<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1999
REGISTRATION NO. 333-90499
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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WINSLOEW FURNITURE, INC.*
(Exact name of Registrant as specified in its charter)
<TABLE>
FLORIDA 2510 63-1127982
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<S> <C> <C>
(State or Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number) (IRS Employer Identification Number)
</TABLE>
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
(205) 408-7600
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(Address and telephone number of Registrant's principal executive offices)
BOBBY TESNEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WINSLOEW FURNITURE, INC.
160 VILLAGE STREET
BIRMINGHAM, ALABAMA 35242
(205) 408-7600
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(Name, address and telephone number of agent for service)
COPIES OF COMMUNICATIONS TO:
BRUCE E. MACDONOUGH, ESQ.
GREENBERG TRAURIG, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
TELEPHONE NO.: (305) 579-0500
FACSIMILE NO.: (305) 579-0717
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
* Subsidiaries of WinsLoew Furniture, Inc. will guarantee the notes being
registered hereby and therefore are also Registrants. Information about such
additional Registrants appears on the following page.
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ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
JURISDICTION OF CLASSIFICATION CODE IDENTIFICATION NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S
NAME INCORPORATION NUMBER NUMBER PRINCIPAL EXECUTIVE OFFICE
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<S> <C> <C> <C> <C>
Winston Furniture
Company of Alabama,
Inc. ................ Alabama 2510 63-0957251 160 Village Street
Birmingham, Alabama 35242
Loewenstein, Inc. ..... Florida 2510 59-2504882 1801 North Andrews Extension
Pompano Beach, Florida 33061
Texacraft, Inc. ....... Texas 2510 76-0444966 601 West 6th Street
Houston, Texas 77004
Tropic Craft, Inc. .... Florida 2510 59-1784459 4251 South Pine Avenue
Ocala, Florida 32671
Winston Properties,
Inc. ................ Alabama 2510 63-1219605 160 Village Street
Birmingham, Alabama 35242
Pompeii Furniture Co.,
Inc. ................ Florida 2510 59-0912668 255 N.W. 25th Street
Miami, Florida 33127
</TABLE>
The name, address, including zip code, and telephone number, including area
code, of the agent for service of each of said additional registrants is:
Bobby Tesney, President and Chief Executive Officer
WinsLoew Furniture, Inc.
160 Village Street
Birmingham, Alabama 35242
(205) 408-7600
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The information is this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1999
PROSPECTUS
WINSLOEW FURNITURE, INC.
OFFER TO EXCHANGE
$105,000,000
ALL OUTSTANDING ORIGINAL 12 3/4% SERIES A
SENIOR SUBORDINATED NOTES DUE 2007
FOR
REGISTERED 12 3/4% SERIES B
SENIOR SUBORDINATED NOTES DUE 2007
THE REGISTERED NOTES
The terms of the registered notes we will issue to you in exchange for your
original notes will be substantially identical to the terms of your original
notes except that, unlike our original notes, the registered notes will have no
transfer restrictions or registration rights.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - The exchange offer will expire at 5:00 p.m., New York City time, on December
27, 1999, unless we extend the deadline.
- - We will exchange all original notes that are validly tendered and not
withdrawn before the exchange offer expires.
- - We will not receive any proceeds from the exchange offer.
- - We will issue the registered notes promptly after the exchange offer expires.
- - You may withdraw tenders of original notes at any time before the exchange
offer expires.
- - We believe that the exchange of original notes will not be a taxable event for
federal income tax purposes. You should read "Certain United States Federal
Income Tax Considerations" on page 119 for more information.
- - No public market currently exists for the registered notes. We do not expect
that an active public market in the registered notes will develop. We do not
intend to list the registered notes on any securities exchange or to arrange
for them to be quoted on any quotation system.
- - All broker-dealers must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933.
- - The exchange offer is subject to customary conditions, including the
conditions that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
INVESTING IN THE REGISTERED NOTES INVOLVES CERTAIN RISKS. SEE THE "RISK FACTORS"
SECTION ON PAGE 15 FOR INFORMATION THAT YOU SHOULD CONSIDER BEFORE YOU DECIDE TO
PARTICIPATE IN THIS EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE REGISTERED NOTES OR DETERMINED
THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is _________ , 1999.
(WINSLOEW FURNITURE, INC. LOGO)
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WHERE YOU CAN FIND MORE INFORMATION
As a result of the exchange offer, we will be subject to the periodic
reporting and other informational requirements of the Exchange Act. We will file
annual, quarterly and special reports and other information with the SEC. In
addition, we have agreed under the indenture that governs the original notes and
the registered notes that, whether or not we are required to do so by the rules
and regulations of the SEC, for so long as any of the original notes or
registered notes remain outstanding, we will furnish to the holders of any of
those securities and file with the SEC, unless the SEC will not accept such a
filing, (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by our certified independent
public accountants and (ii) all reports that would be required to be filed with
the SEC on Form 8-K if we were required to file such reports. In addition, for
so long as any of the original notes or registered notes remain outstanding, we
have agreed to make available to any prospective purchaser or beneficial owner
of any of those securities in connection with any sale thereof the information
required by Rule 144A(d)(4) under the Securities Act.
This prospectus constitutes a part of a registration statement on Form S-4
filed by us with the SEC under the Securities Act. This prospectus, which forms
a part of the registration statement, does not contain all the information set
forth in the registration statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. Please refer to the
registration statement and related exhibits and schedules filed therewith for
further information with respect to us and the registered notes offered hereby.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the registration statement or otherwise
filed by us with the SEC and each such statement is qualified in its entirety by
such reference.
You may read and copy any document we file at the SEC's public reference
rooms located at 450 5th Street, N.W., Washington, D.C. 20549, at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at: http://www.sec.gov. This information is available without charge upon
written or oral request to WinsLoew Furniture, Inc., 160 Village Street,
Birmingham, Alabama 35242, attention: Chief Financial Officer.
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized any dealer, salesperson or anyone
else to provide you with different information. We may not make an offer of the
registered notes in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date of this prospectus.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements about our
financial condition, results of operations and business within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can find many of these statements by looking for words
like "will," "should," "believes," "expects," "anticipates," "estimates,"
"intends," "may," "pro forma," or similar expressions used in this prospectus.
These forward-looking statements are subject to assumptions, risks and
uncertainties, including, among other things, those identified under the heading
"Risk Factors" in this prospectus and those relating to the following:
- our level of leverage;
- our ability to meet our debt service obligations;
- the subordination of the registered notes to our senior indebtedness,
which is secured by substantially all of our assets;
- the restrictions imposed upon us by our indenture and our senior credit
facility;
- our ability to identify suitable acquisition opportunities and to
finance, complete and integrate acquisitions;
- the competitive and cyclical nature of the furniture manufacturing
industry; and
- general domestic and global economic conditions.
Because these statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
these statements, which speak only as of the date of this prospectus.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we do not undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this prospectus.
Market data and certain industry forecasts used throughout this prospectus
were obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. Similarly, internal surveys, industry forecasts and market
research, while believed to be reliable, have not been independently verified by
us.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all the information you should
consider before deciding to participate in this exchange offer. We urge you to
read the entire prospectus carefully, including the section titled "Risk
Factors" and the Consolidated Financial Statements and the notes relating to
those statements. When we say "we," "us," "the Company" or "WinsLoew," we mean
the combined business of WinsLoew Furniture, Inc. and its subsidiaries.
WHO WE ARE
GENERAL
We are a leading designer, manufacturer and distributor of a broad offering
of casual indoor and outdoor furniture and seating products. We also manufacture
ready-to-assemble furniture products. Our casual furniture includes chairs,
chaise lounges, tables, umbrellas and related accessories, which are generally
constructed from aluminum, wrought iron, wood or fiberglass. Our seating
products include wood, metal and upholstered chairs, sofas and loveseats, which
are offered in a wide variety of finish and fabric options. All of our casual
furniture and seating products are manufactured based on customer orders. We
sell our furniture products to the residential market and to the contract
market, consisting of commercial and institutional users. We believe that our
success is attributable to our proven ability to consistently deliver high
quality, innovatively-styled products on a timely basis with superior customer
service. On a pro forma basis, for the twelve months ended September 24, 1999,
our casual, seating and ready-to-assemble furniture products accounted for
49.3%, 42.1% and 8.6%, respectively, of our net sales. During this period, we
generated net sales of $167.7 million and earnings before interest, taxes,
depreciation and amortization, or "EBITDA," of $40.9 million, representing an
EBITDA margin of 24.4% which we believe is among the highest in the industry.
We market our casual furniture products to the residential market under the
Winston(R) and Pompeii(R) brand names through approximately 25 independent sales
representatives to over 800 active customers, which are primarily specialty
patio furniture stores located throughout the United States. In addition, we
market a broad line of casual furniture products in the contract markets under
the Texacraft(R), Tropic Craft(R) and Pompeii(R) brand names, primarily through
our in-house sales force, to lodging and restaurant chains, country clubs,
apartment developers and property management firms, architectural design firms,
municipalities and other commercial and institutional users.
We market our seating products to a broad customer base in the contract
market under the Loewenstein(R) and Gregson(R) brand names through approximately
40 independent sales organizations, which employ approximately 120 sales
representatives. Our customers include lodging and restaurant chains,
architectural design firms, professional sports complexes, schools, healthcare
facilities, office furniture dealers, retail store planners and other commercial
and institutional users in the contract market.
Over the past several years, we have undertaken a number of initiatives to
strengthen and grow our core casual furniture and seating businesses. We have
focused resources on our core business and disposed of non-core or unprofitable
operations. We have also implemented a strategic operating plan to enhance
operating efficiencies and controls and improve our market position. We believe
that these initiatives have contributed to the increase of our EBITDA margin
from 12.9% in fiscal 1995 to 24.4% on a pro forma basis for the twelve months
ended September 24, 1999.
We believe that we are well positioned to capitalize on a number of
positive industry dynamics and trends impacting our core business segments. Both
the casual furniture and seating products industries are highly fragmented,
which provides large and well capitalized companies, such as us, opportunities
to grow internally through increased market share and externally through
acquisitions.
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We believe that an increase in popularity of higher quality metal casual
furniture, such as the aluminum products we manufacture, and favorable
demographics, driven by the baby boom population, are benefiting our casual
furniture operations. The market for seating products is characterized by a wide
variety of diverse end markets which include offices, hotels and motels,
restaurants, country clubs, apartments, schools, healthcare facilities, retail
stores, municipalities and sports arenas. As we sell our seating products into
each of these end markets, we benefit from this market diversity. Furthermore,
the demand for seating products is generated by ongoing replacement of existing
furniture, refurbishment of existing facilities and construction of new
facilities. Based on our experience and knowledge of the industry, we believe
that the demand for seating products is primarily driven by refurbishment of
existing facilities and ongoing replacement of existing furniture, rather than
new construction. We target each of these segments, altering our focus based on
market conditions.
COMPETITIVE STRENGTHS
We believe that we have achieved our leading market position by
capitalizing on the following key competitive strengths.
Reputation for Producing High Quality Products. Our reputation for
providing customers with high quality products is built upon our use of superior
structural designs, aesthetic styling, sophisticated manufacturing techniques
and strict quality control standards.
Unique Delivery Capabilities. We have tailored our operations to meet the
unique delivery requirements of our customers who are casual furniture retailers
due to their short selling season, general desire to minimize inventory levels
and need to offer their customers products that will be available at the time of
or soon after their purchase, as well as our contract market customers who must
receive our casual furniture or seating products on a timely basis to meet their
own construction or operating deadlines.
Continual Focus on Customer Service. We are dedicated to providing the
highest level of customer service through our focus on complete customer
satisfaction by providing a variety of services which are geared towards
assisting our customers to improve the profitability of their business while
strengthening their loyalty to our products.
Efficient Operations and Variable Cost Structure. We continually review
our operations to identify ways to streamline our manufacturing process and
reduce our costs in order to further increase efficiencies and profitability,
such as:
- improving our manufacturing capabilities through the use of
technologically advanced systems,
- optimizing our use of vertical integration and outsourcing, as
appropriate,
- exiting lower margin or non-core businesses, and
- extensively reconfiguring manufacturing processes within our principal
manufacturing facilities.
Experienced Management Team with Significant Ownership. Our experienced
and dedicated management team has been instrumental in our success and
represents one of our key competitive advantages; moreover, each member of our
senior management team has worked with us for over 10 years and has extensive
experience in the furniture manufacturing industry.
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GROWTH STRATEGY
Our strategic objective is to further enhance our leading market position
in the residential and contract furniture markets. We plan on achieving this
objective through the continued implementation of the following strategies:
Increase Penetration of Existing Customers. We believe that we can
increase our penetration of existing customers by continuing to emphasize high
quality products, timely delivery and customer service together with
innovatively styled new product designs.
Attract New Customers. We have undertaken a number of programs to expand
our customer base in existing and new markets such as the use of specific market
focused sales personnel, private labeling and the targeting of national
specialty stores.
Selectively Introduce New Products. We annually update and expand our
product line with new designs and styles, as well as periodically introduce
complementary products.
Selectively Pursue Complementary Acquisitions. We continually review
acquisition opportunities that augment or complement our existing operations or
provide entry into new geographic markets, such as our recent acquisition of
Pompeii in July 1999.
We were incorporated in the state of Florida on September 23, 1994. Our
principal executive offices are located at 160 Village Street, Birmingham,
Alabama, 35242, and our telephone number is 205-408-7600.
RECENT DEVELOPMENTS
On July 30, 1999, we purchased all of the capital stock of Pompeii for
$18.2 million in cash, including fees and expenses. Pompeii is a manufacturer of
upper-end aluminum casual furniture sold in the contract and residential
markets. Pompeii provides us with a leading brand in the upper end of the casual
furniture market and a significant opportunity to achieve operating
efficiencies. For the year ended December 31, 1998, Pompeii had net revenues of
approximately $14.5 million and income from operations of approximately $2.8
million. We expect to spend approximately $1.5 million over the next 12 to 18
months for certain integration costs. We funded the Pompeii acquisition with
cash on hand and expect to fund the integration costs with working capital.
THE MERGER
On August 27, 1999, an affiliate of Trivest merged with and into us, and we
were the surviving corporation. Trivest is a private investment firm controlled
by Earl W. Powell, our Chairman of the Board. Through the merger, each
previously outstanding share of WinsLoew common stock was converted into the
right to receive $34.75 in cash, and all outstanding options were canceled, with
the holder entitled to the difference between the exercise price and $34.75. The
cash merger consideration, option cancellation payments and related fees and
expenses, which totaled approximately $282.6 million, were paid through the
proceeds received from the following transactions:
- an investment by Trivest affiliates and other investors, including
members of our senior management team and other employees, of
approximately $66.2 million in cash;
- a rollover equity investment by some of our existing shareholders,
including members of our senior management team and other employees, of
approximately $11.8 million of our common stock, valued at $34.75 per
share;
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- the borrowing of $95.0 million in term loans under our new $155.0 million
senior credit facility;
- the proceeds from the sale of units consisting of the original notes and
warrants; and
- available cash on hand of approximately $7.1 million.
For additional information, see "The Merger," "Use of Proceeds,"
"Capitalization," "Unaudited Pro Forma Financial Data" and "Description of the
Senior Credit Facility."
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THE EXCHANGE OFFER
Notes to be Exchanged...... On August 24, 1999, we issued $105 million
aggregate principal amount of 12 3/4% Series A
Senior Subordinated Notes due 2007 to the initial
purchasers in the original offering in a
transaction exempt from the registration
requirements of the Securities Act. We are offering
to exchange $1,000 principal amount at maturity of
our outstanding original 12 3/4% Series A Senior
Subordinated Notes due 2007 for each $1,000
principal amount at maturity of 12 3/4% Series B
Senior Subordinated Notes due 2007 that have been
registered under the Securities Act. As of this
date, there is outstanding $105 million aggregate
principal amount at maturity of original notes. The
terms of the original notes and the registered
notes will be the same, except that, unlike the
original notes, the registered notes will have no
transfer restrictions or registration rights. For
more details, see the section entitled "Description
of the Registered Notes."
The Exchange Offer......... You must properly tender your original notes in
accordance with the procedures described on page 69
of this prospectus. We will exchange all original
notes that you properly tender and do not withdraw.
If we exchange your original notes, we will issue
registered notes promptly after the expiration date
of the exchange offer.
Registration Rights
Agreement................ We sold the original notes to the initial
purchasers in a transaction exempt from the
registration requirements of the Securities Act.
The original notes were immediately resold by the
initial purchasers in reliance on Rule 144A under
the Securities Act. In connection with the sale, we
entered into a registration rights agreement with
the initial purchasers requiring us to make the
exchange offer. The registration rights agreement
further provides that we, together with the
guarantors, must
- file the registration statement with respect to
the exchange offer on or before November 25,
1999;
- use our best efforts to cause the registration
statement to be declared effective on or before
February 23, 2000;
- use our best efforts to consummate the exchange
offer within 60 business days after the
registration statement becomes effective; and
- file a shelf registration statement for the
resale of the original notes if the exchange
offer is not permitted by applicable law or SEC
policy or if any holder of original notes
notifies us that it is prohibited by law or SEC
policy from participating in the exchange offer
or reselling the registered notes as contemplated
below under " -- Resales of Registered Notes."
See "The Exchange Offer -- Purpose of the
Exchange Offer."
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Resales of the Registered
Notes.................... We believe that registered notes to be issued in
the exchange offer may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act if you
meet the following conditions:
(1) you acquire registered notes in the ordinary
course of your business;
(2) you are not engaging in and do not intend to
engage in a distribution of the registered
notes;
(3) you do not have an arrangement or understanding
with any person to participate in the
distribution of the registered notes; and
(4) you are not an "affiliate" of us or any
guarantor, as that term is defined in Rule 405
under the Securities Act.
However, the SEC has not considered this exchange
offer in the context of a no-action letter and we
cannot be sure that the staff of the SEC would make
the same determination with respect to the exchange
offer as in other circumstances. Furthermore, if
you do not meet the above conditions, you may incur
liability under the Securities Act if you transfer
any registered note without delivering a prospectus
meeting the requirements of the Securities Act. We
do not assume, or indemnify you against, that
liability.
Each broker-dealer that is issued registered notes
in this exchange offer for its own account in
exchange for original notes which that
broker-dealer acquired as a result of market-making
activities or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of the registered
notes. Such a broker-dealer may use this prospectus
for an offer to resell or to otherwise transfer
these registered notes. Broker-dealers who acquire
original notes directly from us and not as a result
of market-making activities or other trading
activities may not rely on the SEC staff's
interpretations discussed above or participate in
the exchange offer and must comply with the
prospectus delivery requirements of the Securities
Act in order to resell the registered notes.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on December 27, 1999, or on a later
extended date and time as we may decide.
Conditions to the Exchange
Offer.................... The only conditions to completing the exchange
offer are that the exchange offer not violate
applicable law or any applicable interpretation of
the staff of the SEC and no injunction, order or
decree has been issued, or any action or proceeding
has been instituted or threatened that would
reasonably be expected to
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prohibit, prevent or materially impair our ability
to proceed with the exchange offer. See "The
Exchange Offer -- Conditions."
If any of these conditions do exist prior to the
expiration date, we may take the following
actions:
- refuse to accept any original notes and return
all previously tendered original notes;
- extend the duration of the exchange offer; or
- waive such conditions.
Procedures for Tendering
Original Notes Held in
the Form of Book-Entry
Interests................ We issued the original notes as global securities
in fully registered form without coupons.
Beneficial interests in the original notes which
are held by direct or indirect participants in The
Depository Trust Company through certificateless
depositary interests are shown on, and transfer of
the original notes can be made only through,
records maintained in book-entry form by DTC with
respect to its participants.
If you are a holder of an original note held in the
form of a book-entry interest and you wish to
tender your original notes for exchange pursuant to
the exchange offer, you must transmit to American
Stock Transfer & Trust Company, as exchange agent,
on or prior to the expiration of the exchange offer
either:
- a written or facsimile copy of a properly
completed and executed letter of transmittal and
all other required documents to the address set
forth on the cover page of the letter of
transmittal; or
- a computer-generated message transmitted by means
of DTC's Automated Tender Offer Program system
and forming a part of a confirmation of
book-entry transfer in which you acknowledge and
agree to be bound by the terms of the letter of
transmittal.
The exchange agent must also receive on or prior to
the expiration of the exchange offer either:
- a timely confirmation of book-entry transfer of
your original notes into the exchange agent's
account at DTC, in accordance with the procedure
for book-entry transfers described in this
prospectus under the heading "The Exchange
Offer -- Book-Entry Transfer"; or
- the documents necessary for compliance with the
guaranteed delivery procedures described below.
A letter of transmittal accompanies this
prospectus. By executing the letter of transmittal
or delivering a computer-generated
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message through DTC's Automated Tender Offer
Program system, you will represent to us that,
among other things:
(1) the registered notes to be acquired by you in
the exchange offer are being acquired in the
ordinary course of your business;
(2) you are not engaging in and do not intend to
engage in a distribution of the registered
notes;
(3) you do not have an arrangement or understanding
with any person to participate in the
distribution of the registered notes; and
(4) you are not an affiliate of us or any
guarantor.
Procedures for Tendering
Certificated Original
Notes.................... If you are a holder of book-entry interests in the
original notes, you are entitled to receive, in
limited circumstances, in exchange for your
book-entry interests, certificated notes which are
in equal principal amounts to your book-entry
interests. See "Book-Entry; Delivery and Form." No
certificated notes are issued and outstanding as of
the date of this prospectus. If you acquire
certificated original notes prior to the expiration
of the exchange offer, you must tender your
certificated original notes in accordance with the
procedures described in this prospectus under the
heading "The Exchange Offer -- Procedures for
Tendering -- Certificated Original Notes."
Special Procedures for
Beneficial Owners........ If you are the beneficial owner of original notes
which are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender the original notes
in this exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender the original notes on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing
the letter of transmittal and delivering the
original notes, either make appropriate
arrangements to register ownership of the original
notes in your own name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time and it may not be possible to
complete prior to the expiration date.
Guaranteed Delivery
Procedures................. If you wish to tender your original notes and your
original notes are not immediately available or you
cannot deliver your original notes, the letter of
transmittal or any other documents required by the
letter of transmittal to the exchange agent, or you
cannot complete the procedure for book-entry
transfer, then prior to the expiration date you
must tender your original notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
8
<PAGE> 14
Withdrawal Rights.......... Tenders of original notes may be withdrawn at any
time before 5:00 p.m., New York City time, on the
expiration date by delivering a written notice of
such withdrawal to the exchange agent in conformity
with the procedures set forth under "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Original
Notes and Delivery of
Registered Notes......... Except under the circumstances described above
under "Conditions to the Exchange Offer," we will
accept for exchange any and all original notes
which are properly tendered in the exchange offer
before 5:00 p.m., New York City time, on the
expiration date. We will deliver the registered
notes promptly following the expiration date. If we
do not accept any of your original notes for
exchange we will return them to you as promptly as
practicable after the expiration or termination of
the exchange offer without any expense to you.
