stock, except for the sales to you pursuant to this
Agreement, for a period commencing on the date hereof and continuing for 90
days after the date of the Prospectus, without the prior written consent of
Warburg Dillon Read LLC.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Firm Shares or the
Additional Shares are not delivered for any reason, other than the failure of
the Underwriters to purchase the Firm Shares or the Additional Shares as
provided herein (unless such failure is permitted under the provisions of
Section 8 or Section 9(b) of this Agreement), the Company will reimburse the
Underwriters for all of their out-of-pocket expenses, including the fees and
disbursements of their counsel.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters hereunder are subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholders on the date hereof and at the time of purchase (and the several
obligations of the Underwriters at any
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<PAGE>
additional time of purchase are subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholders on the date hereof and at the time of purchase and at such
additional time of purchase, as the case may be), the performance by each of
the Company and the Selling Shareholders of their obligations hereunder and
to the following conditions:
(a) The Company shall furnish to you at the time of purchase and
at such additional time of purchase, as the case may be, an opinion of
Gardere & Wynne, L.L.P., counsel for the Company and the Selling
Shareholders, addressed to the Underwriters and dated the time of
purchase or such additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters and in form
satisfactory to Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters, stating that:
(i) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority (A) to own its
properties and conduct its business as described in the
Registration Statement and the Prospectus and (B) to execute and
deliver this Agreement and to issue, sell and deliver the Shares as
herein contemplated;
(ii) each of the Subsidiaries has been duly incorporated (or, in
the case of limited partnership Subsidiaries, duly organized) and
is validly existing as a corporation or limited partnership, as the
case may be, in good standing (or equivalent thereto) under the
laws of the state in which such Subsidiary is incorporated, with
full corporate power and authority (or, in the case of limited
partnership Subsidiaries, full limited partnership power and
authority) to own its properties and to conduct its business as
described in the Registration Statement and the Prospectus;
(iii) each of the Company and each of the Subsidiaries is duly
qualified or licensed to do business by and is in good standing as
a foreign corporation, or foreign limited partnership, as the case
may be, in each jurisdiction in which it conducts business or owns
property and in which the failure, individually or in the
aggregate, to be so licensed or qualified could have a material
adverse effect on the properties, assets,
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operations, business, business prospects or condition (financial or
other) of the Company and the Subsidiaries taken as a whole;
(iv) all of the issued and outstanding shares of capital stock
(including partnership interests) of each Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable
and, except as set forth in the Prospectus, are owned, directly or
indirectly, by the Company free and clear of any pledge, lien,
encumbrance, security interest, preemptive right or other claim,
and there are no rights, warrants, options or other agreements to
acquire or instruments convertible into or exchangeable for any
shares of capital stock or other equity interest of any Subsidiary,
except as set forth in the Prospectus;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) (a) the Shares, when delivered to and paid for by the
Underwriters, will be duly authorized, validly issued, fully paid
and nonassessable, and will be free of any pledge, lien,
encumbrance, claim or preemptive right; and (b) the certificates for
the Shares are in due and proper form and the holders of the Shares
will not be subject to personal liability by reason of being such
holders;
(vii) (a) the Company has an authorized capitalization as set
forth under the heading "Capitalization" in the Registration
Statement and the Prospectus, and (b) the outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid, nonassessable and free of statutory and
contractual preemptive rights;
(viii) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof
contained in the Registration Statement and the Prospectus;
(ix) the Registration Statement and the Prospectus (except as
to the financial statements and schedules contained or incorporated
by reference therein as to which such counsel need express no
opinion) comply as to form in all
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material respects with the requirements of the Act;
(x) the Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under
the Act;
(xi) no approval, authorization, consent or order of or filing
with any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency is required
in connection with the issuance or sale of the Shares as
contemplated hereby other than registration of the Shares under the
Act (except such counsel need express no opinion as to any
necessary qualification under the state securities or blue sky laws
of the various jurisdictions in which the Shares are being offered
by the Underwriters);
(xii) the execution, delivery and performance of this Agreement
by the Company, the issuance and sale of the Shares, the
application of the net proceeds thereof as described in the
Prospectus and the consummation by the Company of the transactions
contemplated hereby do not and will not conflict with, or result in
any breach of, or constitute a default under (nor constitute any
event which with notice, lapse of time or both would constitute a