Interest on the Registered
Notes and the Original
Notes.................... Interest on your registered notes will accrue from
the date of the original issuance of the original
notes or from the date of the last periodic payment
of interest on the original notes, whichever is
later. Interest will not be paid on original notes
that are tendered and accepted for exchange.
Federal Income Tax
Considerations........... The exchange pursuant to this exchange offer should
not result in the realization of income, gain or
loss to you or to us for U.S. federal income tax
purposes. Please refer to "Certain United States
Federal Income Tax Consequences" later in this
prospectus.
Exchange Agent............. American Stock Transfer & Trust Company, the
trustee under the indenture, is serving as exchange
agent in connection with the exchange offer.
Consequences of Not
Exchanging Original
Notes.................... You may not offer, sell or otherwise transfer the
original notes except:
- in compliance with the registration requirements
of the Securities Act and any other applicable
securities laws; or
- pursuant to an exemption therefrom; or
- in a transaction not subject to such securities
laws.
Original notes that you do not exchange for
registered notes in the exchange offer will
continue to bear a legend reflecting such
restrictions on transfer. To the extent that
original notes are tendered and accepted in the
exchange offer, any trading market for original
notes which remain outstanding after the exchange
offer could be adversely affected.
9
<PAGE> 15
The registered notes and any original notes which
remain outstanding after consummation of the
exchange offer will vote together as a single class
for purposes of determining whether holders of the
requisite percentage in outstanding principal
amount thereof have taken certain actions or
exercised certain rights under our indenture.
TERMS OF THE REGISTERED NOTES
Registered Notes Offered... $105 million in aggregate principal amount at
maturity of 12 3/4% Series B Senior Subordinated
Notes due 2007. The registered notes will evidence
the same debt as the original notes and will be
issued under, and entitled to the benefits of, the
same indenture. The terms of the registered notes
are the same as the terms of the original notes in
all material respects except that the registered
notes:
- have been registered under the Securities Act,
- do not include rights to registration under the
Securities Act, and
- do not contain transfer restrictions applicable
to the original notes.
Maturity Date.............. August 15, 2007.
Interest................... The registered notes will bear interest at a fixed
annual rate of 12 3/4%, to be paid in cash every
six months on February 15 and August 15 of each
year, beginning on February 15, 2000.
Ranking.................... The registered notes and subsidiary guarantees will
be unsecured senior subordinated debt:
- The registered notes will rank junior in right of
payment to all of our debt outstanding at the
time of our recent merger transaction, and all
future debt that does not expressly provide that
it ranks equally with or junior to the registered
notes.
- The registered notes will rank senior in right of
payment to all of our future debt that expressly
provides that it ranks junior to the registered
notes.
As of September 24, 1999, we had approximately:
- $95.9 million of outstanding debt ranking ahead
of the notes;
- No debt ranking equally with the notes; and
- No debt ranking behind the notes.
Because we conduct substantially all of our
business through our subsidiaries, our ability to
satisfy our obligations under the registered notes
will depend on dividends and other intercompany
10
<PAGE> 16
transfers and advances from our subsidiaries. The
registered notes will also effectively rank junior
to all indebtedness and other liabilities of our
subsidiaries, except indebtedness that expressly
provides that it is not senior to the registered
notes and the guarantees.
Guarantees................. All of our direct and indirect domestic restricted
subsidiaries will guarantee the registered notes
with unconditional guarantees of payment that will
rank junior in right of payment to our senior debt
but will rank equal to any other senior
subordinated indebtedness that we may incur in the
future.
Optional Redemption........ On or after August 15, 2003, we may redeem some or
all of the registered notes at any time at the
redemption prices listed in the section
"Description of the Exchange Notes" under the
heading "Optional Redemption." Before August 15,
2002, we may redeem up to 25% of the registered
notes with the proceeds of certain public offerings
of equity in our company at the price listed in the
section "Description of the Registered Notes" under
the heading "Optional Redemption."
Mandatory Repurchase....... If we sell certain assets and do not use the
proceeds as specified in the indenture or if we
experience specific kinds of changes of control, we
must offer to repurchase the registered notes at
the prices listed in the section "Description of
the Registered Notes" under the heading "Repurchase
at the Option of the Holders."
Material Covenants......... We will issue the registered notes under our
indenture with American Stock Transfer & Trust
Company. The indenture, among other things,
restricts our ability and the ability of our
subsidiaries to:
- incur additional debt;
- pay dividends or make other distributions on our
equity securities;
- repurchase equity interests or subordinated
indebtedness;
- engage in sale and leaseback transactions;
- create liens;
- create encumbrances on the ability of our
subsidiaries to pay dividends or make other
distributions to us;
- enter into transactions with affiliates;
- sell our assets or assets of our subsidiaries;
- conduct certain lines of business; and
- enter into mergers and consolidations.
For more details, see the section "Description of
the Registered Notes" under the heading "Certain
Covenants."
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<PAGE> 17
Registration Rights........ Holders of registered notes are not entitled to any
registration rights with respect to the registered
notes.
Use of Proceeds............ We will not receive any proceeds from the exchange
offer.
Original Issue Discount.... Each original note was issued with original issue
discount for U.S. federal income tax purposes, and
each registered note should be treated for U.S.
federal income tax purposes as having the same
original issue discount as the original note
exchanged for it. Accordingly, original issue
discount on the registered notes will continue to
accrete as it did on the original notes and will be
includable as interest income periodically in a
holder's gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments
to which the income is attributable. Original issue
discount on the original notes not exchanged will
accrete from their issue date in accordance with
their terms. See "Certain United States Federal
Income Tax Consequences."
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<PAGE> 18
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data for each of the three years
in the period ended December 31, 1998 have been derived from, and should be read
in conjunction with, our audited consolidated financial statements and the notes
thereto, which have been audited by Ernst & Young LLP, independent auditors, and
are included elsewhere in this prospectus. The following historical consolidated
financial data for the nine-month periods ended September 25, 1998 and September
24, 1999 have been derived from our unaudited interim consolidated financial
statements, include, in the opinion of management, all adjustments necessary to
present fairly the data for such periods, and are included elsewhere in this
prospectus. The following pro forma financial data were derived from our
historical consolidated financial information and other data included elsewhere
in this prospectus. The information set forth below should be read in
conjunction with "Unaudited Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and the notes thereto appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
HISTORICAL
PRO ----------------------------- PRO FORMA
HISTORICAL FORMA TWELVE
------------------------------ -------- NINE MONTHS ENDED MONTHS
YEAR ENDED DECEMBER 31, ----------------------------- ENDED
----------------------------------------- SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 24,
1996 1997 1998 1998(1) 1998 1999 1999(1)
-------- -------- -------- -------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $117,405 $122,145 $141,360 $159,124 $106,726 $120,736 $167,667
Cost of sales................ 78,029 79,431 87,232 97,167 66,829 72,733 100,941
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 39,376 42,714 54,128 61,957 39,897 48,003 66,726
Selling, general and
administrative expenses.... 21,472 21,427 23,124 26,236 17,673 19,318 27,477
Amortization................. 1,444 992 1,122 6,209 806 1,611 6,218
-------- -------- -------- -------- -------- -------- --------
Operating income........... 16,460 20,295 29,882 29,512 21,418 27,074 33,031
Interest expense............. 3,083 2,296 635 26,130 824 2,280 25,059
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before income
taxes...................... 13,377 17,999 29,247 3,382 20,594 24,794 7,972
Provision for income taxes... 4,834 6,838 10,947 2,939 7,731 10,433 5,636
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations................. 8,543 11,161 18,300 443 12,863 14,361 2,336
Loss from discontinued
operations, net of taxes... (259) (718) -- -- -- -- --
Gain (loss) from sale of
discontinued operations,
net of taxes(2)............ -- (8,200) 2,031 2,031 -- -- 2,031
-------- -------- -------- -------- -------- -------- --------
Net income................... $ 8,284 $ 2,243 $ 20,331 $ 2,474 $ 12,863 $ 14,361 $ 4,367
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(3).................... $ 19,439 $ 22,929 $ 32,500 $ 37,493 $ 23,334 $ 29,834 $ 40,931
EBITDA margin(3)............. 16.6% 18.8% 23.0% 23.6% 21.9% 24.7% 24.4%
Depreciation and
amortization............... 2,979 2,634 2,618 7,981 1,916 2,760 7,900
Capital expenditures, net.... 1,351 425 942 1,135 1,131 275 86
PRO FORMA RATIOS:
EBITDA to cash interest expense(4)...................................................................... 1.7x
Total debt to EBITDA.................................................................................... 4.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 24,
1999
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 13,320
Total assets................................................ 297,831
Total debt (including current portion)...................... 197,030(5)
Stockholders' equity........................................ 78,806(5)
(footnotes on following page)
</TABLE>
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<PAGE> 19
(1) The pro forma financial data for the year ended December 31, 1998 gives
effect to the merger and the acquisitions of Tropic Craft and Pompeii as if
all had occurred as of the beginning of the period. The pro forma financial
data for the twelve months ended September 24, 1999 gives effect to the
merger and the Pompeii acquisition as if both had occurred as of the
beginning of the period. See "Unaudited Pro Forma Financial Data."
(2) See note 2 of our consolidated financial statements.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization, loss from discontinued operations, net of taxes, and gain
(loss) from sale of discontinued operations, net of taxes, and is presented
to provide additional information with respect to our debt service capacity.
EBITDA margin represents EBITDA divided by net sales. EBITDA should not be
considered in isolation from, or as a substitute for, net income, cash flows
from operations or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. Rather, EBITDA is presented because it is a widely accepted
supplemental financial measure, and we believe it provides relevant and
useful information. Our calculation of EBITDA may not be comparable to
similarly titled measures reported by other companies since all companies do
not calculate this non-GAAP measure in the same fashion. Our EBITDA
calculation is not intended to represent cash provided by (used in)
operating activities, since it does not include interest and taxes and
changes in operating assets and liabilities, nor is it intended to represent
the net increase in cash, since it does not include cash provided by (used
in) investing and financing activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description
of the Registered Notes."
(4) Cash interest expense represents total interest expense less amortization of
deferred financing fees and amortization of original issue discount,
amounting to $1.5 million for both the year ended December 31, 1998 and the
twelve months ended September 24, 1999.
(5) The registered notes are recorded at a discount of approximately $3.9
million to the face amount to reflect the original issue discount on the
registered notes of approximately $2.5 million and the value attributed to
the warrants issued with the original notes of approximately $1.4 million,
which has been recorded as an increase to stockholders' equity.
14
<PAGE> 20
RISK FACTORS
An investment in the registered notes involves significant risk. You should
carefully consider the following factors, as well as the other information in
this prospectus that relates to our business, results of operations, condition
and prospects, before deciding to participate in this exchange offer. In this
prospectus, we sometimes refer to the original notes and the registered notes
together as the "notes."
LEVERAGE -- WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR FINANCIAL POSITION, RESULTS OF OPERATIONS AND PROSPECTS AND
PREVENT US FROM FULFILLING OUR DEBT OBLIGATIONS.
We have substantial debt and leverage. As of September 24, 1999:
- our total debt outstanding was approximately $197.0 million;
- our interest expense would have been approximately $18.9 million for the
nine months ended September 24, 1999 and $26.1 million for the year ended
December 31, 1998 on a pro forma basis after giving effect to the merger
and the Tropic Craft and Pompeii acquisitions;
- our total stockholders' equity was approximately $78.8 million; and
- the sufficiency of our earnings available to cover fixed charges for the
twelve months ended September 24, 1999 would have been approximately 1.3
to 1 on a pro forma basis after giving effect to the merger and the
Pompeii acquisition.
As of September 24, 1999, we had approximately $20.0 million available for
permitted future acquisitions under our acquisition loan facility and
approximately $23.1 million available for future borrowings under our revolving
credit facility. We urge you to consider the information under "Capitalization"
and "Pro Forma Financial Data" for more information on these matters.
Depending on our future performance, we and our subsidiaries are permitted
to incur significant additional debt in the future, including debt to finance
acquisitions. Our high level of debt could have negative consequences. For
example, it could:
- increase our vulnerability to adverse general economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to required principal payments on our debt, thereby reducing
the availability of our cash flow for working capital, capital
investments, acquisitions and other business activities;
- limit our ability to obtain additional financing to fund future working
capital, capital investments, acquisitions and other business activities;
- expose us to the risk of interest rate fluctuations to the extent we pay
interest at variable rates on our other debt;
- limit our flexibility to plan for, and react to, changes in our business
and our industry; and
- place us at a competitive disadvantage compared to our less leveraged
competitors.
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<PAGE> 21
ABILITY TO SERVICE DEBT -- WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW
TO MEET OUR DEBT SERVICE REQUIREMENTS.
We cannot assure you that our future cash flow will be sufficient to meet
our debt obligations and commitments, and any insufficiency could have a
negative impact on our business. Our ability to generate cash flow from
operations to make scheduled payments on our debt as they become due will depend
on our future financial performance, which will be affected by a range of
economic, competitive and business factors. We cannot control many of these
factors, such as general economic and financial conditions in the furniture
industry and economy at large or competitive initiatives of our competitors. If
we do not generate sufficient cash flow from operations, we may have to
undertake alternative financing plans, such as refinancing or restructuring our
debt, selling assets, reducing or delaying capital investments or seeking to
raise additional capital. We cannot assure you that any such refinancing would
be possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained on acceptable terms, if at all.
SUBORDINATION -- IN THE EVENT OF LIQUIDATION, DISSOLUTION OR BANKRUPTCY, HOLDERS
OF THE NOTES WILL BE PAID FROM ANY ASSETS REMAINING AFTER PAYING HOLDERS OF OUR
SENIOR INDEBTEDNESS.
The notes and the guarantees are general unsecured obligations, junior in
right of payment to all of our and the guarantors' existing and future senior
indebtedness, including borrowings under our senior credit facility. The notes
and the guarantees are also effectively subordinated to any secured debt that we
or our subsidiaries may have now or in the future to the extent of the assets
securing that debt. In addition, the notes are effectively subordinated to all
of the liabilities of any of our subsidiaries that do not guarantee the notes.
If we or a guarantor is declared bankrupt or insolvent, or is liquidated, or if
we have a payment default under debt that is senior to the notes or a default
that results in the maturity of that debt being accelerated, debt that ranks
ahead of the notes and the guarantees will be entitled to be paid in full from
our assets or the assets of the guarantor, as applicable, before any payment may
be made with respect to the notes or affected guarantees. The subordination
provisions of the indenture also provide that payments with respect to the notes
and the guarantees will be prohibited in the event of a payment default on a
designated portion of our debt that ranks ahead of the notes or the guarantees.
In any of the foregoing events, we cannot assure you that we would have
sufficient assets to pay amounts due on the notes. As a result, holders of the
notes may receive less, ratably, than the holders of debt senior to the notes
and guarantees.
RESTRICTIVE DEBT COVENANTS -- OUR INDENTURE AND SENIOR CREDIT FACILITY IMPOSE
RESTRICTIONS ON US THAT MAY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS.
Our indenture and senior credit facility contain covenants that restrict
our ability to take various actions, such as incurring additional debt, paying
dividends, repurchasing junior debt, making investments, entering into certain
transactions with affiliates, merging or consolidating with other entities and
selling all or substantially all of our assets. In addition, our senior credit
facility contains other limitations including restrictions on us prepaying the
notes, and the senior credit facility and the indenture also require us to
maintain specified financial ratios. Our ability to comply with these financial
ratios can be affected by events beyond our control and we cannot assure you
that we will satisfy those requirements. A breach of any of these provisions
could result in a default under the senior credit facility, which would allow
those lenders to declare all amounts outstanding under the senior credit
facility immediately due and payable. If we were unable to pay those amounts,
the senior lenders could proceed against substantially all of our assets, which
serve as collateral to secure that debt. In such an event, we cannot assure you
that our assets would be sufficient to repay that amount or the amounts due
under the notes in full. In addition, if a default occurs with respect to
16
<PAGE> 22
senior indebtedness, the subordination provisions of the indenture will likely
restrict payments to holders of the notes. We may also be prevented from taking
advantage of business opportunities that arise because of the limitations
imposed on us by the restrictive covenants under the indenture and the senior
credit facility. We urge you to read the information under "Description of the
Registered Notes -- Certain Covenants" and "Description of the Registered
Notes -- Certain Senior Credit Facility" for a more detailed discussion of the
substantive requirements of these restrictive covenants.
HOLDING COMPANY STRUCTURE -- WE RELY UPON DISTRIBUTIONS FROM OUR SUBSIDIARIES TO
MEET OUR PAYMENT OBLIGATIONS.
We are a holding company with no significant assets other than our
investments in our subsidiaries and we conduct substantially all of our business
through our subsidiaries. Accordingly, we must rely upon dividends or other
distributions, loans or other payments from our subsidiaries to generate the
funds necessary to meet our obligations, including the payment of principal,
premiums, if any, interest and liquidated damages, if any, on the notes. The
ability of our subsidiaries to pay dividends or to make loans or other payments
or advances to us will depend upon their operating results and will be subject
to applicable laws and contractual restrictions contained in the instruments
governing any indebtedness of those subsidiaries, including the senior credit
facility. Although the indenture limits the ability of our subsidiaries to enter
into consensual restrictions on their ability to pay dividends and make other
payments to us, the indenture limitations are subject to a number of significant
qualifications. We urge you to read the information under "Description of the
Registered Notes -- Certain Covenants -- Limitation on Dividend and Other
Payment Restrictions Affecting Subsidiaries" for more information on the
limitations imposed by the indenture in this respect.
CHANGE OF CONTROL -- WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF
CONTROL.
If a change of control were to occur, we may be required to make an offer
to purchase all the outstanding notes at a price equal to 101% of their
principal amount at maturity, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase. In such a situation, we cannot assure
you that we would have enough funds to pay for all of the notes that are
tendered under the offer to purchase. If we were required to repurchase the
notes, we would probably require third party financing; however, we cannot be
sure we would be able to obtain such financing on acceptable terms, if at all.
In addition, our senior credit facility restricts our ability to repurchase
notes, including pursuant to a change of control offer. A change of control may
also result in an event of default under the senior credit facility and may
cause the acceleration of that debt, in which case we would have to pay in full
our senior credit facility and any such senior indebtedness before repurchasing
the notes. We urge you to read the information under "Description of the
Registered Notes -- Repurchase at the Option of the Holders -- Change in
Control," "Description of the Registered Notes -- Ranking and Subordination" and
"Description of the Senior Credit Facility" for more information regarding the
treatment of a change of control under the indenture and our senior credit
facility.
ASSET ENCUMBRANCES -- OUR ASSETS ARE ENCUMBERED TO SECURE OUR SENIOR
INDEBTEDNESS.
The notes are not secured by any of our assets. Our obligations under our
senior credit facility, however, are secured by a first priority security
interest in substantially all of our assets, including a first priority pledge
of all of the capital stock of our subsidiaries. If bankruptcy proceedings are
initiated by or against us or certain guarantors, or if we are found to be
insolvent, or are liquidated, or if payment under our senior credit facility is
accelerated, the lenders under our senior credit facility would be entitled to
exercise all legal remedies available to a secured lender. Accordingly, these
lenders will have a claim on substantially all of our assets that will have
priority over any claim for
17
<PAGE> 23
payment under the notes or the guarantees. In any such event, because the notes
are not secured by any of our assets, it is possible that there would be no
assets remaining from which claims of the holders of the notes could be
satisfied or, if any assets remained, they might be insufficient to fully
satisfy those claims. Accordingly, the notes and guarantees are effectively
junior in right of payment to all secured debt, even if the secured debt ranks
equally in right of payment to the notes and the guarantees.
FRAUDULENT CONVEYANCE MATTERS -- UNDER SPECIFIC CIRCUMSTANCES, COURTS COULD VOID
THE NOTES OR THE GUARANTEES.
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, a court of
competent jurisdiction could void, in whole or in part, the notes or the
guarantees or, alternatively, subordinate the notes or the guarantees to our
existing and future debt. For example, a court could void the notes or
guarantees if it finds that at the time the notes or guarantees were issued any
of the following occurred:
- we or the guarantors incurred such indebtedness with the intent to
hinder, delay or defraud creditors; or
- we or the guarantors received less than reasonably equivalent value or
fair consideration for incurring such debt, and
- were insolvent,
- were rendered insolvent by reason of the incurrence of such debt and
the application of the proceeds of that debt,
- were engaged or were about to engage in a business or transaction for
which the assets remaining within the United States constituted
unreasonably small capital to carry on our business, or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay as they matured.
The measure of insolvency for purposes of determining these fraudulent
conveyance issues will vary depending upon the law applied in each case.
Generally, however, we would be considered insolvent if the sum of our debts,
including contingent liabilities, is greater than all of our assets at fair
valuation or if the present fair saleable value of our assets was less than the
amount that would be required to pay the probable liability on our existing
debts, including contingent liabilities, as they become absolute and matured.
We believe that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, the original notes were issued,
and the registered notes are being issued, without the intent to hinder, delay
or defraud creditors and for proper purposes and in good faith. Because a
portion of the proceeds of the indebtedness, including the proceeds from the
sale of the original notes and guarantees, that we incurred in connection with
the merger were paid to our shareholders in the merger, a court might find that
we did not receive reasonably equivalent value or fair consideration for the
issuance of the notes and the guarantees. However, we believe that after the
issuance of the notes and the application of proceeds therefrom, we are solvent,
have sufficient capital for carrying on our business and will be able to pay our
debts as they mature. We cannot assure you, however, that a court would agree
with our view.
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<PAGE> 24
ACQUISITIONS -- THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY.
Our growth strategy includes the acquisition of complementary businesses
and/or product lines, and, as part of our effort to pursue appropriate
acquisition opportunities, we regularly engage in discussions regarding possible
acquisitions, combinations or other transactions with industry participants,
including other direct competitors. There is substantial competition for
attractive acquisition candidates. We cannot assure you that we will be able to
successfully identify suitable furniture manufacturers or finance and complete
any particular acquisition, combination or other transaction on acceptable
terms. The integration of acquired companies may require substantial attention
from our senior management, which may limit the amount of time available to be
devoted to our day-to-day operations or to our growth strategy. We also cannot
assure you that we will be able to successfully integrate their operations into
ours or that we will be able to avoid all material adverse affects such a
transaction may have on our business, financial condition, results of
operations, prospects and ability to service our debt obligations.
SIGNIFICANT CUSTOMER -- THE LOSS OF OUR PRINCIPAL CUSTOMER COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
In 1996, 1997 and 1998, sales to Marriott International, Inc. accounted for
10%, 16% and 17% of consolidated net sales, respectively, and 24%, 34% and 35%
of our consolidated net seating sales. Effective January 1, 1999, we entered
into a three year agreement with Marriott International, Inc. pursuant to which
we are a preferred supplier of upholstered seating products for certain of its
affiliates, including Marriott's Lodging, Senior Living Services and Marketplace
businesses, as well as Host Marriott Services Corporation. We have no other
material long-term contracts for the purchase of products with our customers and
instead generally sell our products under short-term purchase orders, which is
consistent with general industry practice. However, as part of our growth
strategy of increasing penetration of existing customers and reaching new
customers, we are seeking to enter into similar contracts with other customers
in the contract markets, especially hospitality providers. The loss of Marriott
or any other significant customer or a substantial reduction in purchases by any
such customer would have a material adverse effect on our business, financial
condition, results of operations, prospects and ability to service our debt
obligations.
RAW MATERIALS -- WE ARE VULNERABLE TO SIGNIFICANT PRICE INCREASES AND SHORTAGES.
Our principal raw materials consist of extruded aluminum tubes, steel rods,
woven vinyl fabrics, paint/finishing materials, vinyl strapping, cushion filler
materials, cartons, glass table tops, component parts for seating, particle
board and other lumber products and hardware. We have no long-term supply
contracts. Aluminum is a commodity and, as such, the price for aluminum is
subject to market conditions beyond our control. Significant fluctuations in
prices of aluminum, lumber and other raw materials could have a material adverse
effect on our business, financial condition, results of operations, prospects or
ability to service our debt obligations.
STRONG COMPETITION -- WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominates the market. A number of competitors offer
products similar to ours. Some competitors have greater financial and other
resources than we do. We believe that the principal competitive factors in our
industry are product design, construction quality, prompt delivery, product
availability, customer service and price. Our failure to effectively compete in
any of these categories could have a material adverse effect on our business,
financial condition, results of operations, prospects and ability to service our
debt obligations. In particular, our historic relationship with
19
<PAGE> 25
leading Italian design firms has enhanced our ability to compete in our seating
business. There can be no assurance that we will not lose these relationships or
that our competitors will not establish similar relationships with the same or
other design firms and become able to offer similar products that compete with
ours. In addition, while sales of imported, foreign-produced casual furniture
represent a small percentage of furniture sales in the United States, imports
have increased in recent years and significant further increases in imports
could have a material adverse effect on our business, financial condition,
results of operation, prospects and ability to service our debt obligations.
KEY PERSONNEL -- WE DEPEND ON OUR SENIOR MANAGEMENT.
Our success depends upon the continued contributions of our senior
management, including Bobby Tesney, our President and Chief Executive Officer.
We have entered into employment agreements with Mr. Tesney and other senior
executives that became effective upon the consummation of the merger. Our loss
of the services of Mr. Tesney or any of our other senior executives could have a
material adverse effect on our business, financial condition, results of
operations, prospects and ability to service our debt obligations.
LITIGATION -- A PURPORTED CLASS ACTION COMPLAINT HAS BEEN FILED AGAINST US.
On March 25, 1999, a complaint was filed on behalf of a purported class of
our shareholders in the Circuit Court of Jefferson County, Alabama against us
and each of our directors, alleging, among other things, breaches of fiduciary
duty in connection with our merger with Trivest Furniture. On June 14, 1999, we
and the members of the board of directors filed a motion to dismiss the lawsuit
or, in the alternative, to grant summary judgment in our favor. After a hearing
held on November 11, 1999, the court granted our motion to dismiss but gave the
plaintiff 30 days' leave to file an amended complaint. We believe that the
complaint is without merit and intend to vigorously defend the action. A
judgment against us in this action could have a material adverse effect on us.
See "Business -- Legal Proceedings."
SIGNIFICANT SHAREHOLDERS -- AFFILIATES OF TRIVEST CONTROL THE COMPANY.
Affiliates of Trivest beneficially own approximately 94% of our capital
stock and have the power to designate all of our directors and exercise control
over our business, policies and affairs. The interests of Trivest and the
holders of the notes may differ from each other.
THE FURNITURE INDUSTRY -- THE FURNITURE INDUSTRY IS CYCLICAL.
The furniture manufacturing industry is cyclical and sensitive to general
economic conditions, consumer confidence and discretionary income, interest rate
levels, housing starts and credit availability. These factors not only affect
the ultimate consumer, but also affect specialty retailers, full-line furniture
retailers and department stores, which are important customers that purchase our
casual furniture products in the residential market. These factors also affect
the lodging industry, restaurant chains, apartment developers and managers,
architectural design firms and other commercial users in the contract market,
which are customers that purchase our casual furniture and seating products.
Residential furniture purchases are generally discretionary, and, in view of the
fact that they represent a significant expenditure to the average consumer, they
are often deferred during times of economic uncertainty. We cannot assure you
that a prolonged economic downturn would not have a material adverse effect on
our business, financial condition, results of operations, prospects and ability
to service our debt obligations.
20
<PAGE> 26
SEASONALITY -- OUR QUARTERLY RESULTS OF OPERATIONS FLUCTUATE DUE TO SEASONALITY
IN THE CASUAL FURNITURE MARKET.
Sales of our casual products are typically higher in the second quarter of
each year as a result of high retail demand for casual furniture preceding the
summer months. In addition, weather conditions during the peak retail selling
season and the resulting impact on consumer purchases of outdoor furniture
products can also affect our casual furniture sales.
ENVIRONMENTAL REGULATION -- WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL
REGULATION.
Our operations and facilities are subject to a number of federal, state and
local environmental laws and regulations, which govern, among other things, the
discharge of hazardous materials into the air and water, as well as the
handling, storage and disposal of hazardous materials. In particular, we are
subject to environmental laws and regulations regarding air emissions from paint
and finishing operations and wood dust levels in our manufacturing operations.
Pursuant to various environmental laws, a current or previous owner or operator
of real property may be liable for the costs of removal or remediation of
hazardous materials. Environmental laws typically impose liability whether or
not the owner or operator knew of, or was responsible for, the presence of
hazardous materials. Although management believes that our operations and
facilities are in material compliance with environmental laws and regulations,
future changes in them or interpretations thereof or the nature of our
operations may require us to make significant additional capital expenditures to
ensure compliance in the future.
We do not maintain environmental liability insurance, and the expenses
related to a potential environmental claim against us could have a material
adverse effect on our business, financial condition, results of operations,
prospects and ability to service our debt obligations.
YEAR 2000 ISSUES -- WE COULD BE ADVERSELY AFFECTED IF YEAR 2000 PROBLEMS ARE
SIGNIFICANT.
As the end of the century nears, there is a widespread concern that many
existing computer programs that use only the last two digits to refer to a year
will not properly recognize a year that begins with the digits "20" instead of
"19." If not corrected, many computer applications could fail, create erroneous
results, or cause unanticipated systems failures, among other problems. Our
failure, or the failure of one or more of our key suppliers, customers or
distributors, to address successfully year 2000 issues could have a material
adverse effect on our business, financial condition, results of operations,
prospects and ability to service our debt obligations. We urge you to read the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Considerations."
RISKS ASSOCIATED WITH THE ORIGINAL NOTES -- AFTER COMPLETION OF THIS EXCHANGE
OFFER, THE LIQUIDITY OF ANY MARKET FOR THE ORIGINAL NOTES COULD BE ADVERSELY
AFFECTED AND THE ORIGINAL NOTES MAY NO LONGER BE ENTITLED TO ANY REGISTRATION
RIGHTS.
We issued the original notes in a private offering exempt from the
registration requirements of the Securities Act. Accordingly, you may not offer,
sell or otherwise transfer your original notes except in compliance with the
registration requirements of the Securities Act and applicable state securities
laws or pursuant to exemptions from such registration requirements. After
completion of this exchange offer, if you do not exchange your original notes
for registered notes in this exchange offer, your original notes will continue
to be subject to these transfer restrictions and you will no longer be entitled
to any registration rights under the registration rights agreement, except under
limited circumstances.
21
<PAGE> 27
To the extent original notes are tendered and accepted in the exchange
offer, the liquidity of the trading market, if any, for the original notes not
so exchanged could be adversely affected.
LACK OF PUBLIC MARKET -- THERE IS NO PUBLIC MARKET FOR THE NOTES.
The registered notes are being offered to the holders of the original
notes. Before the offering of the registered notes, there has been no public
market for the notes, and we do not intend to apply for the listing of the notes
on any securities exchange or for quotation of the notes on any automated
quotation system. If the registered notes are traded after their initial
issuance, they may trade at a discount from the initial offering price of the
original notes exchanged for them, depending upon prevailing interest rates, the
market for similar securities, our performance and other factors. The initial
purchasers of the original notes have advised us that they intend to make a
market in the registered notes, as permitted by applicable laws and regulations;
however, the initial purchasers are not obligated to do so, and they may
discontinue those market making activities at any time without notice. In
addition, any market making activity may be limited during the exchange offer
and while the effectiveness of any shelf registration statement is pending.
Therefore, there can be no assurance that an active market for the registered
notes will develop or, if developed, that it will continue.
ORIGINAL ISSUE DISCOUNT -- HOLDERS OF REGISTERED NOTES WILL BE TAXED ON ORIGINAL
ISSUE DISCOUNT.
The registered notes will be deemed to be issued at a discount from their
principal amount at maturity. Consequently, holders of registered notes
generally will be required to include amounts in gross income for United States
federal income tax purposes in advance of receipt of the cash payments to which
this income is attributable.
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the registered notes, the claim of a
holder of registered notes may be limited to an amount equal to the sum of the
initial offering price for the original notes exchanged for the registered notes
and that portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of the date of the
commencement of this bankruptcy filing would constitute "unmatured interest."
DIVIDEND POLICY -- WE HAVE NEVER PAID DIVIDENDS AND ARE RESTRICTED FROM DOING
SO.
We have never paid cash dividends on our common stock and have no plans to
do so in the foreseeable future. The declaration and payment of any dividends in
the future will be determined by our board of directors, in its discretion, and
will depend on a number of factors, including our earnings, capital requirements
and overall financial condition. In addition, our ability to declare and pay
dividends is substantially restricted under the terms of the indenture governing
the notes and under our senior credit facility.
22
<PAGE> 28
RESALES OF REGISTERED NOTES -- SOME PERSONS WHO PARTICIPATE IN THIS EXCHANGE
OFFER MUST DELIVER A PROSPECTUS IN CONNECTION WITH RESALES OF THE REGISTERED
NOTES.
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. However, in some instances
described in this prospectus under "The Exchange Offer," you will remain
obligated to comply with the prospectus delivery requirements of the Securities
Act to transfer your registered notes. In these cases, if you transfer any
registered note without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your registered
notes under the Securities Act, you may incur liability under this act. We do
not and will not assume, or indemnify you against, this liability.
23
<PAGE> 29
THE MERGER
On August 27, 1999, Trivest Furniture Corporation, an affiliate of Trivest,
merged with and into us, and we were the surviving corporation. Trivest
Furniture Corporation was a newly formed Florida corporation organized by an
investor group led by Trivest, including two private investment partnerships
affiliated with Trivest and members of our senior management, for the purpose of
acquiring WinsLoew. Trivest is a private investment firm specializing in
acquisitions, recapitalizations and other principal investing activities and is
controlled by Earl W. Powell, our Chairman of the Board. As a result of the
merger, each holder of outstanding WinsLoew common stock, other than Trivest
Furniture Corporation, received $34.75 per share in cash, without interest, and
the holder of each outstanding option received a cash payment equal to the
difference between $34.75 and the exercise price of the option. The cash merger
consideration, option cancellation payments and related fees and expenses, which
totaled approximately $282.6 million, were provided by the following sources:
- approximately $66.2 million in cash equity contributions to Trivest
Furniture Corporation from its shareholders, which consisted of two
private investment partnerships affiliated with Trivest, individuals
affiliated with Trivest, members of our senior management team and other
employees and investors;
- approximately $11.8 million in direct and indirect rollover equity
contributions valued at $34.75 per share to Trivest Furniture Corporation
from certain of our shareholders, including members of our senior
management team and other employees;
- aggregate borrowings of $95.0 million of term loans under our $155.0
million senior credit facility;
- the proceeds from the sale of units consisting of the original notes and
warrants; and
- available cash on hand of approximately $7.1 million.
The equity contributions, the senior credit facility and the net proceeds
of the offering of the units closed contemporaneously with the closing of the
merger and were conditioned on the completion of each other.
Earl W. Powell, Phillip T. George, M.D., William F. Kaczynski, Jr. and
Peter W. Klein are affiliates of Trivest and were members of our board of
directors prior to the merger. Messrs. Powell, Kaczynski and Klein continue to
be members of our board of directors. See "Management." Prior to the merger,
Messrs. Powell, George, Kaczynski and Klein beneficially owned an aggregate of
approximately 30.1% of our capital stock including approximately 23.7% held by
investment partnerships affiliated with Trivest. Messrs. Powell, George,
Kaczynski and Klein individually received an aggregate of approximately $12.3
million of cash merger consideration on the same terms as other shareholders and
the cancellation of outstanding stock options. This amount was net of aggregate
rollover equity contributions, valued at $34.75 per share, to Trivest Furniture
Corporation of approximately $4.0 million by Messrs. Powell and George. The two
private investment partnerships affiliated with Trivest received an aggregate of
approximately $59.2 million of cash merger consideration for all shares of
WinsLoew common stock they held. Two investment partnerships affiliated with
Trivest that were not previously shareholders of WinsLoew invested approximately
$68.9 million in Trivest Furniture Corporation. After the merger, Messrs. Powell
and George beneficially own an aggregate of approximately 93.4% of our capital
stock, including approximately 88.3% held by the investing Trivest partnerships.
In addition, each of Messrs. Powell, George, Kaczynski and Klein is an indirect
investor in certain of the Trivest partnerships that were our shareholders prior
to the merger and the Trivest partnerships that became our shareholders
24
<PAGE> 30
through the merger. Several other individuals affiliated or associated with
Trivest hold approximately 0.4% of our capital stock. See "Principal
Shareholders."
Prior to the merger, Bobby Tesney, R. Craig Watts, Stephen C. Hess, Vincent
A. Tortorici, Rick J. Stephens and Jerry C. Camp were members of our senior
management and Mr. Tesney was a member of our board of directors. Following the
merger, Messrs. Tesney, Watts, Tortorici, Stephens and Camp continue to be
members of our senior management and Mr. Tesney continues to be a member of our
board of directors. Messrs. Tesney, Watts, Hess, Tortorici, Stephens and Camp
received an aggregate of approximately $14.2 million of cash merger
consideration on the same terms as other shareholders and the cancellation of
outstanding stock options. This amount is net of aggregate cash equity
contributions and rollover equity contributions, valued at $34.75 per share, to
Trivest Furniture Corporation of approximately $3.8 million by Messrs. Tesney,
Watts, Hess, Tortorici, Stephens and Camp, so that, after the merger, they
beneficially own an aggregate of approximately 5.1% of our capital stock. See
"Principal Shareholders."
The principal shareholders also executed an investors' agreement in
connection with the closing of the merger providing for, among other things,
registration rights and rights relating to the transferability of shares of our
common stock. In addition, approximately 35 key employees and independent sales
representatives acquired approximately 1.1% of our capital stock for
approximately $800,000 and entered into shareholders' agreements providing for,
among other things, rights relating to the transferability of shares of common
stock. See "Certain Transactions" for more information regarding the investors'
agreement and the shareholders' agreements.
25
<PAGE> 31
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. In
consideration for issuing the registered notes as contemplated in this
prospectus, we will receive in exchange original notes in like principal amount
at maturity. The original notes surrendered in exchange for registered notes
will be retired and cancelled and cannot be reissued. Accordingly, the issuance
of the registered notes will not result in any increase in our indebtedness.
The following table sets forth the sources and uses of the funds for the
merger:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
- ----------------
Senior credit facility(1)................................... $ 95.0
Units consisting of original notes and warrants............. 102.5
Cash equity investment(2)................................... 66.2
Rollover equity investment(3)............................... 11.8
Available cash on hand...................................... 7.1
------
Total............................................. $282.6
======
USES OF FUNDS
- -------------
WinsLoew merger consideration............................... $268.3
Estimated fees and expenses(4).............................. 14.3
------
Total............................................. $282.6
======
</TABLE>
- ---------------
(1) Our $155.0 million senior credit facility with BankBoston consists of three
term loans aggregating $95.0 million, all of which was borrowed at closing,
a $40.0 million revolving credit facility, none of which was borrowed at
closing, and a $20.0 million acquisition loan facility, none of which was
borrowed at closing. See "Description of the Senior Credit Facility." As of
September 24, 1999, we had undrawn availability based on a borrowing base
formula under the revolving credit facility of approximately $23.1 million
and $20.0 million under the acquisition loan facility, both of which are
subject to certain conditions.
(2) Represents investments by Trivest affiliates, members of senior management
and other investors in Trivest Furniture Corporation.
(3) Consists of common stock, valued at $34.75 per share, held by members of
senior management and other shareholders before the merger that were
directly or indirectly contributed to Trivest Furniture Corporation.
(4) Includes debt issuance costs, financial advisory and other fees and expenses
related to the merger, including fees of approximately $3.0 million to
Trivest. See "Certain Transactions."
26
<PAGE> 32
CAPITALIZATION
The following table sets forth our capitalization as of September 24, 1999.
This table should be read in conjunction with the "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and the accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 24, 1999
------------------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 762
========
Long-term debt, including current portion:
Existing total debt....................................... $ 12
Senior Credit Facility:
Revolving credit facility(1)........................... 925
Revolving acquisition facility(2)...................... --
Term A loan facility................................... 25,000
Term B loan facility................................... 62,500
Term C loan facility................................... 7,500
12 3/4% Senior Subordinated Notes due 2007, net(3)........ 101,093
--------
Total debt............................................. 197,030
Stockholders' equity(3)(4).................................. 78,806
--------
Total capitalization................................. $275,836
========
</TABLE>
- -------------------------
(1) As of September 24, 1999, we had undrawn availability of approximately $23.1
million under our new $40.0 million revolving credit facility, based on a
borrowing base formula. See "Description of the Senior Credit Facility."
(2) The revolving acquisition facility will be used to fund permitted
acquisitions, subject to certain conditions. Such amounts will be available
through December 31, 2001, at which time amounts not drawn will be
cancelled, and amounts outstanding will be converted into a term loan that
will amortize beginning March 31, 2002. See "Description of the Senior
Credit Facility."
(3) The notes are recorded at a discount of approximately $3.9 million to the
face amount to reflect the original issue discount on the notes of
approximately $2.5 million and the value attributed to the warrants issued
as part of the units with the notes of approximately $1.4 million, which has
been recorded as an increase to stockholders' equity.
(4) Excludes 24,129 shares of common stock reserved for issuance upon exercise
of outstanding warrants. See "Description of Capital Stock."
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<PAGE> 33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for each of
the three years in the period ended December 31, 1998 and as of December 31,
1997 and 1998 have been derived from, and should be read in conjunction with,
our audited consolidated financial statements, which have been audited by Ernst
& Young LLP, independent auditors and are included elsewhere in this prospectus.
The following selected historical consolidated financial data for each of the
two years in the period ended December 31, 1995 and as of December 31, 1994,
1995 and 1996 have been derived from audited financial statements that are not
included in this prospectus. The following historical consolidated financial
data for the nine-month periods ended September 25, 1998 and September 24, 1999
have been derived from our unaudited interim consolidated financial statements,
include, in the opinion of management, all adjustments necessary to present
fairly the data for such periods, and are included elsewhere in this prospectus.
Due to the seasonality of our operations and other factors, the results of
operations for the nine months ended September 24, 1999 may not be indicative of
the results that may be expected for the full year. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, -----------------------------
---------------------------------------------------- SEPTEMBER 25, SEPTEMBER 24,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $ 95,561 $110,887 $117,405 $122,145 $141,360 $106,726 $120,736
Cost of sales............... 65,060 78,710 78,029 79,431 87,232 66,829 72,733
-------- -------- -------- -------- -------- -------- --------
Gross profit.............. 30,501 32,177 39,376 42,714 54,128 39,897 48,003
Selling, general and
administrative expenses... 16,303 19,303 21,472 21,427 23,124 17,673 19,318
Amortization................ 2,000 2,087 1,444 992 1,122 806 1,611
Non-recurring charges....... 917 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income.......... 11,281 10,787 16,460 20,295 29,882 21,418 27,074
Interest expense............ 2,795 3,841 3,083 2,296 635 824 2,280
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before income
taxes and extraordinary
item...................... 8,486 6,946 13,377 17,999 29,247 20,594 24,794
Provision for income
taxes..................... 3,068 3,489 4,834 6,838 10,947 7,731 10,433
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
extraordinary item........ 5,418 3,457 8,543 11,161 18,300 12,863 14,361
Income (loss) from
discontinued operations,
net of taxes.............. 934 (9,199) (259) (718) -- -- --
Gain (loss) from sale of
discontinued operations,
net of taxes(1)........... -- -- -- (8,200) 2,031 -- --
Extraordinary item.......... -- 1,698 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 6,352 $ (4,044) $ 8,284 $ 2,243 $ 20,331 $ 12,863 $ 14,361
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)................... $ 14,698 $ 14,273 $ 19,439 $ 22,929 $ 32,500 $ 23,334 $ 29,834
EBITDA Margin(2)............ 15.4% 12.9% 16.6% 18.8% 23.0% 21.9% 24.7%
Depreciation and
amortization.............. 3,417 3,486 2,979 2,634 2,618 1,916 2,760
Capital expenditures........ 3,261 2,702 1,351 425 942 1,131 275
Ratio of earnings to fixed
charges(3)................ 4.0x 2.8x 5.3x 8.8x 47.1x 26.0x 11.9x
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital............. $ 37,711 $ 58,785 $ 40,102 $ 29,937 $ 25,840 $ 18,498 $ 13,320
Total assets................ 111,054 104,004 99,950 80,414 84,553 78,747 297,831
Total debt (including
current portion).......... 40,893 41,941 40,681 16,423 1,447 1,126 197,030
Stockholders' equity........ 60,680 53,228 48,400 51,026 66,226 59,400 78,806
(footnotes on following page)
</TABLE>
28
<PAGE> 34
(1) See note 2 of our consolidated financial statements.