breach of or default under), the charter or bylaws of the Company
or any of the Subsidiaries, or any provision of any license,
indenture, lease, mortgage, deed of trust, bank loan or credit
agreement or other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries or their properties are bound or affected, or
under any federal, state, local or foreign law, regulation or rule
or any decree, judgment or order applicable to the Company or any
of the Subsidiaries;
(xiii) to the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in breach of or in default
under (nor has any event occurred which with notice, lapse of time
or both would constitute a breach of or default under) any license,
indenture, lease, mortgage, deed of trust, bank loan or credit
agreement or any other agreement or instrument to which the Company
or any of the Subsidiaries is a party or
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by which the Company or any of the Subsidiaries or their properties
are bound or affected or under any law, regulation or rule or any
decree, judgment or order applicable to the Company or any of the
Subsidiaries, except for such matters as could not, individually or
in the aggregate, have a material adverse effect on the properties,
assets, operations, business, business prospects or condition
(financial or other) of the Company and the Subsidiaries taken as a
whole;
(xiv) to the best of such counsel's knowledge, after due inquiry,
neither the Company nor any of the Subsidiaries has violated any
Environmental Laws, nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the
rules and regulations promulgated thereunder, which in each case
might result in any material adverse effect on the properties,
assets, operations, business, business prospects or condition
(financial or other) of the Company and the Subsidiaries taken as a
whole;
(xv) the Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including without limitation
under any applicable Environmental Laws, as are necessary to own,
lease and operate its respective properties and to conduct its
business in the manner described in the Prospectus; to the best of
such counsel's knowledge, after due inquiry, the Company and each
of the Subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, subject
in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, such
permits contain no restrictions that are materially burdensome to
the Company or any of the Subsidiaries;
(xvi) all contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be
20
<PAGE>
filed as an exhibit to the Registration Statement have been so
described or filed;
(xvii) except as described in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings of which
such counsel has knowledge pending or threatened against the
Company or any of the Subsidiaries, or any of their respective
properties, at law or in equity, or before or by any federal,
state, local or foreign governmental or regulatory commission,
board, body, authority or agency that individually or in the
aggregate could result in a judgment, decree or order having a
material adverse effect on the properties, assets, operations,
business, business prospects or condition (financial or other) of
the Company and the Subsidiaries taken as a whole;
(xviii) the documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed (or, if
an amendment with respect to any such document was filed, when such
amendment was filed), complied as to form in all material respects
with the Exchange Act (except as to the financial statements and
schedules and other financial and statistical data contained or
incorporated by reference therein, as to which such counsel need
express no opinion);
(xix) to the best of such counsel's knowledge, each person who
has the right, contractual or otherwise, to cause the Company to
register pursuant to the Act any securities of the Company in
consequence of the issue and sale of the Shares to the Underwriters
hereunder either included such securities in the Registration
Statement or duly waived such right and each person who has the
right, contractual or otherwise, to cause the Company to issue to
it any securities of the Company in consequence of the issue and
sale of the Shares to the Underwriters hereunder has duly waived
such right;
(xx) the statements in the Registration Statement and the
Prospectus under the captions "Business -- Regulatory Matters" and
"Risk Factors -- Shares Eligible For Future Sale" and in the
Company's Registration Statement on Form 8-A dated July 20, 1998
under the caption "Description of Capital Stock," insofar as they
are descriptions of laws, regulations and rules, of legal and
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governmental proceedings or of contracts, agreements, leases and
other legal documents, or refer to statements of law or legal
conclusions, have been reviewed by such counsel and are accurate in
all material respects;
(xxi) neither the Company nor any of the Subsidiaries is an
"investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended;
(xxii) this Agreement, the Power of Attorney and the Custody
Agreement have been duly executed and delivered by each of the
Selling Shareholders; the Power of Attorney and the Custody
Agreement are legal, valid and binding agreements of each of the
Selling Shareholders enforceable in accordance with their
respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and general
principles of equity;
(xxiii) each of the Selling Shareholders has full legal right and
power, and has obtained any authorization or approval required by
law (other than those imposed by the Act and the securities or blue
sky laws of certain jurisdictions), to sell, assign, transfer and
deliver the Shares to be sold by such Selling Shareholder in the
manner provided in this Agreement;
(xxiv) delivery of certificates for the Shares to be sold by the
Selling Shareholders pursuant hereto will pass title thereto to the
Underwriters severally, free and clear of any claim, lien,