(2) EBITDA represents earnings before interest, taxes, depreciation and
amortization, loss from discontinued operations, net of taxes, and gain
(loss) from sale of discontinued operations, net of taxes, and is presented
to provide additional information with respect to our debt service capacity.
EBITDA margin represents EBITDA divided by net sales. EBITDA should not be
considered in isolation from, or as a substitute for, net income, cash flows
from operations or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. Rather, EBITDA is presented because it is a widely accepted
supplemental financial measure, and we believe it provides relevant and
useful information. Our calculation of EBITDA may not be comparable to
similarly titled measures reported by other companies since all companies do
not calculate this non-GAAP measure in the same fashion. Our EBITDA
calculation is not intended to represent cash provided by (used in)
operating activities, since it does not include interest and taxes and
changes in operating assets and liabilities, nor is it intended to represent
the net increase in cash, since it does not include cash provided by (used
in) investing and financing activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description
of the Registered Notes."
(3) For the purpose of calculating the ratio of earnings to fixed charges, (a)
earnings consist of income (loss) from continuing operations before income
taxes and extraordinary item plus fixed charges (excluding capitalized
interest), and (b) fixed charges consist of interest expense (including
capitalized interest) on, and amortized discounts and capitalized expenses
related to, all indebtedness and that portion of rental expense that is
representative of interest.
29
<PAGE> 35
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations for
the year ended December 31, 1998, and the nine months ended September 24, 1999
give effect to the merger and the acquisitions of Tropic Craft and Pompeii as if
they had occurred on January 1, 1998. The unaudited pro forma financial
statements are based upon the historical accounting financial information
appearing elsewhere in this prospectus.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable and are described in the
notes accompanying the pro forma financial statements. The unaudited pro forma
financial statements are provided for information purposes only and do not
purport to represent what our results of operations or financial position would
actually have been had the transactions in fact occurred at such dates or to
project our results of operations or financial position at or for any future
date or period.
The unaudited pro forma financial statements and accompanying notes should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto contained elsewhere herein. The merger was treated as a
purchase business combination for financial accounting purposes.
30
<PAGE> 36
WINSLOEW FURNITURE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TROPIC TRANSACTION PRO
WINSLOEW(1) CRAFT(2) POMPEII(3) ADJUSTMENTS FORMA
----------- -------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales...................... $141,360 $3,251 $ 14,513 $ -- $159,124
Cost of goods sold............. 87,232 1,089 8,846 -- 97,167
-------- ------ ---------- ---------- --------
Gross profit................... 54,128 2,162 5,667 -- 61,957
Selling, general and
administrative expenses...... 23,124 571 2,832 (291)(4) 26,236
Amortization................... 1,122 145 451 4,491 (5) 6,209
-------- ------ ---------- ---------- --------
Operating income............... 29,882 1,446 2,384 (4,200) 29,512
Interest expense............... 635 309 1,492 23,694 (6) 26,130
-------- ------ ---------- ---------- --------
Income from continuing
operations before income
taxes........................ 29,247 1,137 892 (27,894) 3,382
Provision for income taxes..... 10,947 433 339 (8,780)(7) 2,939
-------- ------ ---------- ---------- --------
Income from continuing
operations................... 18,300 704 553 (19,114) 443
Gain from sale of discontinued
operations, net of taxes..... 2,031 -- -- -- 2,031
-------- ------ ---------- ---------- --------
Net income................... $ 20,331 $ 704 $ 553 $ (19,114) $ 2,474
======== ====== ========== ========== ========
EBITDA....................... $ 32,500 $1,652 $ 3,050 $ 291 $ 37,493
======== ====== ========== ========== ========
</TABLE>
- -------------------------
(1) Represents actual results of operations for WinsLoew for the year ended
December 31, 1998. See our consolidated financial statements and the notes
thereto contained elsewhere in this prospectus.
(2) Represents the unaudited pro forma results of operations for Tropic Craft,
which was acquired on June 30, 1998, for the six month period ended June 30,
1998. The results of operations of Tropic Craft for the six months ended
December 31, 1998 are reflected in the actual results of operations of
WinsLoew. See note 3 of notes to the audited consolidated financial
statements. The pro forma adjustments include (a) the elimination of the
prior owner's compensation, (b) incremental costs associated with new
employment agreements, (c) the elimination of leasing costs for purchased
real estate that was previously leased by Tropic Craft, and (d) amortization
related to goodwill and intangibles purchased. All such adjustments have
been affected at a tax rate of 38%.
(3) Represents the unaudited pro forma results of operations for Pompeii, which
was acquired on July 30, 1999, for the year ended December 31, 1998. The pro
forma adjustments include (a) the elimination of the prior owner's
compensation, (b) lower costs associated with the new employment agreements,
(c) increased leasing costs for purchased real estate owned by the prior
owner, and (d) amortization related to goodwill and intangibles purchased.
All such adjustments have been affected at a tax rate of 38%.
(4) Represents a reduction in the management fee paid under the new Management
Agreement with Trivest executed in connection with the merger.
(5) Represents amortization of goodwill generated in the merger transactions,
amortized over 40 years, offset by reduced amortization ($297,000) of
deferred financing fees due to the expiration of the previous credit
agreement.
(6) Represents cash interest expense as a result of borrowings outstanding under
our senior credit facility and the issuance of the original notes in
connection with the merger transactions and non-cash interest expense ($1.5
million) associated with the amortization of deferred financing fees
incurred in connection with our new senior credit facility and the original
notes and the discount to the face amount of the original notes and the
value attributed to the warrants issued with the original notes.
(7) Represent the tax effect of adjustment (4) and (6) above at a 38% tax rate.
31
<PAGE> 37
WINSLOEW FURNITURE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 1999
<TABLE>
<CAPTION>
TRANSACTION
WINSLOEW(1) POMPEII(2) ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................... $120,736 $ 8,128 $ -- $128,864
Cost of goods sold...................... 72,733 4,978 -- 77,711
-------- -------- -------- --------
Gross profit............................ 48,003 3,150 -- 51,153
Selling, general and administrative
expenses.............................. 19,318 2,041 (194)(3) 21,165
Amortization............................ 1,611 263 2,792 (4) 4,666
-------- -------- -------- --------
Operating income........................ 27,074 846 (2,598) 25,322
Interest expense........................ 2,280 870 15,796 (5) 18,946
-------- -------- -------- --------
Income before income taxes.............. 24,794 (24) (18,394) 6,376
Provision for income taxes.............. 10,433 (9) (5,777)(6) 4,647
-------- -------- -------- --------
Net income............................ $ 14,361 $ (15) $(12,617) $ 1,729
======== ======== ======== ========
EBITDA................................ $ 29,834 $ 1,328 $ 194 $ 31,356
======== ======== ======== ========
</TABLE>
- -------------------------
(1) Represents actual results of operations for WinsLoew for the six months
ended June 25, 1999. See our unaudited interim Consolidated Financial
Statements and the notes thereto contained elsewhere in this prospectus.
(2) Represents the unaudited pro forma results of operations for Pompeii, which
was acquired on July 30, 1999, for the seven months ended July 30, 1999. The
results of operations of Pompeii for the two months ended September 24, 1999
are reflected in the actual results of operations of WinsLoew. See note 7 of
notes to the unaudited interim consolidated financial statements. The pro
forma adjustments include (a) the elimination of the prior owner's
compensation, (b) lower costs associated with the new employment agreements,
(c) increased leasing costs for purchased real estate owned by the prior
owner, and (d) amortization related to goodwill and intangibles purchased.
All such adjustments have been affected at a tax rate of 38%.
(3) Represents a reduction in the management fee paid under the new Management
Agreement with Trivest executed in connection with the merger transactions.
(4) Represents amortization of goodwill generated in the merger transactions,
offset by reduced amortization ($198,000) of deferred financing fees and the
write-off of the remaining financing fees ($201,000) due to the expiration
of the previous credit agreement.
(5) Represents cash interest expense as a result of borrowings outstanding under
our senior credit facility and the issuance of the original notes in
connection with the merger transactions and non-cash interest expense
($977,000) associated with the amortization of deferred financing fees
incurred in connection with our new senior credit facility and the original
notes and the discount to the face amount of the original notes and the
value attributed to the warrants issued with the notes.
(6) Represent the tax effect of adjustments (3) and (5) above at a 38% tax rate.
32
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a leading designer, manufacturer and distributor of a broad offering
of casual indoor and outdoor furniture and seating products. We also manufacture
ready-to-assemble furniture products. Our casual furniture includes chairs,
chaise lounges, tables, umbrellas and related accessories, which are generally
constructed from aluminum, wrought iron, wood or fiberglass. Our seating
products include wood, metal and upholstered chairs, sofas and loveseats, which
are offered in a wide variety of finish and fabric options. All of our casual
furniture and seating products are manufactured pursuant to customer orders. We
sell our furniture products to the residential market and to the contract
market, consisting of commercial and institutional users.
We have undertaken a number of initiatives in recent years to strengthen
and grow our core casual furniture and seating businesses. We have focused our
resources on our core business and disposed of non-core or unprofitable
operations. In 1997, we sold our wrought iron furniture business, and in 1998 we
discontinued and sold or liquidated some of our ready-to-assemble furniture
operations. We embarked on a focused acquisition program to broaden our core
product offering that, to date, has resulted in the acquisitions of Tropic
Craft, a manufacturer of casual furniture sold into the contract market, and
Pompeii, a manufacturer of upper-end casual furniture sold into both the
residential and contract markets. See "Business -- General."
Sale of Wrought Iron Furniture Business. During the third quarter of 1997,
we disposed of certain assets of our wrought iron business in the casual
furniture product line. The sale generated net cash proceeds of $2.1 million.
This business accounted for net sales of $11.0 million in 1996 and $5.7 million
in 1997 through the sale date. The operating income of this business was not
material to consolidated operating income. During the third quarter of 1997, we
recorded approximately $0.2 million of costs associated with the sale in
selling, general and administrative expenses.
Discontinued Operations. During 1997 we also adopted a plan to dispose of
our ready-to-assemble operations. At that time, our ready-to-assemble furniture
products included ergonomically-designed computer workstations, which we
referred to as "space savers," promotionally-priced coffee and end tables, wall
units and rolling carts and an extensive line of futons, futon frames and
related accessories. As a result of this decision, we recorded a pre-tax
non-cash charge totaling $12.4 million in the fourth quarter of 1997 relating to
the disposal of the ready-to-assemble operations. The following is a summary of
the components of the charge (in millions):
<TABLE>
<S> <C>
Write-off of goodwill in connection with sale of assets..... $ 3.9
Reduction of inventory value................................ 2.8
Reduction of property to net realizable value............... 2.1
Reduction of accounts receivable value...................... 1.4
Other liabilities/reserves.................................. 1.0
Accrual for losses through disposition...................... 1.2
-----
Total..................................................... $12.4
=====
</TABLE>
We planned to sell two of our ready-to-assemble furniture businesses and
liquidate the assets related to our futon business, which was our other
ready-to-assemble furniture line. During 1998 we sold one of the businesses,
completed the liquidation of the futon business and decided to retain our
Southern Wood business due to improved profitability (see note 2 to the notes to
our consolidated
33
<PAGE> 39
financial statements). Accordingly, the financial data included in this
prospectus has been restated to reflect Southern Wood as a continuing operation.
Purchase of Tropic Craft. In June 1998, we purchased all of the stock of
Tropic Craft, a designer and manufacturer of casual furniture sold into the
contract markets, for $9.3 million in cash. In addition, the seller will be
entitled to receive aggregate contingent purchase price payments of up to $1.0
million upon achievement of targeted earning performance with respect to the
years ending June 30, 1999 and June 30, 2000. The acquisition resulted in
goodwill of $6.9 million. Funds for the acquisition were provided under our
existing credit facility. We accounted for the acquisition under the purchase
method and, accordingly, the operating results of Tropic Craft have been
included in our historical consolidated operating results only since the date of
acquisition.
Purchase of Pompeii. In July 1999, we acquired all of the stock of
Pompeii, a manufacturer of upper-end aluminum casual furniture sold into the
contract and residential markets, for $18.2 million in cash. Pompeii provides us
with a leading brand in the upper end of the casual furniture market and a
significant opportunity to achieve operating efficiencies. For the year ended
December 31, 1998, Pompeii had net revenues of approximately $14.5 million and
income from operations of approximately $2.8 million. We expect to spend
approximately $1.5 million over the next 12 to 18 months for certain integration
costs. We funded the Pompeii acquisition with available cash on hand and expect
to fund the integration costs with working capital. We accounted for the
acquisition under the purchase method and, accordingly, the operating results of
Pompeii have been included in our historical consolidated operating results only
since the date of the acquisition. Also see "Pro Forma Financial Data."
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as
a percent of net sales for the fiscal periods indicated for each of our product
lines, in thousands, except for percentages:
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------- --------------------------- ---------------------------
NET GROSS GROSS NET GROSS GROSS NET GROSS GROSS
SALES PROFIT MARGIN SALES PROFIT MARGIN SALES PROFIT MARGIN
-------- ------- ------ -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casual furniture........... $ 58,066 $23,812 41.0% $ 56,363 $24,164 42.9% $ 59,733 $28,227 47.3%
Seating.................... 48,629 14,126 29.0 58,386 17,256 29.6 69,938 23,439 33.5
Ready-to-assemble.......... 10,710 1,438 13.4 7,396 1,294 17.5 11,689 2,462 21.1
-------- ------- -------- ------- -------- -------
Total.................... $117,405 $39,376 33.5% $122,145 $42,714 35.0% $141,360 $54,128 38.3%
======== ======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------------------------
SEPTEMBER 25, 1998 SEPTEMBER 24, 1999
--------------------------- ---------------------------
NET GROSS GROSS NET GROSS GROSS
SALES PROFIT MARGIN SALES PROFIT MARGIN
-------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casual furniture........... $ 47,423 $21,754 45.9% $58,110 $27,470 47.3%
Seating.................... 50,833 16,349 32.2 51,485 17,911 34.8
Ready-to-assemble.......... 8,470 1,794 21.2 11,141 2,622 23.5
-------- ------- -------- -------
Total.................... $106,726 $39,897 37.4% $120,736 $48,003 39.8%
======== ======= ======== =======
</TABLE>
34
<PAGE> 40
The following table sets forth certain information relating to our
operations expressed as a percentage of our net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------ -----------------------------
SEPTEMBER 25, SEPTEMBER 24,
1996 1997 1998 1998 1999
---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross profit........................ 33.5% 35.0% 38.3% 37.4% 39.8%
Selling, general and administrative
expense........................... 18.3 17.6 16.4 16.5 16.0
Amortization........................ 1.2 0.8 0.8 0.8 1.4
Operating income.................... 14.0 16.6 21.1 20.1 22.4
Interest expense.................... 2.6 1.9 0.4 0.8 1.9
Provision for income taxes.......... 4.1 5.6 7.7 7.2 8.6
Income from continuing operations
before extraordinary item......... 7.3 9.1 13.0 12.1 11.9
Loss from discontinued operations,
net of taxes...................... (0.2) (0.6) -- -- --
Gain (loss) from sale of
discontinued operations, net of
taxes............................. -- (6.7) 1.4 -- --
Net income.......................... 7.1 1.8 14.4 12.1 11.9
EBITDA.............................. 16.6 18.8 23.0 21.9 24.7
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 24, 1999 AND NINE MONTHS ENDED
SEPTEMBER 25, 1998
Net Sales. Our consolidated net sales for the nine months ended September
24, 1999, increased $14.0 million, or 13.1%, to $120.7 million, compared to
$106.7 million in the nine months ended September 25, 1998. Our casual and
ready-to-assemble product lines experienced strong sales increases. Sales of
casual products increased 22.5% in the nine months ended September 24, 1999,
compared to the comparable period of 1998. Excluding Tropic Craft, which was
purchased in the third quarter of 1998, and Pompeii, which was purchased in the
third quarter of 1999, sales of casual products increased 10.0%. We believe that
this increase in demand is primarily due to our emphasis on quality, leading the
industry through innovative designs and providing customer flexibility with our
delivery program during the short casual retail season. Ready-to-assemble
product sales increased 31.5% in the first nine months of 1999, compared to the
comparable period of 1998, primarily due to increased demand on all
ready-to-assemble furniture. Seating sales experienced only a slight 1.3%
increase during the nine months ended September 24, 1999 compared to the
comparable period of 1998, primarily due to less favorable market conditions
during the period.
Gross Profit. Consolidated gross profit increased $8.1 million in the nine
months ended September 24, 1999 to $48.0 million, or 39.9%, compared to $39.9
million, or 37.4%, in the comparable period of 1998. All three of our product
lines contributed to the increase in gross profit. The casual product line gross
profit improved to 47.3% in the nine months ended September 24, 1999 compared to
45.9% in the comparable period of 1998, due to increased demand and improved
operating efficiencies. The gross profit for seating products improved to 34.8%
in the nine months ended September 24, 1999 compared to 32.2% in the comparable
period of 1998 due to a favorable product mix and improved profit margins on our
core seating products. The ready-to-assemble product line gross profit improved
to 23.5% in the nine months ended September 24, 1999, compared to 21.2% in the
comparable period of 1998, due to increased demand and improved operating
efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million ($1.1 million excluding Pompeii,
which was purchased in the third quarter of
35
<PAGE> 41
1999) in the nine months ended September 24, 1999 to $19.3 million, compared to
selling, general and administrative expenses of $17.7 million in the comparable
period of 1998. The increase was primarily the result of higher sales related
expenditures.
Amortization. Amortization expense increased $0.8 million to $1.6 million
in the nine months ended September 24, 1999, compared to $806,000 in the
comparable period of 1998, due to amortization of goodwill related to the Tropic
Craft and Pompeii acquisitions and the merger with Trivest Furniture
Corporation.
Operating Income. As a result of the above, operating income increased by
$5.7 million, to $27.1 million (22.4% of net sales) in the nine months ended
September 24, 1999, compared to $21.4 million (20.1% of net sales) in the
comparable period of 1998.
Interest Expense. Our interest expense increased $1.5 million in the nine
months ended September 24, 1999, compared to the comparable period of 1998, due
to debt incurred in the merger with Trivest Furniture Corporation.
Provision for Income Taxes. Our effective tax rate for the nine months
ended September 24, 1999 was 42.1% compared to 37.5% for the comparable period
of 1998. The effective tax rate is greater than the federal statutory rate
primarily due to the effect of state income taxes and non-deductible goodwill
amortization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. Our consolidated net sales for 1998 increased $19.3 million or
15.8% to $141.4 million, compared to $122.1 million in 1997. Sales of casual
furniture increased 17.9%, excluding sales relating to our wrought iron
business, which we sold in 1997. We believe that due to our high quality and
innovative designs, our timely delivery capability and our focus on customer
service existing residential customers have continued to allocate more floor
space to our casual aluminum furniture products, which has resulted in increased
sales of our products to residential consumers. Sales of seating products
increased 19.8% due to growth in the core business and increased demand from the
lodging industry. Sales of ready-to-assemble products increased 58.0% due to
increased demand as we broadened our product offering to include additional
flat-line products and case goods which allowed us to enter new markets.
Gross Profit. Consolidated gross profit increased $11.4 million in 1998 to
$54.1 million compared to $42.7 million in 1997. Our casual, seating and
ready-to-assemble furniture products each generated increased gross profits in
1998 due to greater operating efficiencies, increased sales volumes and improved
raw material costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million in 1998 to $23.1 million (16.4%
of net sales), compared to 1997 selling, general and administrative expenses of
$21.4 million (17.5% of net sales), due to increased commission expense and
other variable costs related to the increased sales volume in 1998.
Amortization. Amortization expense increased $0.1 million in 1998,
compared to 1997, due to amortization of goodwill related to the Tropic Craft
acquisition.
Operating Income. As a result of the above, operating income increased by
$9.6 million, to $29.9 million (21.1% of net sales) in 1998, compared to $20.3
million (16.6% of net sales) in 1997.
Interest Expense. Our interest expense decreased $1.7 million in 1998,
compared to 1997 due to the repayment of $15.0 million of indebtedness during
the year.
36
<PAGE> 42
Provision for Income Taxes. Our effective tax rate from continuing
operations of 37.4% in 1998 and 38.0% in 1997 is greater than the federal
statutory rate due to the effect of state income taxes and non-deductible
goodwill amortization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales. Our consolidated net sales for 1997 increased $4.7 million or
4.0% to $122.1 million, compared to $117.4 million in 1996. Sales of casual
furniture increased 7.6% excluding sales relating to our wrought iron business,
which we sold in 1997. We believe that due to our high quality and innovative
designs, our timely delivery capability and our focus on customer service,
existing residential customers have allocated more floor space to our casual
aluminum furniture products, which has resulted in increased sales of our
products to residential consumers. Sales of seating products increased 20.1% due
to growth in the core business and increased demand from the lodging industry.
Sales of ready-to-assemble products decreased 30.9% due to the loss of a major
customer.
Gross Profit. Consolidated gross profit increased $3.3 million in 1997 to
$42.7 million compared to $39.4 million in 1996. Our casual furniture and
seating products each generated increased gross profits in 1997 due to greater
operating efficiencies, increased sales volumes (after excluding sales for our
Lyon Shaw wrought iron business sold in 1997) and improved raw material costs.
The ready-to-assemble product line experienced a 10.0% decrease in gross profit
in 1997 due to lower sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $45,000 in 1997, compared to 1996, due to
various cost reduction programs which more than offsets increases in commission
expense and other variable costs related to the increased sales volume in 1997.
Amortization. Amortization expense decreased $0.5 million due to the
intangible assets that became fully amortized in 1996.
Operating Income. As a result of the above, we recorded operating income
of $20.3 million (16.6% of net sales) in 1997, compared to operating income of
$16.5 million (14.0% of net sales) in 1996.
Interest Expense. Our interest expense decreased $0.8 million in 1997,
compared to 1996 due to the repayment of $24.3 million of indebtedness during
the year.
Provision for Income Taxes. Our effective tax rate from continuing
operations of 38.0% in 1997 and 36.1% in 1996 is greater than the federal
statutory rate due to the effect of state income taxes and non-deductible
goodwill amortization.
SEASONALITY AND QUARTERLY INFORMATION
Sales of casual products are typically higher in the second quarter of each
year as a result of high retail demand for casual furniture preceding the summer
months. Weather conditions during the peak retail selling season and the
resulting impact on consumer purchases of outdoor furniture products can also
affect sales of our casual products. During the third quarter of 1997, we sold
our Lyon Shaw wrought iron division (See note 3 to the consolidated financial
statements).
The following table presents our unaudited quarterly data for 1997, 1998
and 1999. Such operating results are not necessarily indicative of results for
future periods. We believe that all necessary and normal recurring adjustments
have been included in the amounts in order to present fairly and in accordance
with generally accepted accounting principles the selected quarterly information
when read in conjunction with our consolidated financial statements included
elsewhere
37
<PAGE> 43
herein. The results of operations for any quarter are not necessarily indicative
of results for a full year. The following data has been restated to reflect
Southern Wood as a continuing operation.
<TABLE>
<CAPTION>
FIRST SECOND THIRD
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999 QUARTERS
Net sales............................................ $32,910 $47,679 $40,147
Gross profit......................................... $12,879 $19,696 $15,428
Operating income..................................... $ 6,838 $11,833 $ 8,403
Income before income taxes........................... $ 6,715 $11,879 $ 6,200
Net income........................................... $ 4,184 $ 7,350 $ 2,827
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 QUARTERS
Net sales............................................ $27,576 $42,892 $36,258 $34,634
Gross profit......................................... $ 9,630 $16,740 $13,527 $14,231
Operating income..................................... $ 4,871 $10,282 $ 6,265 $ 8,464
Income from continuing operations.................... $ 2,873 $ 6,199 $ 3,791 $ 5,437
Net income........................................... $ 2,873 $ 6,199 $ 3,791 $ 7,468
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997 QUARTERS
Net sales............................................ $24,682 $39,854 $29,523 $28,086
Gross profit......................................... $ 7,519 $15,020 $10,073 $10,102
Operating income..................................... $ 2,592 $ 8,313 $ 4,440 $ 4,950
Income from continuing operations.................... $ 1,047 $ 4,729 $ 2,355 $ 3,030
Net income (loss).................................... $ 818 $ 4,504 $ 2,282 $(5,361)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our short-term cash needs are primarily for debt service and working
capital, including accounts receivable and inventory requirements. We have
historically financed our short-term liquidity needs with internally generated
funds and revolving line of credit borrowings. At September 24, 1999, we had
$13.3 million of working capital and, under our senior credit facility, $23.1
million of unused and available funds under the revolving credit facility and
$20.0 million of unused and available funds under the acquisition loan facility.
Cash Flows from Operating Activities. During 1998, net cash provided by
operations increased to $31.1 million, compared to $22.0 million in 1997,
primarily due to improved profitability from continuing operations. Net cash
provided by operations was $30.7 million and $33.0 million for the nine months
ended September 24, 1999 and September 25, 1998, respectively. The decrease was
primarily due to the sale of assets of discontinued operations in 1998. In
addition, the use of cash in the first quarter of 1999 reflects our financing of
accounts receivable pursuant to our long-standing sales strategy of providing
extended payment terms to customers. During the first four months of each year,
accounts receivable in the casual furniture division normally increases due to
extended payment terms offered to customers to encourage purchases of our
products prior to the second quarter when most customers purchase their casual
furniture. During the second quarter, we receive payment on these accounts
receivable. Management believes that this special sales program provides a
matching advantage, reduces the effects of seasonality on our operations and
reduces our finished goods inventory levels.
38
<PAGE> 44
Cash Flows from Investing Activities. During 1998, we spent $0.9 million
on capital expenditures and $9.3 million on the purchase of Tropic Craft (see
note 3 to the audited consolidated financial statements), compared to capital
expenditures of $0.4 million and the receipt of $2.1 million in proceeds from
the sale of certain assets of our wrought iron business in 1997. Net cash used
in investing activities was $298.8 million and $10.5 million for the nine months
ended September 24, 1999 and September 25, 1998, respectively. Cash used in
investing activities in the first nine months of 1999 included $280.3 million
used in the merger with Trivest Furniture Corporation and $18.2 million used in
the acquisition of Pompeii. Cash used in investing activities in the first nine
months of 1998 included $9.3 million for the purchase of Tropic Craft. See notes
2 and 7 to the unaudited interim consolidated financial statements. At September
24, 1999, we had no material commitments for capital expenditures.
Cash Flows From Financing Activities. During 1998, we used cash generated
by operations to repay $15.0 million of debt and purchase $6.1 million of our
common stock (see note 5 to the audited consolidated financial statements). In
1997, we used cash generated by operations and investing activities to repay
$24.3 million of debt. Net cash provided by financing activities was $268.4
million in the nine months ended September 24, 1999 compared to $19.8 million
used in financing activities in the comparable period of 1998. In the first nine
months of 1999, cash was primarily provided by proceeds from borrowings under
our senior credit facility and the issuance of units consisting of the original
notes and warrants. See note 4 to our unaudited interim consolidated financial
statements. In the first nine months of 1998, we primarily used cash to retire
revolving credit debt and to repurchase shares of our common stock.
We financed the merger with $78.0 million of cash and rollover equity
investment, approximately $7.1 million of available cash on hand, term loan
borrowings of approximately $95.0 million under our $155.0 million senior credit
facility and proceeds from the sale of units consisting of the original notes
and warrants. See "The Merger."
Our senior credit facility consists of three term loans aggregating $95.0
million, all of which was borrowed at closing, a $40.0 million revolving credit
facility, none of which was borrowed at closing, and a $20.0 million acquisition
loan facility, none of which was borrowed at closing. See "Description of the
Senior Credit Facility." As of September 24, 1999, we had undrawn availability
based on a borrowing base formula under the revolving credit facility of
approximately $23.1 million and $20.0 million under the acquisition loan
facility, both of which are subject to certain conditions.
We have significant amounts of debt requiring interest and principal
repayments. The notes require semi-annual interest payments commencing in
February 2000 and will mature in August 2007. Borrowings under the senior credit
facility require monthly interest payments commencing in September 1999. Of the
term loans, $3.6 million mature in each of 2000 and 2001, $6.6 million mature in
each of 2002 and 2003, $7.6 million mature in 2004, $29.7 million mature in 2005
and $37.2 million mature in 2006. Amounts outstanding under the revolving credit
facility mature December 31, 2004. Amounts outstanding under the acquisition
loan facility at December 31, 2001 mature 20% in 2002, 30% in 2003 and 50% in
2004. As of September 24, 1999, $0.9 million was outstanding under the revolving
credit facility and no amounts were outstanding under the acquisition loan
facility. As of September 24, 1999:
- our total debt outstanding was approximately $197.0 million;
- our interest expense would have been approximately $18.9 million for the
nine months ended September 24, 1999 and $26.1 million for the year ended
December 31, 1998 on a pro forma basis after giving effect to the merger
and the Pompeii acquisition;
- our total stockholders' equity was approximately $78.8 million; and
39
<PAGE> 45
- the sufficiency of our earnings available to cover fixed charges for the
twelve months ended September 24, 1999 would have been approximately 1.3
to 1 on a pro forma basis after giving effect to the merger and the
Pompeii acquisition.
Our other liquidity needs relate to working capital, capital expenditures
and potential acquisitions. We intend to fund our working capital, capital
expenditures and debt service requirements through cash flow generated from
operations and borrowings under our senior credit facility.
We believe that existing sources of liquidity and funds expected to be
generated from operations will provide adequate cash to fund our anticipated
working capital needs. Significant expansion of our business or the completion
of any material strategic acquisitions may require additional funds which, to
the extent not provided by internally generated sources, could require us to
seek access to debt or equity markets.
Our anticipated capital needs through 2000 will consist primarily of the
following:
- interest payments due on the notes and interest and principal due under
our senior credit facility,
- increases in working capital driven by the growth of our business, and
- the financing of capital expenditures.
Aggregate capital expenditures are budgeted at approximately $8.0 million
through 2000 (approximately $0.3 million of which had been spent as of September
24, 1999) and will consist of approximately $2.0 million to purchase a currently
leased facility, approximately $2.5 million to purchase and upgrade an
additional facility and approximately $3.5 million for general facility
improvements. To the extent available, funds will be used to reduce outstanding
borrowings under our senior credit facility. Management believes that funds
generated from operations and funds available under our senior credit facility
will be sufficient to satisfy our debt service obligations, working capital
requirements and commitments for capital expenditures.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
We purchase some component parts for our seating products from several
Italian suppliers, which we pay for in local currency. These purchases expose us
to the effects of fluctuations in the value of the U.S. dollar versus the
Italian lira. If the U.S. dollar declines in value versus the Italian lira, we
will pay more in U.S. dollars for these purchases. To reduce our exposure to
loss from such potential foreign exchange fluctuations, we will occasionally
enter into foreign exchange forward contracts. These contracts allow us to buy
Italian lira at a predetermined exchange rate, thereby transferring the risk of
subsequent exchange rate fluctuations to a third party. However, if we are
unable to continue such forward contract activities, and our inventories
increase in connection with expanding sales activities, a weakening of the U.S.
dollar against the Italian lira could result in reduced gross margins. At
December 31, 1998, we did not have any foreign currency forward contracts
outstanding. We elected to hedge a portion of our exposure to purchases to be
made in 1999 by entering into foreign currency forward contracts with a value of
approximately $2.3 million, approximately $0.9 million of which were outstanding
and unsettled at September 24, 1999, maturing at approximately $0.3 million per
month. We did not incur significant gains or losses from these foreign currency
transactions. Our hedging activities relate solely to our component purchases in
Italy; we do not speculate in foreign currency.
Inflation has not had a significant impact on us in the past three years,
and management does not expect inflation to have a significant impact in the
foreseeable future.
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YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This error could potentially result in
a system failure or miscalculation causing disruptions to operations.
In mid-1995, we began an assessment of the Year 2000 issue on our internal
information technology systems and other non-information technology systems such
as facility automation control systems, third-party network systems and other
embedded technology and microcontrollers, as well as for the replacement or
correction of all such systems required in the new millennium. Based on the
assessment, we determined that it was necessary to replace portions of our
software and hardware so that those systems will properly utilize dates beyond
December 31, 1999, including third-party network equipment, software products
and services.
As of September 24, 1999, we have completed testing and remediation of 100%
of our continuing operations business critical systems at an aggregated cost of
approximately $0.5 million, which represented approximately 20% of our
information technology budget for the last four years, and was funded from
internally generated funds. Approximately 59% of these costs were for
replacement of existing software, approximately 23% were for replacement and/or
upgrade of existing hardware, approximately 12% were for replacement of
non-information technology systems and equipment, and approximately 6% were for
repair and/or upgrade of existing software. Non-information technology systems
do not represent a significant component of our operations. We deduct these
costs from income. Other non-Year 2000 technology efforts have not been
materially delayed.
We have contacted and received responses from all of our material suppliers
and customers concerning Year 2000 compliance. Based on these discussions we are
not aware of any supplier or customer with a Year 2000 issue that could have a
material adverse effect on our business, financial position, results of
operations or liquidity. We did not use any independent verification or
validation process to assure the reliability of their risk and cost estimates.
Consequently, we have no means of ensuring that suppliers or customers will be
Year 2000 ready. The effect of non-compliance by third parties is not
determinable.
In the event that our program to resolve the Year 2000 issue is not
successful, management believes that it has established adequate contingency
plans whereby we would rely on our own manual systems, independent of external
providers' Year 2000 compliance, maintain increased inventory levels and adjust
staffing levels for our business critical systems. Management believes that such
an event would not materially affect our financial position or results of
operations. However, disruptions in the general economy resulting from Year 2000
issues could have a material adverse effect our business, financial condition,
results of operations, liquidity or prospects.
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BUSINESS
GENERAL
We are a leading designer, manufacturer and distributor of a broad offering
of casual indoor and outdoor furniture and seating products. We also manufacture
certain ready-to-assemble furniture products. Our casual furniture includes
chairs, chaise lounges, tables, umbrellas and related accessories, which are
generally constructed from aluminum, wrought iron, wood or fiberglass. Our
seating products include wood, metal and upholstered chairs, sofas and
loveseats, which are offered in a wide variety of finish and fabric options. All
of our casual furniture and seating products are manufactured pursuant to
customer orders. We sell our furniture products to the residential market and to
the contract market, consisting of commercial and institutional users. We
believe that our success is attributable to our proven ability to consistently
deliver high quality, innovatively-styled products on a timely basis with
superior customer service. On a pro forma basis for the twelve months ended,
September 24, 1999, our casual, seating and ready-to-assemble furniture products
accounted for 49.3%, 42.1% and 8.6%, respectively, of our net sales. On a pro
forma basis, during this period, we generated net sales of $167.7 million and
EBITDA of $40.9 million, representing an EBITDA margin of 24.4% which we believe
is among the highest in the industry.
We market our casual furniture products to the residential market under the
Winston(R) and Pompeii(R) brand names through approximately 25 independent sales
representatives to over 800 active customers, which are primarily specialty
patio furniture stores located throughout the United States. We believe that
Winston(R) and Pompeii(R) are two of the leading brand names in the residential
casual furniture sector. We offer over 25 separate style collections of casual
furniture products for the residential market, each of which is comprised of
numerous pieces available in various combinations of finishes and fabrics. Our
target market is the medium to upper-end price category of the casual furniture
market, with suggested retail prices for a table and four chairs typically
ranging from $700 to $3,500. As a result, we do not sell our casual furniture
products to mass merchandisers. In addition, we market a broad line of casual
furniture products in the contract markets under the Texacraft(R), Tropic
Craft(R) and Pompeii(R) brand names, primarily through our in-house sales force,
to lodging and restaurant chains, country clubs, apartment developers and
property management firms, architectural design firms, municipalities and other
commercial and institutional users.
We market our seating products to a broad customer base in the contract
market under the Loewenstein(R) and Gregson(R) brand names (through
approximately 40 independent sales organizations, which employ approximately 120
sales representatives). Our customers include lodging and restaurant chains,
architectural design firms, professional sports complexes, schools, healthcare
facilities, office furniture dealers, retail store planners and other commercial
and institutional users in the contract market. We manufacture over 300 distinct
models of seating products ranging from traditional to contemporary styles of
chairs, as well as reception area love seats, sofas and stools. We design,
assemble and finish our seating products with component parts from a variety of
suppliers, including a number of Italian manufacturers. We believe that our
success in distinguishing our seating products from those of our competitors is
due in part to our long-standing and frequently exclusive relationships with a
number of leading Italian designers and manufacturers. These relationships
enable us to offer products incorporating unique designs and sophisticated
manufacturing techniques that are generally unavailable or are not cost
effective in the United States. We have excellent and in many instances
long-term relationships with our diverse customer base, which includes, for
example, Marriott International. We recently entered into a three year contract
with Marriott under which we are a preferred supplier of upholstered seating
products for certain of its affiliated lodging chains. We also provide seating
for various retailers, as well as commercial and institutional construction
projects,
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such as professional sports stadiums and arenas. For example, we recently were
selected to provide all luxury sky box seating for a major new professional
sports arena in Los Angeles.
Over the past several years, we have undertaken a number of initiatives to
strengthen and grow our core casual furniture and seating businesses. We have
focused resources on our core business and disposed of non-core or unprofitable
operations. In 1997, we sold our wrought iron furniture business, and in 1998 we
discontinued and sold or liquidated certain of our ready-to-assemble furniture
operations. We also embarked on a focused acquisition program to broaden our
core product offering that, to date, has resulted in the acquisitions of Tropic
Craft, a manufacturer of casual furniture sold into the contract markets, and
Pompeii, a manufacturer of upper-end casual furniture sold into both the
residential and contract markets. We have also implemented a strategic operating
plan to enhance operating efficiencies and controls and improve our market
position. As part of this plan, we reconfigured the manufacturing processes
within the majority of our manufacturing facilities to allow faster product flow
through the plants. In addition, we reallocated production between our two main
seating facilities to achieve increased efficiencies. We believe that these
initiatives have contributed to the increase of our EBITDA margin from 12.9% in
fiscal 1995 to 24.4% on a pro forma basis for the twelve months ended September
24, 1999.
We were incorporated in the state of Florida on September 23, 1994. Our
principal executive offices are located at 160 Village Street, Birmingham,
Alabama 35242, and our telephone number is (205) 408-7600.
COMPETITIVE STRENGTHS
We believe that we have achieved our leading market position by
capitalizing on the following key competitive strengths.
Reputation for Producing High Quality Products. Our reputation for
providing customers with high quality products is built upon our use of superior
structural designs, aesthetic styling, sophisticated manufacturing techniques
and strict quality control standards. Our dedication to quality begins with a
customer-oriented design process that is based upon independent market research
and the involvement of senior management, independent designers, sales
representatives, dealers, our engineering department and suppliers. We also
employ a number of sophisticated manufacturing processes that increase the
quality of our products and differentiate them from those of our competitors.
For example, we use an electrostatically applied ultraviolet cured wood
finishing system that produces one of the most consistent, durable and vibrant
finishes in the industry. Further, to ensure that only the highest quality
products are shipped to our customers, we have established numerous check points
where the quality of all of the products is examined during the manufacturing
process. Our focus on quality is evidenced by our low level of actual warranty
claims which, for the past five years, have approximated only 0.8% of net sales.
Our reputation for producing high quality products is further evidenced by our
receipt of the Casual Furniture Retailer Association's prestigious
"Manufacturer's Leadership Award" three times and being recognized as a finalist
every year since the award was first given in 1990. The criteria for this award
include quality, design, merchandising, customer service and ethics.
Unique Delivery Capabilities. We have tailored our operations to meet the
unique delivery requirements of our customers. On time delivery is critical to
our casual furniture retailers because of their short selling season, general
desire to minimize inventory levels and need to offer their customers products
that will be available at the time of or soon after their purchase. Our
commitment to timely delivery to these retailers is exemplified by our "Quick
Ship" program under which we, rather than the customer, pay the freight charges
if shipment is not made within 15 working days from credit approval of a
customer's order. Since we introduced this program in 1988,
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we have never had to pay freight charges. Our ability to deliver "in time, on
time" is also important to our contract market customers, who must receive our
casual furniture or seating products on a timely basis to meet their own
construction or operating deadlines. We believe that our "Quick Ship" program
and our ability to deliver our products "in time, on time" are unique in the
furniture manufacturing industry and distinguish us from our competitors.
Continual Focus on Customer Service. We are dedicated to providing the
highest level of customer service through our focus on complete customer
satisfaction. We provide a variety of services which are geared towards
assisting our customers to improve the profitability of their business while
strengthening their loyalty to our products. For example, in our casual
furniture segment, we provide retailers with improved terms and extended payment
plans for products ordered prior to the main selling season which ensures them
product availability and slightly lower costs. We also respond to customers'
urgent orders with our "red flag" service which gives such products priority in
our plants throughout the manufacturing process. Moreover, in the event a
customer requests a replacement part that does not need to be manufactured, we
guarantee delivery within 24 hours of our receipt of the order. This level of
customer service is equally important to our seating customers. Since our
seating customers require unique product features, we work closely with them to
provide customized seating products that meet their particular needs. We offer
these customized products quickly and cost effectively through our flexible
manufacturing processes and trained sales staff knowledgeable in the design,
manufacture, variety and decor applications of our products. We also have a
customer service department at each manufacturing plant to respond directly to
customer inquiries.
Efficient Operations and Variable Cost Structure. We continually review
our operations to identify ways to streamline our manufacturing process and
reduce our costs in order to further increase efficiencies and profitability.
Over the past few years, we have
- improved our manufacturing capabilities through the use of
technologically advanced systems,
- optimized our use of vertical integration and outsourcing, as
appropriate,
- exited lower margin or non-core businesses, and
- extensively reconfigured manufacturing processes within our principal
manufacturing facilities.
We operate our business with a highly variable cost structure so we can
react quickly to significant changes in market conditions. Our manufacturing and
other operations can be rapidly adjusted, as appropriate, to reduce labor, raw
materials, general administrative and other costs. These variable costs
represent the majority of our total operating expenses. Historically, our
variable cost structure, combined with our flexible manufacturing capabilities,
has allowed us to maintain our profit margins during periods of market weakness.
Experienced Management Team with Significant Ownership. Our experienced
and dedicated management team has been instrumental in our success and
represents one of our key competitive advantages. Each member of our senior
management team has worked with us for over 10 years and has extensive
experience in the furniture manufacturing industry. Bobby Tesney, our President
and Chief Executive Officer, leads our management team and has over 20 years of
industry experience. We also benefit from the experience and expertise of
Trivest, a private investment firm specializing in acquisitions,
recapitalizations and other principal investing activities, which has been an
investor in WinsLoew and its predecessors since 1985. Trivest provides strategic
consulting, acquisition and other advice to us. Earl Powell, president and chief
executive officer of Trivest, has served as Chairman of the Board of WinsLoew
and its predecessors for over 10 years. Trivest's investment partnerships and
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other affiliated and associated individuals beneficially own approximately 93.8%
of our capital stock and members of senior management beneficially own
approximately 5.1% of our capital stock.
GROWTH STRATEGY
Our strategic objective is to further enhance our leading market position
in the residential and contract furniture markets. We plan on achieving this
objective through the continued implementation of the following strategies:
Increase Penetration of Existing Customers. We are constantly working on
ways to increase our sales to our existing customer base. We believe that we can
increase our penetration of existing customers by continuing to emphasize high
quality products, timely delivery and customer service together with
innovatively styled new product designs. For example, through these focused
efforts our specialty retail customers are dedicating increased retail floor
space to our casual furniture products, which generates increased sales for our
products. Similarly, we began selling seating products to a single Marriott
lodging chain in the early 1990's, and today, due to our consistently superior
performance, we are a preferred provider of seating products to Marriott and
several of its affiliated lodging chains.
Attract New Customers. We have undertaken a number of programs to expand
our customer base in existing and new markets. Examples of these efforts include
the use of specific market focused sales personnel, private labeling and the
targeting of national specialty stores. In our seating business, we are in the
process of establishing dedicated sales groups to focus on attractive specialty
end markets. We established our first such group to focus exclusively on selling
seating products in the lodging industry. As a result of this effort, we have
entered into an agreement with another national lodging chain to be a preferred
supplier for its seating products. Through our private labeling program, we are
seeking to take advantage of the trend towards outsourcing by selling our
seating products to several nationally recognized designers of office furniture
systems who in turn sell our products under their own brand name. In the
residential market, we are targeting national specialty stores that offer home
design products, including casual furniture. The penetration of these national
specialty retailers allows us to take advantage of new, expanding distribution
channels and capitalize on the significant marketing clout of these retailers
without significantly increasing our selling and marketing expenses or
cannibalizing our existing customer base.