encumbrance, security interest, community property right,
restriction on transfer or other defect in title assuming that the
several Underwriters are good faith purchasers and without notice
of any adverse claim;
(xxv) to the best of such counsel's knowledge, the consummation
of the transactions contemplated hereby and by the Power of
Attorney and the Custody Agreement and the fulfillment of the terms
hereof and thereof will not constitute a breach or violation of or
default under any trust, indenture, agreement or other instrument
to which any of the Selling Shareholders is a party or by which any
of the Selling Shareholders is bound;
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<PAGE>
(xxvi) the Attorney-in-Fact has been duly authorized by each
Selling Shareholder to execute and deliver on behalf of each
Selling Shareholder this Agreement and any other document necessary
or desirable in connection with the transactions contemplated
hereby and to deliver the Shares to be sold by the Selling
Shareholders and receive payment therefor pursuant hereto;
(xxvii) no approval, authorization, consent or order of or filing
with any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency is required
in connection with the sale of the Shares to be sold by the Selling
Shareholders as contemplated hereby other than registration of the
Shares under the Act (except such counsel need express no opinion
as to any necessary qualification under the state securities or
blue sky laws of the various jurisdictions in which the Shares are
being offered by the Underwriters); and
(xxviii) nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or
amendment became effective contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any supplement thereto at the
date of such Prospectus or such supplement, and at all times up to
and including the time of purchase contained an untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules
included in the Registration Statement or Prospectus).
(b) You shall have received from Ernst & Young LLP letters dated,
respectively, the date of this Agreement and the time of purchase and
additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in
form and substance satisfactory to you.
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<PAGE>
(c) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, opinions from Gibson,
Dunn & Crutcher LLP in form and substance satisfactory to you.
(d) No amendment or supplement to the Registration Statement or the
Prospectus, including documents deemed to be incorporated by reference
therein, shall be filed prior to the time the Registration Statement
becomes effective to which you shall have objected in writing.
(e) The Registration Statement shall become effective at or before
5:00 P.M., New York City time, on the date of this Agreement and, if
Rule 430A under the Act is used, the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) under the Act at or before
5:00 P.M., New York City time, on the second full business day after the
date of this Agreement; PROVIDED, HOWEVER, that the Company, the Selling
Shareholders and you and any group of Underwriters, including you, who have
agreed hereunder to purchase in the aggregate at least 50% of the Firm
Shares from time to time may agree in writing or by telephone, confirmed in
writing, on a later date.
(f) Prior to the time of purchase or the additional time of purchase,
as the case may be: (i) no stop order with respect to the effectiveness of
the Registration Statement shall have been issued under the Act or
proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications
thereof, if any, shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and (iii) the Prospectus and
all amendments or supplements thereto, or modifications thereof, if any,
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there has
not been: (i) any material and adverse change, present or prospective, in
the properties, assets, operations, business, business prospects or
condition (financial or other) of the Company and the Subsidiaries taken as
a
24
<PAGE>
whole, other than as described in the Registration Statement and the
Prospectus; (ii) any transaction that is material to the Company and the
Subsidiaries taken as a whole contemplated or entered into by the
Company or any of the Subsidiaries, other than as described in the
Registration Statement and the Prospectus; or (iii) any obligation,
contingent or otherwise, directly or indirectly, incurred by the Company
or any of the Subsidiaries that is material to the Company and the
Subsidiaries taken as a whole, other than as described in the
Registration Statement and the Prospectus.
(h) The Company, at the time of purchase or additional time of
purchase, as the case may be, will deliver to you a certificate of two of
its executive officers to the effect that the representations and
warranties of the Company as set forth in this Agreement are true and
correct as of each such date and the conditions set forth in Section 8(f)
and Section 8(g) have been met.
(i) You shall have received a signed letter, dated the date of this
Agreement, from each of the shareholders listed in Schedule C to the effect
that such persons shall not sell, contract to sell, grant any option to
sell, transfer or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock for a period of
90 days from the date of the Prospectus without the prior written consent
of Warburg Dillon Read LLC.
(j) The Company and the Selling Shareholders shall have furnished to
you such other documents and certificates as to the accuracy and
completeness of any statement in the Registration Statement or the
Prospectus as of the time of purchase and the additional time of purchase,
as the case may be, as you reasonably may request.
(k) The Company and the Selling Shareholders shall have performed
such of their respective obligations under this Agreement as are to be
performed by the terms hereof at or before the time of purchase and at or
before the additional time of purchase, as the case may be.