Selectively Introduce New Products. We annually update and expand our
product line with new designs and styles, as well as periodically introduce
complementary products. Each year we undergo a design process that results in
the introduction of newly designed products that make up a meaningful portion of
our product offering. Our design process involves personnel from all areas of
the Company including senior management, manufacturing and sales, as well as our
distributors and sales representatives in an effort to design new furniture
styles which are attractive and innovative while cost effective to manufacture
and have a higher likelihood of success. We also periodically add new products
that complement our existing product offering. For example, we recently expanded
our product line to include tables for lobbies and other common areas in the
hospitality industry.
Selectively Pursue Complementary Acquisitions. We continually review
acquisition opportunities that augment or complement our existing operations or
provide entry into new geographic markets. We also seek to improve the
efficiency of our recent acquisitions by reducing overhead, leveraging sales and
distribution, achieving raw material purchasing savings and improving
manufacturing operations. Tropic Craft for example, which was acquired in 1998,
provided us with an increased presence in the contract market for casual
furniture. Pompeii, which we acquired on July 30, 1999, provides us with a
leading brand in the upper end of the casual furniture market and a significant
opportunity to achieve operating efficiencies.
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INDUSTRY DYNAMICS AND TRENDS
We believe that we are well positioned to take advantage of the following
industry dynamics and trends impacting our core business segments.
CASUAL FURNITURE
Highly Fragmented. The casual furniture industry is highly fragmented and
includes a large number of manufacturers, none of which individually accounts
for a significant market share. The casual furniture industry is served by a
large number of relatively small private companies, most of which have sales
under $50.0 million. We believe that the fragmented nature of the industry
provides larger and well capitalized companies, such as us, an opportunity to
grow internally through increasing market share and externally through
acquisitions.
Favorable Demographics. The majority of U.S. household outdoor furniture
purchases are estimated to be made by households headed by 25 to 54 year olds.
We believe that the large baby boom population is driving increased spending by
this age group. In addition, we believe than an increase in vacation and second
home purchases is also contributing to increased casual furniture purchases.
Such homes are frequently located in warm climates and generate casual furniture
purchases.
Foreign Competition. In recent years there has been an increased level of
imports in the U.S. outdoor and casual furniture market. However, these foreign
manufacturers generally compete in the lower end of the market, in which we do
not participate, as they have been unable to provide the service, quality and
timely delivery required by the middle to upper end of the market. As a result,
we have not been, and do not expect to be, significantly impacted by foreign
competitors.
Dominated by Metal Products. The U.S. casual furniture market is dominated
by metal product lines, primarily aluminum. Metal products have increased in
popularity during the 1990s due to rising consumer preference for higher quality
casual furniture products, such as the aluminum products we manufacture. This
increase in popularity, combined with rising demand and the lower levels of
competition from low-cost imports, have resulted in rising demand for our casual
furniture.
SEATING PRODUCTS
Highly Fragmented. The contract markets for seating products that we
operate in are served by a number of divisions of large public and private
companies as well as a large number of relatively small, privately-held regional
companies. As in the casual furniture sector, we believe that the fragmented
nature of the industry provides larger and well capitalized companies such as
us, an opportunity to grow internally through increasing market share and
externally through acquisitions.
Diverse End Markets. The market for seating products is characterized by a
wide variety of diverse end markets which include offices, hotels and motels,
restaurants, country clubs, apartments, schools, healthcare facilities, retail
stores, municipalities and sports arenas. We sell our seating products into each
of these end markets. Therefore, we believe that we are not dependent on any
particular end market.
Replacement, Refurbishment and New Construction. The demand for new
seating products is generated by ongoing replacement of existing furniture,
refurbishment of existing facilities and construction of new facilities. Based
on our experience and knowledge of the industry, we believe that the demand for
seating products is primarily driven by refurbishment and ongoing replacement
rather than new construction due to the relatively large installed base. For
example, in the hotel sector, according to industry sources, there are
approximately 3.8 million hotel rooms in the United States,
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of which approximately 90% are refurbished every seven years, versus
approximately 100,000 new rooms constructed annually. We target each of these
segments, altering our focus based upon market conditions.
HISTORY
We were formed in December 1994 through the merger of Winston Furniture
Company, Inc., a designer, manufacturer and distributor of casual furniture for
both the residential and contract markets, and Loewenstein Furniture Group,
Inc., a manufacturer of seating products for the contract markets and of
ready-to-assemble furniture products, with and into WinsLoew Furniture, Inc., a
newly-formed corporation that was organized for the purpose of the merger. Prior
to that merger, Winston and Loewenstein were publicly held corporations whose
common stock traded on the Nasdaq National Market. From January 1995 through
August 1999, we were a publicly held corporation, and our common stock traded on
the Nasdaq National Market.
During the fourth quarter of 1995, we disposed of the assets of our office
seating business. During the third quarter of 1997, we disposed of certain
assets of our wrought iron furniture manufacturing business in the casual
furniture product line. During 1997, we adopted a plan to dispose of our three
ready-to-assemble furniture businesses and recorded a pretax non-cash charge
totaling $12.4 million in the fourth quarter of 1997 relating to the disposal of
our ready-to-assemble operations. During 1998, we sold one of the businesses,
completed the liquidation of a second, our futon business, and decided to retain
the third ready-to-assemble business, Southern Wood, due to improved
profitability and, accordingly, have reclassified our Southern Wood results to
continuing operations. During the third quarter of 1998, we acquired the stock
of Tropic Craft, a manufacturer of aluminum casual outdoor furniture sold into
contract markets. In July 1999, we acquired Pompeii, a manufacturer of upper-end
aluminum casual furniture sold into the contract and residential markets. See
notes 2 and 3 of our audited consolidated financial statements and note 7 of our
unaudited interim consolidated financial statements for additional information
with respect to our discontinued operations, acquisitions and dispositions.
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PRODUCTS AND MARKETS
We design, manufacture and distribute three principal product lines: casual
furniture designed for residential, commercial and institutional use; seating
products designed for commercial and institutional use; and ready-to-assemble
furniture designed for household use. On a pro forma basis, for the twelve
months ended September 24, 1999, our casual, seating and ready-to-assemble
furniture products accounted for 49.3%, 42.1% and 8.6%, respectively, of our net
sales. The following is a summary of our principal products, customers and
markets:
<TABLE>
<CAPTION>
PRINCIPAL CUSTOMERS
BRAND PRINCIPAL PRODUCTS AND MARKETS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Winston(R) Casual outdoor furniture, Over 800 active customers,
including chairs, chaise consisting of specialty
lounges, tables, umbrellas patio stores, full-line
and related accessories, furniture retailers and
constructed of extruded and department stores in the
tubular aluminum. residential market.
Texacraft(R) and Tropic Casual outdoor furniture, Lodging and restaurant
Craft(R) including chairs, chaise chains, country clubs,
lounges, tables, umbrellas apartment developers and
and related accessories, managers, architectural
constructed of aluminum, design firms, municipalities
wrought iron, wood and and other commercial and
fiberglass. institutional users in the
contract market.
Pompeii(R) Casual indoor and outdoor Specialty patio stores, fine
furniture, including chairs, furniture stores, design
chaise lounges, tables, showrooms and residential
umbrellas and related designers in the residential
accessories, constructed of market; and architectural
extruded and tubular design firms, commercial
aluminum. design firms and specifiers
and purchasing agents in the
contract market.
Loewenstein(R) Contemporary to traditional Lodging and restaurant
seating products, such as chains, architectural design
wood, metal and upholstered firms, sports facilities,
chairs, sofas and loveseats. schools, healthcare
facilities, office furniture
dealers, retail store
planners and other
commercial and institutional
users in the contract
market.
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL CUSTOMERS
BRAND PRINCIPAL PRODUCTS AND MARKETS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Gregson(R) Traditional seating Office furniture dealers and
products, such as wood, lodging chains in the
metal and upholstered contract market.
chairs, sofas and loveseats.
Southern Wood Products(R) Ready-to-assemble furniture Mass merchandisers and
products, such as book catalog wholesalers.
shelves, entertainment
centers, coffee tables, end
tables and wall units, as
well as case goods, such as
chests of drawers, changing
towers and hutches, all of
which are constructed of
wood.
</TABLE>
We market our casual furniture products, consisting principally of medium
to upper-end casual indoor and outdoor furniture, under the Winston(R),
Texacraft(R), Tropic Craft(R) and Pompeii(R) brand names. We currently
manufacture and sell over 25 separate style collections of casual furniture
products that include traditional, European, and contemporary design patterns.
Within each style collection there are multiple products including chairs,
tables, chaise lounges and accessory pieces such as ottomans, cocktail tables,
end tables, tea carts and umbrellas constructed of extruded, tubular and cast
aluminum, steel, wrought iron, wood and fiberglass. We offer chairs with glider
action, adjustable positions and rocking and swivel motions, as well as a
selection of restaurant and indoor and outdoor seating. Our casual seating
products feature cushions and vinyl strapping in a variety of colors and
patterns. All of our casual furniture products feature a durable painted finish,
which is also offered in a wide selection of colors. The suggested retail prices
for a residential table and four chairs currently range from approximately $700
to $3,500. Our casual furniture is generally used by residential customers
indoors and on patios, decks and poolsides, while our contract customers
generally use our products in restaurants and lodging, as well as for outdoor
purposes.
Our seating products are marketed under the Loewenstein(R) and Gregson(R)
brand names and include over 300 distinct models, ranging from contemporary to
traditional styles, of wood, metal and upholstered chairs, reception area love
seats, sofas and stools. We assemble wood frames and finish them with one of our
numerous standard colors or, if requested, to the customer's specification. Our
metal chairs are available in chrome or in a selection of standard powder coat
finishes. For upholstered products, the customer may select from a number of
catalog fabrics, vinyls and leathers or may specify or supply its choice of
materials. We maintain an inventory of unassembled chair components that enables
us to respond quickly to large quantity orders in a variety of finish and fabric
combinations. Our seating products have a number of commercial and institutional
uses, including seating for in-room lodging, stadium luxury sky boxes,
restaurants, lounges and classrooms. We have excellent and in many instances
long-term relationships with our diverse customer base, which includes, for
example, Marriott International. Moreover, we recently entered into a three year
contract with Marriott, effective January 1, 1999, under which we are a
preferred supplier of upholstered seating products for certain of its
affiliates, including Marriott's Lodging, Senior Living Services and Marketplace
businesses, as well as Host Marriott Services Corporation. See "Risk
Factors -- Significant Customer." In addition, we have entered into an agreement
with another national lodging chain to be a preferred supplier for its seating
products. We also provide seating for various retailers, as well as commercial
and institutional construction projects, such as professional sports stadiums
and arenas. For example, we recently were selected to provide all luxury sky box
seating for a major new professional sports arena in Los Angeles.
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We sell our ready-to-assemble products under the Southern Wood Products(R)
brand name to mass merchandisers and catalog wholesalers. Our ready-to-assemble
products include promotionally priced traditional ready-to-assemble "flatline"
and "spindle" furniture and a new line of fully assembled case goods furniture
products designed for household use. "Flatline" products include
ready-to-assemble items that are constructed of flat pieces of wood, such as
book shelves, entertainment centers and tape storage units. Our "spindle"
products include ready-to-assemble items that are constructed of flat pieces of
wood connected by decorative joints and brackets, such as coffee tables, end
tables, wall units and rolling carts. Case goods products include fully
assembled four drawer chests and three drawer chest and changing towers, with an
optional hutch.
PRODUCT DESIGN AND DEVELOPMENT
We annually update and expand our product line with new designs and styles,
as well as periodically introduce complementary products. Each year we undergo a
design process that results in the introduction of newly designed products that
make up a meaningful portion of our product offering. We use a customer oriented
design process that is based upon independent market research and the
involvement of senior management, independent designers, sales representatives,
dealers, our engineering department and suppliers. We identify trends in shapes,
colors, patterns and other design elements and provide preliminary sketches to
our manufacturing personnel and, in the case of our seating lines, our Italian
suppliers, who in turn engineer the product's construction and produce one or
more prototypes in preparation for actual full-scale production. We generally
introduce new products at national or regional furniture markets. Shipments of
our new designs generally begin in September of each year. Our custom design
capabilities also allow us to modify styles, materials and production in order
to provide customers with products that meet their particular needs.
The design process for our seating products takes advantage of our
long-standing and frequently exclusive relationships with a variety of leading
Italian design firms and manufacturers. These Italian suppliers, which provide
us with component parts for our seating products and are involved in the design
process, have extensive experience in the design, engineering, and production of
contemporary and transitional-styled chairs. They also utilize manufacturing
techniques such as steam bending of solid wood components and intricate joinery,
which are generally unavailable in the U.S. As a result, these suppliers assist
us in distinguishing our seating products from those of our competitors by
enabling us to consistently and cost effectively provide new and updated
products that incorporate unique designs and utilize unique manufacturing
capabilities.
MARKETING AND SALES
We sell our products through both independent manufacturers representatives
and internal sales staff. We sell our residential casual furniture through
approximately 25 independent sales representatives and we sell our seating
products through approximately 40 independent sales representative organizations
that employ approximately 120 sales associates. We have strong relationships
with our independent sales personnel. At Winston and Loewenstein, for example,
our independent sales representatives have been selling our products for an
average of approximately nine years. We primarily use an internal sales staff to
sell our casual furniture products into the contract market, while our
ready-to-assemble products are sold exclusively by independent sales
representatives. Senior management is also involved in the sales process for all
of our furniture products.
Each independent representative:
- promotes, solicits and sells our products in an assigned territory;
- assists in the collection of receivables; and
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<PAGE> 56
- receives commissions based on the net sales made in his or her territory.
We determine the prices at which our products will be sold and may refuse
to accept any orders submitted by a sales representative for credit-worthiness
or other reasons. Our independent representatives do not carry directly
competing product lines.
We have developed a comprehensive marketing program to assist our
representatives in selling our products. Key elements of this program include:
- holding exhibitions at national and regional furniture markets and
leasing year-round showrooms at the Merchandise Mart in Chicago, Illinois
and High Point, North Carolina;
- providing retailers with annual four-color catalogs of our products,
sample materials illustrating available colors and fabrics, point of sale
materials and special sales brochures;
- providing information directly to representatives at annual sales
meetings attended by senior management and manufacturing personnel;
- maintaining a customer service department at each of our manufacturing
facilities which ensures that we promptly respond to the needs and orders
of our customers;
- maintaining regular contact with key retailers; and
- conducting ongoing surveys to determine dealer satisfaction.
MANUFACTURING
We produce our products at eight manufacturing facilities located
throughout the United States. See "-- Properties." We have tailored our
manufacturing processes to each business to maximize efficiencies, create high
quality products and maintain operating flexibility. Our casual furniture
facilities are vertically integrated -- we manufacture our casual furniture
products from basic raw materials such as aluminum rod and fabric. In contrast,
our seating facilities take advantage of outsourcing opportunities -- we
assemble our seating products from wood components received from our Italian and
other suppliers. In both cases, we maintain flexible manufacturing processes
that enable us to:
- minimize finished goods inventory and warehousing costs;
- efficiently expand our product lines to meet the demands of a diverse
customer base; and
- effectively control the cost, quality and production time of our
products.
We believe that our facilities are among the most modern in the furniture
industry and that the efficiencies attributable to these plants are a
significant factor in our relatively low manufacturing costs. These low
manufacturing costs, combined with our philosophy of strict cost controls in all
areas of our operations, have enabled us to continually increase gross margins
and income from operations without the necessity of significant price increases.
CASUAL FURNITURE
In the manufacturing process for our casual furniture products, we cut
extruded aluminum tubes to size and shape or bend them in specially designed
machinery. The aluminum is then welded to form a solid frame, and the frame is
subjected to a grinding and buffing process to eliminate any rough spots that
may have been caused during welding. After this process is completed, the frame
is cleaned, painted in a state-of-the-art powder coating system and heat cured.
We then add vinyl
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strapping, cushions, fabric slings, or other accessories to the finished frame,
as appropriate. We then package the product with umbrellas, tempered glass and
other accessories, as applicable, and ship it to the customer.
We believe that we manufacture the highest quality aluminum casual
furniture in our price range. Unlike manufacturers of lower-end products that
rivet or bolt major frame components, we weld the major frame components of our
aluminum furniture, thereby increasing the durability and enhancing the
appearance of the aluminum product line. Our state-of-the-art powder coated
painting process results in an attractive and durable finish. To ensure that
only the highest quality products are shipped to customers, our quality control
department has established numerous check points where the quality of all of our
aluminum products is examined during the manufacturing process. These processes
allow us to offer a two-year frame and finish guarantee on all of our aluminum
products for residential use.
SEATING
We assemble most of our seating products to order, but do not generally
have the same level of vertical integration as is present in the manufacture of
our casual product lines. Instead, we purchase component parts from a variety of
suppliers, including a number of Italian suppliers. We utilize these component
parts because they enable us to offer sturdy and aesthetically appealing
products, which incorporate unique designs and sophisticated manufacturing
techniques that are generally unavailable or are not cost effective in the
United States. See "-- Product Design and Development" above. The principal
elements of wood chair assembly include:
- frame glue-up;
- sanding;
- seat assembly (in which upholstered seats are constructed from component
bottoms, foam padding and cloth coverings); and
- painting/lacquering.
To provide consistency and speed in this finishing process, we utilize a
state-of-the-art conveyorized paint line with electrostatic spray guns and a
three-dimensional ultraviolet drying system. In particular, Loewenstein's
finishing system applies specially formulated materials via robotic
reciprocators and utilizes three advanced technologies:
- electrostatic finish application, which is designed to ensure that a
significantly higher percentage of the actual finishing material will
adhere to the product, thereby reducing raw material costs;
- ultraviolet finishing materials, which allow a much higher solids
content, thereby reducing environmental concerns and enhancing finish
quality; and
- high-powered ultraviolet light, which can cure chairs in less than 60
seconds, thereby speeding inventory turn-over and reducing warehouse
requirements.
For upholstered products, the specified fabric cloth is stretched to the
chair frame over foam padding. We generally assemble our metal chairs from
imported components. After rework and leveling, we carton our chairs to prevent
damage in transportation. The manufacturing process also includes a number of
product inspections and other quality control procedures.
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READY-TO-ASSEMBLE FURNITURE
For the manufacture of our ready-to-assemble products, which include
"spindle," "flatline" and case goods products, we use high density particle
board, which we laminate with a variety of wood grains and solid colors. For our
"spindle" products, we turn, stain and lacquer all of the spindles and then
individually box the products with spindles and board, along with any necessary
hardware and assembly instructions. For our "flatline" products we individually
box the cut laminated particle board, along with necessary hardware and assembly
instructions. For our case goods products, the edges of the cut laminated
particle board may be "soft formed" for aesthetic value. We then assemble the
unit using glue, screws and hardware, such as self-closing drawer runners, on
all units.
RAW MATERIALS
Our principal raw materials consist of extruded aluminum tubes, woven vinyl
fabrics, paint/finishing materials, vinyl strapping, cushion filler materials,
cartons, glass table tops, component parts for seating, particle board and other
lumber products and hardware. Although we have no long-term supply contracts, we
generally maintain a number of sources for our raw materials and have not
experienced any significant problems in obtaining adequate supplies for our
operations. In addition, increases in the cost of our raw materials, such as
fluctuations in the costs of aluminum, lumber and other raw materials have not
historically had a material adverse effect on our results of operations because
we are generally able to pass through such increases in raw material costs to
our customers over time through price increases. We believe that our policy of
maintaining several sources for most supplies and our large volume purchases
contribute to our ability to obtain competitive pricing. Nevertheless, the
market for aluminum is, from time to time, highly competitive, and its price, as
a commodity, is subject to market conditions beyond our control. Accordingly,
future price increases could have a material adverse effect on our business,
financial condition, results of operations or prospects.
A significant portion of the Loewenstein raw materials consist of component
chair parts purchased from several Italian manufacturers. We view our suppliers
as "partners" and work with such suppliers on an ongoing basis to design and
develop new products. We believe that these cooperative efforts, our
long-standing relationships with these suppliers and our experience in
conducting on-site, quality control inspections provide us with a competitive
advantage over many other furniture manufacturers, including a competitive
purchasing advantage in times of product shortages. In addition, in the case of
our Italian suppliers, we generally contract for our purchases of such component
parts in such manner as to minimize our exposure to foreign currency
fluctuations. We have close working relationships with our foreign suppliers and
our future success may depend, in part, on maintaining these or similar
relationships. Given the special nature of the manufacturing capabilities of
these suppliers, in particular certain wood-bending capabilities, and sources of
specialized wood types, our Loewenstein division could experience a disruption
in operations in the event of any replacement of such suppliers. Situations
beyond our control, including political instability, significant and prolonged
foreign currency fluctuations, economic disruptions, the imposition of tariffs
and import and export controls, changes in government policies and other factors
could have a material adverse effect on our business, financial condition,
results of operations or prospects.
BACKLOG
As of September 24, 1999, our backlog of orders was approximately $27.2
million, compared to $25.3 million at September 25, 1998. In accordance with
industry practice, we generally permit orders to be canceled prior to shipment
without penalty. We do not consider backlog to be predictive of
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<PAGE> 59
future sales activity because of our short manufacturing cycle and delivery
time, and, especially in the case of casual furniture, the seasonality of sales.
COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies which
compete directly with us may have greater financial and other resources than we
do. Based on our extensive industry experience, we believe that competition in
casual furniture and seating is generally a function of product design,
construction quality, prompt delivery, product availability, customer service
and price. Similarly, management believes that competition in our promotional
price niche of the ready-to-assemble furniture industry is limited, and is based
primarily on price, product availability, prompt delivery and customer service.
We believe that we successfully compete in the furniture industry primarily
on the basis of our innovatively styled product offerings, our unique delivery
capabilities, the quality of our products, and our emphasis on providing high
levels of customer service. We believe that our residential casual product line
has a leading share of the casual furniture market in the geographic region east
of the Mississippi River.
While sales of imported, foreign-produced casual furniture have increased
significantly in recent years, our sales have not been adversely affected
because our products generally do not compete with such foreign products, which
are typically: (i) limited in design, styles and colors, (ii) of lesser quality
than our products, (iii) marketed in the lower-end price range and (iv) not
supported with competitive customer service and responsiveness to customers'
needs for quick delivery.
In the seating segment, we compete with many manufacturers, ranging from
large, national, publicly traded entities to small, one-product firms selling to
small, geographic markets.
TRADEMARKS AND PATENTS
We have registered the Winston(R), Loewenstein(R), Gregson(R), Pompeii(R)
and Southern Wood Products(R) trademarks with the United States Patent and
Trademark Office. We believe that our trademark position is adequately protected
in all markets in which we do business. We also believe that our various trade
names are generally well recognized by dealers and distributors, and are
associated with a high level of quality and value.
We hold several design and utility patents. However, it is no longer our
policy to apply for design and utility patents, as we do not believe that they
are of significance to our business.
ENVIRONMENTAL MATTERS
We believe that we comply in all material respects with all applicable
federal, state and local provisions relating to the protection of the
environment. The principal environmental regulations that apply to us govern air
emissions, water quality and the storage and disposition of solvents. In
particular, we are subject to environmental laws and regulations regarding air
emissions from paint and finishing operations and wood dust levels in or
manufacturing operations. As is typical of the furniture manufacturing industry,
our finishing operations use products that may be deemed hazardous and that pose
and inherent risk of environmental contamination. Compliance with environmental
protection laws and regulations has not had a material adverse impact on our
financial condition or results of operations in the past and we do not expect
compliance to have a material adverse impact in the future.
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PROPERTIES
The following table provides information with respect to each of our
properties:
<TABLE>
<CAPTION>
OWNED
LOCATION PRIMARY USE SQUARE FEET OR LEASED
- -------- ----------- ----------- ---------
<S> <C> <C> <C>
Birmingham, AL............ Corporate headquarters 9,800 Owned
Haleyville, AL............ Casual furniture manufacturing and offices 155,000 Owned
Haleyville, AL............ Casual furniture and manufacturing 218,000 Owned
Haleyville, AL............ Casual furniture warehouse 20,000 Owned
Haleyville, AL............ Casual furniture sewing plant 30,000 Owned
Chicago, IL............... Casual furniture merchandise mart showroom 12,000 Leased(1)
High Point, NC............ Casual furniture showroom 6,000 Leased(2)
Houston, TX............... Casual furniture manufacturing and offices 89,500 Leased(3)
Miami, FL................. Casual furniture manufacturing and offices 220,400 Leased(4)
Ocala, FL................. Casual furniture manufacturing and offices 49,000 Owned
Pompano Beach, FL......... Seating manufacturing and offices 100,000 Owned
Pompano Beach, FL......... Seating warehouse 6,500 Leased(5)
Liberty, NC............... Seating manufacturing and offices 126,000 Owned
Chicago, IL............... Seating merchandise mart showroom 5,500 Leased(6)
Ready-to-assemble manufacturing and
Sparta, TN................ offices 94,300 Owned
Ready-to-assemble manufacturing and
Sparta, TN................ offices 63,300 Owned
</TABLE>
- -------------------------
(1) Lease expires August 31, 2002.
(2) Lease expires March 16, 2002.
(3) Lease expires April 15, 2005.
(4) Lease expires August 1, 2018.
(5) Lease is month-to-month.
(6) Lease expires June 30, 2001.
We believe that our manufacturing facilities in the casual furniture and
seating product lines are currently operating, in the aggregate, at
approximately 75% of capacity, assuming a one-shift basis. Management considers
our present manufacturing capacity to be sufficient for the foreseeable future
and believes that, by adding multiple shift operations, we can significantly
increase the total capacity of our facilities to meet growing product demand
with minimal additional capital expenditures. In addition, we engage in an
ongoing maintenance and upgrading program, and consider our machinery and
equipment to be in good condition and adequate for the purposes for which they
are currently used.
EMPLOYEES
At September 24, 1999, we had approximately 1,215 full-time employees, of
whom 32 were employed in management, 134 in sales, general, and administrative
positions, and 1,049 in manufacturing, shipping, and warehouse positions. Our
full-time employees at September 24, 1999 included approximately 1,024 hourly
and 191 salaried employees.
The only employees subject to collective bargaining agreements are
approximately 119 of our hourly employees in Haleyville, Alabama, who are
represented by the Retail, Wholesale, and Department Store Union. The labor
agreement between WinsLoew and the union, which expires on
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July 31, 2001, provides that there shall be no strikes, slowdowns or lockouts.
We have not experienced any work stoppages, and we consider our employee
relations to be good.
LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and other claims
arising in the ordinary course of our business. We maintain insurance coverage
against potential claims in an amount which we believe to be adequate. Based
primarily on discussions with counsel and management familiar with the
underlying disputes and except as described below, we believe that we are not
presently a party to any litigation, the outcome of which would have a material
adverse effect on our business, financial condition, results of operations or
future prospects.
We and the members of our board of directors have been named as defendants
in a lawsuit filed on March 25, 1999 in the Circuit Court of Jefferson County,
Alabama, styled Craig Smith v. WinsLoew Furniture, Inc., et al. The lawsuit
purports to be brought as a class action on behalf of all of our shareholders
prior to the merger except the defendants and was filed in connection with the
merger. However, the complaint filed in the lawsuit has not been amended to
reflect the increase in the per share merger consideration from $30.00 to $34.75
subsequent to the filing of the complaint.
The principal substantive allegations set forth in the complaint are that
(i) the individual defendants breached fiduciary duties of care and loyalty owed
by them as directors to the shareholder plaintiffs, (ii) Mr. Powell and other
members of our "management group" breached fiduciary duties owed by them as
allegedly controlling shareholders to our other shareholders by, among other
things, attempting to acquire 100% equity ownership of WinsLoew for an allegedly
"grossly inadequate price" at the alleged expense of our other shareholders,
(iii) our announcement of the initial $30.00 per share bid by Trivest Furniture
Corporation failed to disclose improving growth prospects, (iv) by virtue of the
equity holdings of our "management group" and their alleged "overwhelming
control" of our board of directors, third parties were practically precluded
from making competing bids, and (v) the initial per share merger consideration
of $30.00 per share was unconscionable, unfair and grossly inadequate and the
terms of the merger constituted an unfair and illegal business practice upon our
then minority shareholders. No other per share amount is specified in the
complaint.
The relief sought by the plaintiff is that (i) the court declare the
lawsuit to be a class action and certify the plaintiff as class representative
and his counsel as class counsel, (ii) the merger be enjoined or, if not
enjoined, that the plaintiffs be granted rescission and rescissionary damages,
(iii) the plaintiff and the alleged class be awarded damages, (iv) the plaintiff
be awarded costs and disbursements of bringing the lawsuit, together with fees
and expenses of the plaintiff's counsel and experts, and (v) the plaintiff and
the alleged class be granted such other relief as the court shall deem just and
proper. The complaint does not specify the amount of any damages sought.
We have forwarded a claim with respect to this matter to our directors' and
officers' insurance carrier and, with the approval of such carrier, have
retained legal counsel to represent us and the members of our board of
directors. We believe that the claims set forth in the lawsuit are without merit
and we intend to vigorously defend this lawsuit.
On June 14, 1999, we and the members of the board of directors filed a
motion to dismiss the lawsuit or, in the alternative, to grant summary judgment
in our favor. After a hearing held on November 11, 1999, the court granted our
motion to dismiss but gave the plaintiff 30 days' leave to file an amended
complaint.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF WINSLOEW
After the merger, our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Earl W. Powell.................................. 60 Chairman of the Board
Bobby Tesney.................................... 55 President, Chief Executive Officer and
Director
R. Craig Watts.................................. 46 Executive Vice President -- Seating
Jerry C. Camp................................... 33 Executive Vice President -- Casual Furniture
Vincent A. Tortorici, Jr........................ 45 Vice President and Chief Financial Officer
Rick J. Stephens................................ 45 Vice President -- Operations
William F. Kaczynski, Jr........................ 39 Director
Peter W. Klein.................................. 44 Director
David Solomon................................... 37 Director
</TABLE>
We were incorporated in September 1994, and in December 1994, acquired our
principal operating subsidiaries, Winston and Loewenstein, each of which was a
publicly held corporation whose common stock traded on the Nasdaq National
Market. Our common stock traded on the Nasdaq National Market from December 1994
through August 1999. On August 27, 1999, Trivest Furniture Corporation, a newly
formed corporation organized by an investor group led by Trivest, merged with
and into us. In the merger, the shares of Trivest Furniture Corporation were
converted to our shares, and all other shares of our common stock were converted
into the right to receive $34.75 per share in cash. As a result of the merger,
the shareholders of Trivest Furniture Corporation became our sole shareholders.
See "The Merger." Each of our directors and executive officers, other than Mr.
Solomon, were also directors or executive officers of ours and our predecessors,
Winston or Loewenstein, as described below.
Mr. Powell, our Chairman of the Board since October 1994, serves as
president and chief executive officer of Trivest, which is a private investment
firm specializing in management services and acquisitions, dispositions and
leveraged buyouts, which Mr. Powell and Phillip T. George, M.D. formed in 1981.
Mr. Powell has also served as chairman of the board of Atlantis Plastics, Inc.,
an American Stock Exchange company whose subsidiaries are engaged in the
plastics industry, since founding that company in February 1984, as chief
executive officer of Atlantis from its organization until February 1995 and as
President of Atlantis from November 1993 to February 1995. Mr. Powell has served
as chairman of the board of Biscayne Apparel, Inc., a company whose principal
subsidiaries are engaged in the apparel industry, since October 1985 and
presently serves as chief executive officer of Biscayne. Biscayne filed a
voluntary Chapter 11 bankruptcy petition in February 1999. There is no
established trading market for the common stock of Biscayne. Mr. Powell also
served as chairman of the board of Winston from December 1988 to December 1994,
chairman of the board of Loewenstein from February 1985 to December 1994 and as
Loewenstein's president and chief executive officer from May 1994 to December
1994. From 1971 until 1985, Mr. Powell was a partner with KPMG Peat Marwick,
certified public accountants, where his positions included serving as managing
partner of Peat Marwick's Miami office.
Mr. Tesney, our President, Chief Executive Officer and a director since
October 1994, served as president, chief executive officer and a director of
Winston from December 1993 to December 1994, general manager of Winston from
1985 to December 1993 and as senior vice president -- operations
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of Winston from January to December 1993. Mr. Tesney also served as vice
president of Winston from 1979 until January 1992.
Mr. Watts, our Executive Vice President -- Seating since October 1994,
served as a director of Loewenstein from December 1990 to December 1994, and
became Loewenstein's executive vice president -- seating in May 1993, after
serving as vice president since May 1991. Mr. Watts also serves as the president
and chief operating officer of our Loewenstein and Gregson divisions, and has
served in a number of management positions since joining Loewenstein in April
1981.
Mr. Camp, our Executive Vice President -- Casual Furniture since October
1999, served as our Vice President -- Casual Furniture Operations from May 1999
to October 1999, served as our Vice President -- Operations from September 1998
to May 1999, served as our Director of Safety, Environmental and Human Resources
from October 1994 to September 1998, served as director of engineering at
Winston from September 1988 to October 1994, and served in various other
capacities with Winston, including project engineer, from May 1984 to September
1988.
Mr. Tortorici, our Vice President and Chief Financial Officer since October
1994, served as Winston's vice president -- finance and administration and chief
financial officer from March 1988 to December 1994. Mr. Tortorici is a certified
public accountant and was employed by Arthur Andersen & Co. from 1976 until
March 1988.
Mr. Stephens, our Vice President -- Operations since May 1999, served as
vice president -- operations at Winston from January 1995 to May 1999 and served
as vice president and general manager at Winston from December 1993 to January
1995.
Mr. Kaczynski, a director since January 1998, has served as an executive
officer of Trivest since January 1998 and is presently a managing director. From
July 1996 until December 1997, he was chief financial officer of WebSite
Management Corp. d/b/a FlashNet Communications, an Internet service provider.
From June 1994 until June 1996, he was chief financial officer of Colorado
Mountain Express, Inc., an airport transportation company. Mr. Kaczynski was an
employee of Heller Financial, Inc. from 1986 until 1994, where he most recently
served as senior vice president -- corporate finance group, in Dallas, Texas.
Mr. Klein, a director since October 1994, served as a director of Winston
from December 1988 to December 1994 and as a director of Loewenstein from May
1993 to December 1994. Mr. Klein has served as an executive officer of Trivest
since May 1986 and is presently a managing director and general counsel. Prior
to joining Trivest, Mr. Klein practiced law in Chicago, Illinois and Cleveland,
Ohio.
Mr. Solomon, a director since September 1999, is a managing director with
Goldman, Sachs & Co. He joined Goldman, Sachs in September 1999 as co-head of
the firm's leveraged finance businesses in the Fixed Income Currencies &
Commodities division. From January 1991 until September 1999 Mr. Solomon worked
at Bear, Stearns & Co., Inc., most recently as a member of its Management &
Compensation Committee and co-head of the Investment Banking Division. Prior to
joining Bear Stearns, Mr. Solomon worked at Salomon Brothers and at Drexel
Burnham Lambert in various capacities in each firm's high yield businesses.
Prior to joining Drexel Burnham Lambert, Mr. Solomon worked for Irving Trust
Company in its financial institutions group and Irving Securities, Inc.
DIRECTOR COMPENSATION
We pay each non-employee director an annual retainer of $12,000, payable in
quarterly installments of $3,000, and a $500 fee for each meeting of the board
of directors attended. We reimburse all directors for all travel-related
expenses incurred in connection with their activities as directors.
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<PAGE> 64
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to our chief executive officer and each of our other executive officers,
including a former executive officer who was serving as an executive officer at
December 31, 1998, whose total 1998 salary and bonus was $100,000 or more. Our
Chief Executive Officer and the other executive officers are referred to herein
as the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ---------------
NAME AND FISCAL OTHER ANNUAL NUMBER OF
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS GRANTED
- ------------------ ------ -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Bobby Tesney......................... 1998 $250,150 $250,150 $88,471 --
President and Chief Executive 1997 245,000 183,750 49,221 40,000
Officer 1996 216,400 162,300 28,240 0
Stephen C. Hess(2)................... 1998 204,200 173,570 42,256 --
1997 200,000 150,000 20,935 30,000
1996 178,218 133,663 18,606 0
Jerry C. Camp........................ 1998 94,096 28,800 7,820 --
Executive Vice President -- 1997 85,770 8,900 5,908 5,000
Casual Furniture 1996 71,850 7,185 5,195 --
Vincent A. Tortorici, Jr............. 1998 148,050 96,233 12,845 --
Vice President and 1997 145,000 72,500 12,669 25,000
Chief Financial Officer 1996 129,900 64,950 8,718 0
R. Craig Watts....................... 1998 185,824 157,803 21,067 --
Executive Vice President -- Seating 1997 181,830 136,373 19,343 25,000
1996 166,138 121,103 20,357 0
Rick J. Stephens..................... 1998 123,552 61,776 9,121 0
Vice President -- Operations 1997 120,240 48,096 7,567 7,500
1996 106,124 42,565 7,277 0
</TABLE>
- -------------------------
(1) "Other Annual Compensation" represents amount paid by us on behalf of the
Named Executive Officer under our Non-Qualified Supplemental Executive
Retirement Plan established in October 1996. Under the terms of this Plan,
selected employees make after-tax contributions of their salary to one or
more investment alternatives available under such Plan. We then match the
employee contribution, up to 10% of compensation on an after-tax basis,
depending on the employee's length of service, up to 100% for 20 years of
continuous service. The employee is vested at all times in the deferred
compensation and is vested immediately in the matching contribution.
(2) Former Executive Vice President -- Casual Furniture.
STOCK OPTIONS
No stock options were granted to any Named Executive Officers in 1998. Upon
the consummation of the merger on August 27, 1999, all outstanding options were
cancelled, with holders entitled to payment of the difference between the option
exercise price and $34.75. See "The Merger." We have no stock option plans or
outstanding stock options.
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<PAGE> 65
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning unexercised
stock options held by the Named Executive Officers as of December 31, 1998. No
stock options were exercised by such persons during 1998. All "Unexercisable"
options became fully exercisable and were canceled in exchange for cash payments
as a result of our recent merger.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bobby Tesney......................... 73,000 52,000 $1,263,625 $922,000
Stephen C. Hess...................... 51,000 34,000 849,750 589,000
Jerry C. Camp........................ 4,500 4,000 68,063 64,000
Vincent A. Tortorici, Jr. ........... 30,000 30,000 536,250 525,000
R. Craig Watts....................... 55,175 30,000 1,020,335 525,000
Rick J. Stephens..................... 7,500 17,500 258,563 178,000
</TABLE>
401(K) PLAN
Effective January 1, 1997, we established the WinsLoew Furniture, Inc.
401(k) Plan. Our employees and our subsidiaries' employees are eligible to
participate in the 401(k) Plan following the later to occur of (i) the
employee's completion of one year of service or (ii) the employee's 21st
birthday. Eligible employees may make a salary reduction contributions to the
401(k) Plan on a pretax basis. For each calendar year, we and the other
participating employees may make matching contributions to the 401(k) Plan based
on a discretionary matching percentage to be determined each year by management.
In addition, we and the other participating employers may make a discretionary
profit sharing contribution to the plan on behalf of each participant who
completes more than 500 hours of service during the year or who is employed on
the last day of the year. This latter contribution is allocated proportionately
based on each participants compensation. An employee's vested benefits are
payable upon his retirement, death, disability, or other termination of
employment or upon the attainment of age 59 1/2. An employee is always fully
vested in his account balance attributable to his own contributions to the
401(k) Plan. The employee's interest in the account attributable to his
employers contributions and earnings thereon becomes fully vested upon the
earlier of the attainment of his normal retirement date (age 65), his death, his
permanent and total disability, or his completion of six years of service. If an
employee terminates employment for reasons other than retirement, death, or
disability, his vested interest is based on a graduated vesting schedule which
provides for 20% vesting after two years of service and 20% for each year
thereafter. Employees forfeit nonvested amounts.
LONG TERM INCENTIVE AND PENSION PLANS
We have no long term incentive or pension plans.
EMPLOYMENT AGREEMENTS
We have entered into five-year employment agreements with each of Messrs.
Tesney, Watts and Tortorici effective as of August 27, 1999. The employment
agreements provide for us to pay Mr. Tesney a 1999 base salary of $275,000, Mr.
Watts a 1999 base salary of $195,650 and Mr. Tortorici a 1999 base salary of
$162,000. The employment agreements provide for us to pay
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Mr. Tesney a 2000 base salary of $300,000, Mr. Watts a 2000 base salary of
$205,650 and Mr. Tortorici a 2000 base salary of $175,000, in each case subject
to subsequent annual cost of living adjustments. The employment agreements also
provide for annual incentive compensation payments of up to a specified portion
of the executive's then base salary, 100% in the case of Mr. Tesney, 85% in the
case of Mr. Watts, and 65% in the case of Mr. Tortorici, based on the operating
earnings, adjusted to exclude the effect of goodwill amortization, of (1)
WinsLoew, in the case of Messrs. Tesney and Tortorici, and (2) our seating
divisions, in the case of Mr. Watts. None of these officers will receive any
incentive compensation payment under his employment agreement for any particular
year unless the relevant operating earnings for such year are at least 75% of
the target earnings for such year. Each employment agreement also provides that
the executive will receive six months base salary if his employment is
terminated without cause as defined in the employment agreements, and prohibits
the executive from directly or indirectly competing with us for one year after
termination of his employment, or, if he is terminated by us without cause, six
months after termination.
SEVERANCE AGREEMENTS
On August 27, 1999 we entered into severance agreements with each of
Messrs. Tesney and Tortorici, under which we have agreed to provide them with
severance pay and benefits if their employment is terminated by us following a
change in control as defined in the agreement. Under each agreement, if we
terminate employment either for cause as defined in the agreement, because of
the employee's death, or if the employee terminates his employment other than
for good reason as defined in the agreement, following a change in control, we
must pay the employee his full base salary through the date of termination plus
all other benefits he may be entitled to under any retirement plan we may then
have.
If, on the other hand, at any time during the 180 day period following a
change in control we terminate the employee's employment other than for cause or
due to their disability, as these terms are defined in the agreement, or if the
employee terminates his employment during this period for good reason as defined
in the agreement, we must pay the employee his full base salary through the date
of termination, any accrued bonus and a lump sum severance payment equal to his
annual salary. Additionally, we must provide life, disability, accident and
group health insurance benefits substantially similar to those provided to the
employee prior to termination of employment for a period of one year after
termination, at a cost to the employee no greater than the cost prior to
termination. The employee's rights under any retirement plan we may then have
will be governed by the terms of the plan. We must also pay the employee's legal
fees and expenses incurred by him as a result of termination of his employment.
We must make these severance payments not later than the fifth day following
termination.
The agreements remain in effect through December 31, 2000 and are
automatically extended for additional one-year periods unless we provide notice
by October 1 of the preceding year that we do not wish to extend the agreements,
and provided that if a change in control occurs during the original or extended
term of the agreements, the agreements will continue in effect for not less than
180 days after the last day of the month in which the change in control
occurred.
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PRINCIPAL SHAREHOLDERS
We have outstanding 780,000 shares of common stock. The following table
sets forth information regarding the beneficial ownership of our common stock by
(1) each person known by us to beneficially own more than 5% of the outstanding
shares, (2) each of our directors who owns any shares, (3) each Named Executive
Officer, and (4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK(1)(2)
-----------------------------
NUMBER OF SHARES PERCENTAGE
---------------- ----------
<S> <C> <C>
Earl W. Powell(3)(4)........................................ 718,729 89.4%
Phillip T. George, M.D.(3)(5)............................... 321,443 40.0
Trivest II, Inc.(6)......................................... 377,081 46.9
Trivest Equities, Inc.(7)................................... 311,648 38.8
Bobby Tesney................................................ 11,580 1.4
R. Craig Watts.............................................. 9,000 1.1
Vincent A. Tortorici, Jr.................................... 7,000 0.9
Rick J. Stephens............................................ 7,000 0.9
Jerry C. Camp............................................... 2,000 0.3
All directors and executive officers as a group (7
persons)(8)............................................... 765,104 98.1%
</TABLE>
- -------------------------
(1) Except as otherwise indicated below, the address of each beneficial owner is
160 Village Street, Birmingham, Alabama 35242.
(2) Except as otherwise indicated below, all shares are owned directly and each
person has sole voting and investment power with respect to all shares. In
computing the aggregate number of shares beneficially owned by the
individual shareholders and groups of shareholders described above and the
percentage ownership of such individuals and groups, the 24,129 shares of
common stock issuable upon the exercise of the currently exercisable
warrants issued with the original notes are deemed to be outstanding.
(3) The beneficial owner's address is 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33133.
(4) Includes 30,000 shares held of record directly, 377,081 shares held of
record by Trivest Furniture Partners, Ltd. and 311,648 shares held of record
by Trivest Fund II Group, Ltd. See notes (6) and (7) below.