(l) The Shares shall have been approved for listing on the New York
Stock Exchange.
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<PAGE>
(m) The Attorney-in-Fact, at the time of purchase or additional time
of purchase, as the case may be, shall have delivered to you a certificate
to the effect that the Attorney-in-Fact is not aware that any of the
representations and warranties of the Selling Shareholders as set forth in
this Agreement are not true and correct as of such date.
(n) On or prior to the date hereof, the New York Stock Exchange shall
have approved the Underwriters' participation in the distribution of the
Shares to be sold by the Selling Shareholders.
9. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective (i) if Rule 430A under
the Act is not used, when you shall have received notification of the
effectiveness of the Registration Statement, or (ii) if Rule 430A under the
Act is used, when the parties hereto have executed and delivered this
Agreement.
(b) The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares if, at any time prior to the time
of purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange shall have been suspended or minimum prices shall
have been established on the New York Stock Exchange or if a banking
moratorium shall have been declared either by the United States or New York
State authorities, or if the United States shall have declared war in
accordance with its constitutional processes or there shall have occurred any
material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in your
judgment or in the judgment of such group of Underwriters, makes it
impracticable to market the Shares. If you or any group of Underwriters
elect to terminate this Agreement as provided in this Section 9(b), the
Company and each other Underwriter shall be notified promptly by letter or
telegram.
(c) If any Underwriter shall default in its obligation to take up
and pay for the Firm Shares to be purchased by it hereunder and if the number
of Firm Shares which all Underwriters so defaulting shall have agreed but
failed to take up and pay for does not exceed 10% of the
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<PAGE>
total number of Firm Shares, the non-defaulting Underwriters shall take up
and pay for (in addition to the aggregate principal amount of Firm Shares
they are obligated to purchase pursuant to Section 1) the number of Firm
Shares agreed to be purchased by all such defaulting Underwriters as
hereinafter provided. Such Shares shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you
may designate with the consent of each Underwriter so designated or, in the
event no such designation is made, such Shares shall be taken up and paid for
by all non-defaulting Underwriters pro rata in proportion to the aggregate
number of Firm Shares set opposite the names of such non-defaulting
Underwriters in Schedule A.
(d) If any Underwriter shall default in its obligation to take up
and pay for the Firm Shares to be purchased by it hereunder and if the number
of Firm Shares which all Underwriters so defaulting shall have agreed but
failed to take up and pay for exceeds 10% of the total number of Firm Shares,
and arrangements satisfactory to you and the Company are not made within 48
hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter.
(e) Without relieving any defaulting Underwriter from its
obligations hereunder, the Company agrees with the non-defaulting
Underwriters that it will not sell any Firm Shares hereunder unless all of
the Firm Shares are purchased by the Underwriters (or by substituted
underwriters selected by you with the approval of the Company or selected by
the Company with your approval pursuant to Section 9(d)). If a new
Underwriter or Underwriters are substituted for a defaulting Underwriter or
Underwriters in accordance with Section 9(d), the Company or you shall have
the right to postpone the time of purchase for a period not exceeding five
business days in order that any necessary change in the Registration
Statement and the Prospectus and other documents may be effected. The term
Underwriter as used in this Agreement shall refer to and include any
Underwriter substituted under this Section 9 with like effect as if such
substituted Underwriter had originally been named in Schedule A.
(f) If the purchase of the Shares by the Underwriters, as
contemplated by this Agreement, is not consummated for any reason permitted
under this Agreement or if such purchase is not consummated because the
Company shall be unable to comply with any of the terms of this Agreement,
the Company shall not be under any obligation or liability under this
Agreement (except to the extent provided in Sections 5(l), 7 and 10), and the
Underwriters
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<PAGE>
shall be under no obligation or liability to the Company under this Agreement
(except to the extent provided in Section 10).
10. INDEMNITY BY THE COMPANY, THE SELLING SHAREHOLDERS AND THE
UNDERWRITERS.
(a) The Company and the Selling Shareholders, jointly and
severally, agree to indemnify, defend and hold harmless each Underwriter,
each person that controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, and each Underwriter's agents,
employees, officers and directors and the agents, employees, officers and
directors of any such controlling person (collectively, the "Underwriter
indemnified parties") from and against any and all losses, claims, damages,
judgments, liabilities and expenses (including the fees and expenses of
counsel and other expenses in connection with investigating, defending or
settling any such action or claim) which, jointly or severally, any
Underwriter indemnified party may incur as they are incurred (and regardless
of whether such Underwriter indemnified party is a party to the litigation,
if any) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement relating
to the Shares or the Prospectus or any Preliminary Prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
judgments, liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or alleged untrue statement or omission based
upon and in conformity with information with respect to any Underwriter
furnished in writing by any Underwriter through you to the Company expressly
for use therein with reference to such Underwriter; PROVIDED, HOWEVER, that
no Selling Shareholder shall be liable under this Section 11 in an amount
exceeding the total price at which the Shares sold by such Selling
Shareholder were offered to the public. This indemnity agreement will be in
addition to any liability the Company or the Selling Shareholders otherwise
may have.
(b) If any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against
any Underwriter indemnified party, with respect to which indemnity may be
sought against the Company or a Selling Shareholder pursuant to this Section
10, such Underwriter indemnified party shall promptly notify the Company and
each Selling Shareholder in writing, and the Company and the Selling
Shareholders shall assume the defense thereof, including the employment of
28
<PAGE>
counsel reasonably satisfactory to the Underwriter indemnified party and
payment of all fees and expenses; PROVIDED that the omission so to notify the
Company and the Selling Shareholders shall not relieve them from any
liability that they may have to any Underwriter indemnified party. An
Underwriter indemnified party shall have the right to employ separate counsel
in any such action or proceeding and to assume the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter
indemnified party unless (i) the employment of such counsel has been
authorized in writing by the Company or the Selling Shareholders, (ii) the
Company and the Selling Shareholders have failed promptly to assume the
defense and employ counsel satisfactory to the Underwriter indemnified party
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Underwriter indemnified party and the
Company or the Selling Shareholders and such Underwriter indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it that are different from or additional to those available to
the Company and the Selling Shareholders (in which case the Company and the
Selling Shareholders shall not have the right to assume the defense of such
action on behalf of such Underwriter indemnified party), in any of which
events such fees and expenses shall be borne by the Company and the Selling
Shareholders and reimbursed as they are incurred. It is understood, however,
that the Company and the Selling Shareholders shall not, in connection with
any one such action or separate but substantially similar or related actions
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) at any time for all such
Underwriter indemnified parties, which firm shall be designated in writing by
Warburg Dillon Read LLC, and that all such fees and expenses shall be
reimbursed as they are incurred. The Company and the Selling Shareholders
shall not be liable for any settlement of any such action effected without
the written consent of the Company or the Selling Shareholders (which consent
shall not be unreasonably withheld or delayed), but if settled with the
written consent of the Company or the Selling Shareholders], or if there is a
final judgment with respect thereto, the Company and the Selling Shareholders
agree to indemnify and hold harmless each Underwriter indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(c) Each Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, and any person
29
<PAGE>
that controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act (collectively, the "Company indemnified
parties") and each Selling Shareholder to the same extent as the foregoing
indemnity from the Company and the Selling Shareholders to the Underwriter
indemnified parties, but only with respect to information concerning such
Underwriter furnished in writing by or on behalf of such Underwriter through
you to the Company expressly for use with respect to such Underwriter in the
Registration Statement, any Preliminary Prospectus or the Prospectus. In
case any action shall be brought against any Company indemnified party or any
Selling Shareholder based on the Registration Statement, any Preliminary
Prospectus or the Prospectus and in respect of which indemnity may be sought
against any Underwriter pursuant to this Section 10(c), such Underwriter
shall have the rights and duties given to the Company and the Selling
Shareholders by Section 10(b) (except that if the Company and the Selling
Shareholders shall have assumed the defense thereof such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, PROVIDED that the fees and expenses of
such separate counsel shall be at the expense of such Underwriter), and the
Company indemnified parties and the Selling Shareholders shall have the
rights and duties given to the Underwriter indemnified parties by Section
10(b).
(d) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless any Underwriter indemnified
party or any Company indemnified party or any Selling Shareholder, then the
party required to indemnify such indemnified party under this Section 10, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, judgments, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand
from the offering of the Shares, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Shareholders on the one hand and the Underwriters on the other
hand shall be deemed to be in the same proportion as
30
<PAGE>
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and the
Selling Shareholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, by the Selling Shareholders or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, judgments, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 10(d) were determined by pro rata allocation or by any other method
of allocation (even if the Underwriters were treated as one entity for such
purpose) that does not take account of the equitable considerations referred
to in this Section 10(d). Notwithstanding the provisions of this Section
10(d), no Underwriter indemnified party shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by such Underwriter indemnified party and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter indemnified party otherwise has been required to pay by
reason of such untrue statement or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 10 are
several in proportion to their respective underwriting commitments and are
not joint.
The statements under the caption "Underwriting" in the Prospectus
(to the extent such statements relate to an Underwriter) constitute the only
information furnished to the Company in writing by such Underwriter expressly
for use in the Registration Statement, any Preliminary Prospectus or the
Prospectus.
31
<PAGE>
(e) The indemnity and contribution agreements contained in this
Section 10 and the representations, warranties and covenants of the Company
and the Selling Shareholders contained in this Agreement shall remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter indemnified party or by or on behalf of any Company indemnified
party or any Selling Shareholder, and shall survive any termination of this
Agreement or the issuance and delivery of the Shares. Subject to the
provisions of Section 10(b) and Section 10(c), the Company, each Selling
Shareholder and each Underwriter agree promptly to notify the other of the
commencement of any litigation or proceeding against it in connection with
the issuance and sale of the Shares or in connection with the Registration
Statement or the Prospectus.
11. NOTICES. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if
to the Underwriters, shall be sufficient in all respects if delivered or sent
to Warburg Dillon Read LLC, 535 Madison Avenue, New York, New York 10022,
Attention: Syndicate Department; if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the
Company at 7301 Fairview, Houston, Texas, 77041, Attention: ____________; and
if to the Selling Shareholders, shall be sufficient in all respects, if
delivered or sent to ____________.
12. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS
AGREEMENT HAVE BEEN INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE
NOT A PART OF THIS AGREEMENT.
13. PARTIES AT INTEREST. The Agreement herein set forth has been
and is made solely for the benefit of the Underwriters, the Company, the
Selling Shareholders, the Underwriter indemnified parties and the Company
indemnified parties, and their respective successors, assigns, executors and
administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Underwriters)
shall acquire or have any right under or by virtue of this Agreement.
14. COUNTERPARTS. This Agreement may be signed by the parties in
counterparts which together shall constitute one and the same agreement among
the parties.
32
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the Underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement among the Company, the
Selling Shareholders and the Underwriters, severally.
Very truly yours,
NCI BUILDING SYSTEMS, INC.
By:
-------------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS NAMED
IN SCHEDULE B ATTACHED HERETO
By:
-------------------------------------
Attorney-in-fact
Accepted and agreed to as of
the date first above written,
on behalf of themselves,
J.C. Bradford & Co.,
Wheat First Union, Dain
Rauscher Wessels
and the other several
Underwriters named in
Schedule A
WARBURG DILLON READ LLC, as
Managing Underwriter
By:
-------------------------------------
Name:
Title:
33
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Warburg Dillon Read LLC . . . . . . . . . . .
J.C. Bradford & Co. . . . . . . . . . . . . .
Wheat First Union . . . . . . . . . . . . . .
Dain Rauscher Wessels . . . . . . . . . . . .
----------
Total
----------
----------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Name Shares to be Sold
- ---- -----------------
<S> <C>
</TABLE>
<PAGE>
SCHEDULE C
SHAREHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
<PAGE>
DAVIDS 7-31-98 TM ETHER 28 H-57939
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $.01
NUMBER SHARES
NCI
THIS CERTIFICATE IS TRANSFERABLE CUSIP 628852 10 5
IN NEW YORK, NY AND CHICAGO, IL SEE REVERSE FOR CERTAIN DEFINITIONS
NCI BUILDING SYSTEMS, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
C E R T I F I C A T E O F S T O C K
NCI BUILDING SYSTEMS, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY
THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED AND REGISTERED BY THE TRANSFER AGENT AND REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
NCI BUILDING SYSTEMS, INC.
[NCI LOGO] [SEAL]
American Bank Note Company CORPORATE
DELAWARE
DATED
/s/ JOHNNIE SCHULTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT
AND REGISTRAR
BY
/s/ DONNIE R. HUMPHRIES
SECRETARY AUTHORIZED SIGNATURE
<PAGE>
NCI BUILDING SYSTEMS, INC.
The Company will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative,
participating, optional and other special rights of each class of stock and
series within a class of stock of the Company, as well as the qualifications,
limitations and restrictions relating to those preferences and/or rights. A
stockholder may make the request to the Company or to its Transfer Agent and
Registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act _________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, _______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
---------------------------------------------
- -------------------------------------------------------------------------------
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE COMPANY WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED
---------------------------------
X
---------------------------------------
(SIGNATURE)
NOTICE: X
-------------------------------------
(SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT --------------------------------------
MUST CORRESPOND WITH THE NAME(S) AS THE SIGNATURE(S) SHOULD BE GUARANTEED
WRITTEN UPON THE FACE OF THE BY AN ELIGIBLE GUARANTOR INSTITUTION
CERTIFICATE IN EVERY PARTICULAR (BANKS, STOCKBROKERS, SAVINGS AND
WITHOUT ALTERATION OR ENLARGEMENT OR LOAN ASSOCIATIONS AND CREDIT UNIONS
ANY CHANGE WHATEVER. WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
--------------------------------------
SIGNATURE(S) GUARANTEED BY:
This certificate also evidences and
entitles the holder hereof to certain
Rights as set forth in the Rights --------------------------------------
Agreement between the Corporation and
Harris Trust and Savings Bank, dated
as of June 24, 1998 (the "Rights
Agreement"), the terms of which are
incorporated herein and a copy of
which is on file at the principal
offices of the Corporation. Under
certain circumstances, as set forth
in the Rights Agreement, such Rights
will be evidenced by separate
certificates and will no longer be
evidenced by this certificate.
Promptly after receipt of a written
request therefor, the Corporation
will mail or cause to be mailed to
the holder of this certificate a copy
of the Rights Agreement without
charge. Under certain circumstances,
Rights issued to, or held by,
Acquiring Persons or Affiliates or
Associates thereof (as such terms as
defined in the Rights Agreement) and
any subsequent holder of such Rights
may become null and void.
<PAGE>
214-999-3000
September 1, 1998
NCI Building Systems, Inc.
7301 Fairview
Houston, Texas 77041
Gentlemen:
We have served as counsel for NCI Building Systems, Inc., a Delaware
corporation (the "Company"), and certain stockholders of the Company (the
"Selling Stockholders") in connection with the Registration Statement on Form
S-3, No. 333-60829 (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended,
covering the proposed public offering of 3,500,000 shares of common stock,
$0.01 par value ("Common Stock"), of the Company to be issued and sold by the
Company (the "Company Shares"), 300,000 shares of Common Stock to be sold by
the Selling Stockholders (the "Selling Stockholder Shares") and, subject to
the exercise of an over-allotment option granted by the Company and/or
certain of the Selling Stockholders, not to exceed an aggregate of 570,000
shares of Common Stock, consisting of up to an additional 570,000 shares to
be issued and sold by the Company (the "Additional Shares") and up to an
additional 150,000 shares to be issued and sold by certain of the Selling
Stockholders (the "Selling Stockholder Additional Shares").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinion expressed
below. Based upon the foregoing, we are of the opinion that:
1. The Company Shares and the Additional Shares, when issued, sold
and delivered in the manner and for the consideration stated in the
Prospectus (the "Prospectus") constituting a part of the Registration
Statement and in the Underwriting Agreement described in the Registration
Statement, will be duly authorized, validly issued, fully paid and
nonassessable.
2. Selling Stockholder Shares and the Selling Stockholder Additional
Shares (a) if now outstanding, are duly authorized, validly issued, fully
paid and nonassessable or (b) if not now outstanding, will be when sold,
issued and delivered upon notice of exercise of options granted to the
respective Selling Stockholders of the Company in the manner and for the
consideration set forth in the Stock Option Agreement between the Company and
the Selling Stockholder, duly authorized, validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement and further consent to the use of our name in the Registration
Statement and the Prospectus under the heading "Legal Matters."
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ Randall G. Ray
------------------------------------
Randall G. Ray, Partner
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of NCI Building
Systems, Inc. for the registration of 3,800,000 shares of its common stock
and to the use of our report dated December 8, 1997 (except for Note 9, as to
which the date is July 31, 1998), with respect to the consolidated financial
statements of NCI Building Systems, Inc. for the year ended October 31, 1997,
and of our report dated August 5, 1998, with respect to the consolidated
financial statements of Amatek Holdings, Inc. for the year ended December 31,
1997, included in the Registration Statement on Form S-3.
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
Houston, Texas
September 1, 1998