(5) Includes 9,795 shares held of record directly and 311,648 shares held of
record by Trivest Fund II Group, Ltd. See notes (6) and (7) below.
(6) Includes 377,081 shares held of record by Trivest Furniture Partners, Ltd.,
a privately-held investment partnership. Trivest II, Inc. serves as the sole
general partner of TFP, Ltd., which in turn is the sole general partner of
Trivest Furniture Partners, Ltd. Mr. Powell is its sole director and
controlling shareholder.
(7) Includes 311,648 shares held of record by Trivest Fund II Group, Ltd., a
privately-held investment partnership. Trivest Equities, Inc. serves as the
sole general partner of Trivest Fund II Group, Ltd. Messrs. Powell and
George are executive officers and the sole directors of Trivest Equities,
Inc. Mr. Powell is its controlling shareholder.
(8) Includes 377,081 shares held of record by Trivest Furniture Partners, Ltd.
and 311,648 shares held of record by Trivest Fund II Group, Ltd. See notes
(6) and (7).
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CERTAIN TRANSACTIONS
INVESTMENT SERVICES AGREEMENT WITH TRIVEST
In December 1994, we entered into a ten-year investment services agreement
with Trivest, pursuant to which Trivest provided us with corporate finance,
strategic and capital planning and other management advice, including (1)
conducting relations on our behalf with accountants, attorneys, financial
advisors and other professionals, (2) providing reports to us with respect to
the value of our assets, and (3) rendering advice with respect to acquisitions,
dispositions, financings and refinancings. Under the investment services
agreement, Trivest received a base annual fee of $0.5 million in 1994, subject
to annual cost-of-living increases. In addition, for each additional business we
acquired, Trivest's base compensation generally increased by the greater of (1)
$0.1 million, and (2) the sum of 5% of the additional business' projected annual
earnings before income taxes, interest expense and amortization of goodwill, or
EBITA, for the fiscal year in which it was acquired, up to $2.0 million of
EBITA, plus 3.5% of EBITA in excess of $2.0 million. Moreover, subject to the
approval of our board, including a majority of disinterested directors, for each
acquisition or disposition of any business operation by us introduced or
negotiated by Trivest, we generally paid Trivest a fee of up to 3% of the
purchase price. We paid Trivest an aggregate of approximately $0.6 million in
1996, $0.6 million in 1997 and $0.9 million in 1998 under the investment
services agreement. We paid Trivest a fee of approximately $0.4 million in
connection with the closing of the Pompeii acquisition in July 1999.
MERGER WITH TRIVEST FURNITURE CORPORATION
In August 1999, Trivest Furniture Corporation merged with and into us. We
are the surviving corporation of the merger. Trivest Furniture Corporation was a
newly formed corporation organized by an investor group led by Trivest. The
members of our senior management have retained the positions they held prior to
the merger. See "Management." Pursuant to the merger agreement, each holder of
previously outstanding shares of WinsLoew common stock, other than Trivest
Furniture Corporation, received $34.75 per share in cash, without interest, and
the holder of each outstanding option received a cash payment equal to the
difference between $34.75 and the exercise price of the option. The cash merger
consideration, option cancellation payments and related fees and expenses, which
totaled approximately $282.6 million, were provided by (1) an aggregate of $78.0
million in cash and rollover equity contributions valued at $34.75 per share, to
Trivest Furniture Corporation from two private investment partnerships
affiliated with Trivest, individuals affiliated with Trivest, members of our
senior management team, other employees and additional investors, (2) aggregate
borrowings of approximately $95.0 million under our senior credit facility, (3)
the proceeds from the sale of the units consisting of original notes and
warrants and (4) cash on hand of approximately $7.1 million. The members of our
board of directors and senior management team received cash payments in respect
of common stock and options they held prior to the merger and contributed cash
and shares of our common stock to Trivest Furniture Corporation. See "The
Merger."
EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS WITH MEMBERS OF MANAGEMENT
Effective with the merger, our prior employment agreements with each of
Messrs. Tesney, Watts and Tortorici terminated. We have entered into a new
employment agreement with each of Messrs. Tesney, Watts and Tortorici. In
addition, effective with the merger, we entered into severance agreements with
each of Messrs. Tesney and Tortorici providing for payments in the event of
specified change of control events. See "Management."
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MANAGEMENT AGREEMENT WITH TRIVEST
Effective with the merger, we entered into a new ten-year management
agreement with Trivest. Under the management agreement, Trivest provides us with
corporate finance, strategic and capital planning and other management advice
for an annual fee, payable quarterly in advance, of approximately $0.4 million,
subject to annual cost-of-living adjustments. Under the management agreement,
for each additional business operation we acquire that has EBITDA of $2.0
million or more, Trivest's annual base compensation will generally increase by
an amount equal to the greater of (1) $50,000 and (2) an amount determined in
good faith by Trivest and a majority of our disinterested directors. In
addition, for each acquisition of any business operation introduced or
negotiated by Trivest and for each disposition of any of our business operations
negotiated by Trivest, we generally will pay Trivest a fee equal to up to 3.0%
of the purchase price.
FINANCIAL ADVISORY FEE PAID TO TRIVEST
We paid a financial advisory fee to Trivest of $3.0 million when we
completed the merger. Trivest assisted us in (1) reviewing, analyzing and
negotiating the financial and business terms of the merger, (2) negotiating with
and selecting the initial purchasers for the offering of the original notes and
preparing the offering memorandum, (3) obtaining and negotiating our new senior
credit facility, and (4) reviewing the services provided by our attorneys,
accountants and other professionals.
INVESTOR'S AGREEMENT WITH CERTAIN INVESTORS
Effective upon the consummation of the merger, all of our shareholders
listed under "Principal Shareholders," as well as several individuals affiliated
or associated with Trivest, entered into an investors' agreement with us in
connection with the merger and his or its acquisition of our common stock. The
investors' agreement includes "right of first offer," "right of first refusal"
and other restrictions on the ability of the investors to transfer common stock.
The investors' agreement generally provides that Trivest Fund II Group, Ltd.,
one of our new Trivest investors, will afford to the other investors the right
to proportionally participate in proposed transfers of common stock. In
addition, all the other investors agree to participate in sales of common stock
and other significant corporate transactions entered into by Trivest Fund II
Group, Ltd., provided that all investors receive the same consideration for
their common stock. All of the foregoing restrictions will terminate on the date
of an underwritten public offering of common stock in which the aggregate gross
proceeds we receive are at least $20.0 million at a price per share of not less
than $10.00. The investors' agreement also provides that if, subsequent to a
qualified public offering, we determine to effect the registration of any equity
securities under the Securities Act, other than in connection with employee
benefit plans or certain reclassifications, mergers, consolidations or
acquisitions, we will be required to include in the filing, and to use all our
commercially reasonable efforts to register, all or any specified portion of the
registrable shares of common stock held by the investors or their successors or
assigns. The registration rights are subject to certain conditions and
limitations, including our right to reduce pro rata the amount of such
registrable shares included in an underwritten public offering if the
underwriter determines that the aggregate requested participation will adversely
affect the marketing of the securities to be sold. We also agree that, upon the
request of holders of at least 20% of the then outstanding registerable shares
of our common stock, so long as we are able to file a registration statement on
Form S-3 or a successor form, we will use all commercially reasonable efforts to
effect the registration on Form S-3 or any successor form of all or any
specified portion of the common stock held by such requesting shareholders. The
investors' agreement also provides board observation rights for individuals
designated by the Trivest partnerships, as well as their limited partners, which
will terminate upon a qualified public offering.
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SHAREHOLDERS AGREEMENTS WITH EACH OF OUR SHAREHOLDERS
In addition, each of our other shareholders, which are comprised of
employees and independent sales representatives, entered into a separate
shareholders' agreement with us in connection with the merger and his or her
acquisition of common stock. Under the shareholders' agreements, we have the
right to repurchase all common stock owned by the shareholder upon the
termination of his or her employment, which right may be exercised by Trivest
Fund II Group, Ltd. if we do not do so. The shareholders' agreements include
certain "right of first offer," "right of first refusal" and other restrictions
on the ability of the shareholders to transfer common stock, all of which
restrictions will terminate upon (1) a sale of all or substantially all of our
assets, (2) the sale of our common stock in a transaction or series of
transactions resulting in any person or group of affiliated persons other than
the current shareholders owning more than 50% of our common stock outstanding,
(3) the registered public sale of common stock the net proceeds of which are at
least $15.0 million, or (4) our merger or consolidation with or into another
corporation if, after giving effect to the merger or consolidation, holders of
our voting securities immediately prior thereto own voting securities of the
surviving corporation representing less than a majority of ordinary voting power
to elect directors. The shareholders' agreements also provide that the
shareholders will participate in sales of our common stock to an independent
third party approved by holders of a majority of our outstanding common stock,
as well as other significant corporate transactions, and agree to consent to and
raise no objections against the sale, as long as all shareholders receive the
same consideration for their common stock.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 1,000,000 shares of common stock,
par value $.01 per share, 780,000 shares of which are outstanding on the date
hereof. The following summary description of our capital stock is qualified in
its entirety by reference to our restated articles of incorporation and bylaws,
copies of which are filed as exhibits to the registration statement of which
this prospectus is a part. See "Where You Can Find More Information."
COMMON STOCK
Each holder of common stock on the applicable record date is entitled to
receive such dividends as may be declared by the board of directors out of funds
legally available therefor, and, in the event of liquidation, to share pro rata
in any distribution of our assets after payment or providing for the payment of
liabilities. Each holder of common stock is entitled to one vote for each share
held of record on the applicable record date on all matters presented to a vote
of shareholders, including the election of directors. Holders of common stock
have no cumulative voting rights or preemptive rights to purchase or subscribe
for any stock or other securities and there are no conversion rights or
redemption or sinking fund provisions with respect to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
INVESTORS' AGREEMENT AND SHAREHOLDERS' AGREEMENTS
We have entered into an investors' agreement with our principal
shareholders providing for, among other things, registration rights and rights
relating to the transferability of shares of our common stock. In addition, we
have entered into shareholders' agreements with each of our other shareholders,
which are comprised of employees and independent sales representatives,
providing for, among other things, rights relating to the transferability of
shares of our common stock. See "Certain Transactions."
DESCRIPTION OF THE SENIOR CREDIT FACILITY
Our senior credit facility provides for borrowings of up to $155.0 million,
consisting of: Term A loans of $25.0 million; Term B loans of $62.5 million;
Term C loans of $7.5 million; revolving loans of up to $40.0 million, including
letters of credit; and acquisition loans of up to $20.0 million. Subject to
restrictions, we may use our senior credit facility for our working capital and
general corporate purposes.
REPAYMENT
The different loans under the senior credit facility are repayable as
follows:
- THE REVOLVING LOANS -- 100% December 31, 2004;
- THE ACQUISITION LOANS -- 20.0%, 30.0% and 50.0% of any amount outstanding
on December 31, 2001, in 2002, 2003 and 2004, respectively;
- THE TERM A LOANS -- 12.0% in 2000, 12.0% in 2001, 24.0% in 2002, 24.0% in
2003 and 28.0% in 2004; and
- THE TERM B LOANS -- 1.0% in each of 2000 through 2004 and 47.5% in each
of 2005 and 2006.
- THE TERM C LOANS -- 100% on June 30, 2006.
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The Term A loans, the Term B loans and the Term C loans were drawn in full
at the closing of the merger. Borrowings under the revolving loans and
outstanding letters of credit are limited to $40.0 million or, if less, the sum
of (i) 85% of eligible accounts receivable, plus (ii) 60% of eligible inventory.
The acquisition loan facility may be used to fund permitted acquisitions.
Acquisition loans are available on a revolving basis through December 31, 2001,
when all outstanding amounts will be converted into a term loan which will be
due as set forth above. Any portion of this facility not outstanding on December
31, 2001 will be canceled.
We may repay any of our outstanding loans under the senior credit facility
without paying a premium or penalty, other than payment of breakage costs and
reimbursement of the lenders' actual costs of reemploying funds under certain
circumstances.
We must repay any outstanding loans out of cash we receive from certain
events as follows:
- 100% of net cash proceeds of certain asset sales so long as our leverage
ratio is greater than or equal to 3.0:1, subject to certain exceptions,
including the right to reinvest such proceeds in our business under
certain circumstances;
- 100% of net cash proceeds of permitted debt issuances, subject to certain
exceptions;
- 100% of net cash proceeds of permitted equity issuances (50% if an
initial public offering), subject to certain exceptions; and
- 50% of annual excess cash flow (25% when our leverage ratio is less than
3.0:1).
SECURITY; GUARANTY. Each of our direct and indirect domestic subsidiaries
(and, if no adverse tax consequences result, foreign subsidiaries) are borrowers
or guarantee the borrowers' obligations under the senior credit facility. The
following secures the borrowers' obligations under the senior credit facility
and each of the guarantor's obligations under its guarantee:
- a security interest in substantially all of the borrowers' assets and the
assets of the subsidiary guarantors; and
- a pledge of all of the capital stock of each of our direct and indirect
domestic subsidiaries (or 65% of the capital stock of any foreign
subsidiary).
INTEREST. At our option, the interest rates under the senior credit
facility are either: (1) the base rate, which is the higher of the prime lending
rate or 0.5% in excess of the federal funds effective rate, plus a margin, or
(2) the adjusted Eurodollar rate plus a margin. The margins of the different
loans under the senior credit facility vary according to a pricing grid based
upon our consolidated leverage ratio as follows:
- the initial margins on the Term A loans and revolving loans (including
acquisition loans) are 1.0% over the base rate or 3.0% over the adjusted
Eurodollar rate; after December 31, 1999, these margins will range from
1.0% to 0% over the base rate and from 3.0% to 2.0% over the adjusted
Eurodollar rate; and
- the initial margins on the Term B and Term C loans are 1.5% over the base
rate and 3.5% over adjusted LIBOR; after December 31, 1999, these margins
will range from 1.5% to 1.0% over the base rate and from 3.5% to 3.0%
over the adjusted Eurodollar rate.
As of September 24, 1999, the loans are priced at the Eurodollar rate plus
margins of 3.0% for the revolving loans, Term A loans and acquisition loans and
3.5% for the Term B and Term C loans.
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FEES. We agreed to pay certain fees in connection with the senior credit
facility, including: (1) letter of credit fees; (2) agency fees; and (3)
commitment fees. Commitment fees are payable (1) at a rate per annum of 0.5% on
the undrawn amounts of the revolving loans, subject to reduction to 0.375% per
annum depending upon our consolidated leverage ratio and (2) at a rate per annum
of 0.75% on the undrawn amount of the acquisition loan facility during the
revolving period, subject to reduction to 0.50% (or 0.375% depending upon our
consolidated leverage ratio) per annum from and after the date on which at least
$10.0 million of acquisition loans are outstanding.
COVENANTS. The senior credit facility requires that we meet certain
financial tests which include a maximum leverage ratio and minimum fixed charge
and interest coverage ratios. The senior credit facility also contains covenants
which, among other things, restrict our ability, subject to certain exceptions,
to do the following:
- incur additional indebtedness;
- incur liens;
- declare dividends or redeem or repurchase capital stock, or prepay other
debt;
- make loans and investments;
- make capital expenditures;
- engage in mergers, acquisitions, consolidations and asset sales;
- acquire assets, stock or debt securities of any person;
- engage in transactions with affiliates; and
- amend our articles of incorporation.
The senior credit facility also requires that we satisfy certain customary
affirmative covenants and make certain customary indemnifications to our lenders
and the administrative agent under the senior credit facility.
EVENTS OF DEFAULT. The senior credit facility contains customary events of
default, including, without limitation, payment defaults, breaches of
representations and warranties, covenant defaults, certain events of bankruptcy
and insolvency, ERISA violations, judgment defaults, cross-defaults to certain
other indebtedness and a change in control.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On August 24, 1999, we sold the original notes to the initial purchasers.
In connection with the sale of the original notes, we entered into a
registration rights agreement with the initial purchasers requiring us to
register the notes with the SEC and offer to exchange the original notes for
registered notes. A copy of the registration rights agreement has been filed as
an exhibit to the registration statement of which this prospectus is a part and
we urge you to read the text of the registration rights agreement. We expressly
qualify all of our discussions of the registration rights agreement by the terms
of the agreement itself. Under the registration rights agreement, we are
required to:
- file the registration statement on or before November 25, 1999;
- use our best efforts to cause the registration statement to be declared
effective on or before February 23, 2000;
- use our best efforts to keep the exchange offer open for not less than 20
days, or longer if required by applicable law, after we notify holders of
the notes of the exchange offer; and
- use our best efforts to consummate the exchange offer as soon as
practicable, but no later than 60 days after the date on which the
registration statement becomes effective.
The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. You may be entitled to
"shelf" registration rights. In accordance with the registration rights
agreement, we are required to file a shelf registration statement covering your
original notes for a continuous offering in accordance with Rule 415 of the
Securities Act if:
- we are not required to file the exchange offer registration statement or
permitted to effect the exchange offer because it is not permitted by
applicable law or SEC policy;
- any holder of Transfer Restricted Securities notifies us within 20
business days following the date the exchange offer is consummated that:
(1) it is prohibited by law or SEC policy from participating in the
exchange offer; or
(2) it may not resell the registered notes acquired by it in the
exchange offer to the public without delivering a prospectus and
that this prospectus is not appropriate or available for such
resales; or
(3) it is a broker-dealer and owns original notes acquired directly
from us or any of our affiliates.
For purposes of the foregoing, "Transfer Restricted Securities" means each
original note until the earliest to occur of:
- the date on which the original note has been exchanged by a person other
than a broker-dealer in the exchange offer for a registered note which is
entitled to be resold to the public without complying with the prospectus
delivery requirements of the Securities Act;
- the date on which the original note has been effectively registered under
the Securities Act and disposed of in accordance with a shelf
registration statement;
- the date on which the original note may be distributed to the public
pursuant to Rule 144 under the Securities Act; or
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- the date on which each registered note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contemplated by this registration
statement, including the delivery of the prospectus contained herein.
In the event that we are obligated to file a shelf registration statement,
we will be required to keep the shelf registration statement effective until
August 24, 2001. Other than as described above, you will not have the right to
participate in the shelf registration or require that we register your notes in
accordance with the Securities Act.
If we fail to fulfill such obligations, the holders of outstanding original
notes are entitled to receive "Additional Interest" until we have fulfilled such
obligations, at the rate of 25% for the first 90-day period, which rate will
increase by an additional 0.50% at the beginning of each successive 90-day
period that we must pay Additional Interest, provided that any such increase in
the interest rate may not exceed 2.0%. All amounts of accrued Additional
Interest will be payable in cash on the same interest payment dates as the
notes.
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the SEC staff contained in no-action letters
issued to third parties, we believe that you may offer for resale, resell and
otherwise transfer the registered notes issued to you under the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that:
- you are acquiring the registered notes in the ordinary course of your
business;
- you are not engaging in and do not intend to engage in a distribution of
the registered notes;
- you do not have an arrangement or understandings with any person to
participate in a distribution of the registered notes; and
- you are not our "affiliate," as defined in Rule 405 under the Securities
Act, or an "affiliate" of any guarantor.
If you are not able to make these representations, you are a "Restricted
Holder." As a Restricted Holder, you will not be able to participate in the
exchange offer, may not rely on this interpretation of the SEC staff and may
only sell your original notes in compliance with the registration and prospectus
delivery requirements of the Securities Act as part of a registration statement
containing the selling security holder information required by Item 507 of SEC
Regulation S-K or under an exemption from the registration requirement of the
Securities Act.
In addition, each broker-dealer, other than a Restricted Holder, that
receives registered notes for its own account in exchange for original notes
that it acquired as a result of market-making or other trading activities (a
"Participating Broker-Dealer") may be a statutory underwriter and must
acknowledge in the letter of transmittal that it will deliver a prospectus
meeting the requirements of the Securities Act upon any resale of such
registered notes. The letter of transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based upon
interpretations by the SEC staff, we believe that a Participating Broker-Dealer
may offer for resale, resell and otherwise transfer registered notes issued
under the exchange offer upon compliance with the prospectus delivery
requirements, but without compliance with the registration requirements, of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer as part of their resales.
We have agreed that, for a period of one year after the effective date of the
registration statement, we will make this prospectus available to any broker-
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dealer for use by the broker-dealer in any resale. By acceptance of this
exchange offer, each broker-dealer that receives registered notes under the
exchange offer agrees to notify us prior to using this prospectus in a sale or
transfer of registered notes. For more information, please see "Plan of
Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
To the extent original notes are tendered and accepted in the exchange
offer, the principal amount of outstanding original notes will decrease with a
resulting decrease in the liquidity in the market for the original notes. In
addition, following the completion of the exchange offer, except as provided
above and in the registration rights agreement, you will not have any further
registration rights and your original notes will continue to be subject to
certain restrictions on transfer. Accordingly, if you do not participate in the
exchange offer, your ability to sell your original notes could be adversely
affected. You may suffer adverse consequences if you fail to exchange your
original notes. See "Risk Factors -- Failure to Exchange Original Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept any and all original notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date. As of the date of this prospectus, $105 million aggregate
principal amount at maturity of the original notes is outstanding. We will issue
$1,000 principal amount at maturity of registered notes in exchange for each
$1,000 principal amount at maturity of outstanding original notes accepted in
the exchange offer. Holders may tender some or all of their original notes under
the exchange offer; however, original notes may be tendered only in integral
multiples of $1,000.
The form and terms of the registered notes will be substantially identical
to the form and terms of the original notes, except that:
- the offering of the registered notes has been registered under the
Securities Act;
- the registered notes will not be subject to transfer restrictions;
- interest on the registered notes will accrue from the date of the
original issuance of the original notes;
- the registered notes will be issued free of any covenants regarding
registration rights and free of any provision for Additional Interest;
and
- the registered notes will evidence the same debt as the original notes
and will be entitled to the benefits of the indenture under which
original notes were, and the registered notes will be, issued.
This prospectus, together with the letter of transmittal you receive with
this prospectus, is being sent to the nominee of The Depository Trust Company
("DTC" or the "Depositary") and to others believed to have beneficial interests
in the original notes.
You do not have any appraisal or dissenters rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Securities Act and the
Exchange Act.
We will be deemed to have accepted validly tendered original notes when, as
and if we have given oral notice, promptly confirmed in writing, or written
notice of the acceptance to the exchange
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agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the registered notes from us.
If we do not accept for exchange any tendered original notes because of an
invalid tender, the occurrence of other events described in this prospectus or
otherwise, certificates for any such unaccepted original notes will be returned
to you, without expense, as promptly as practicable after the expiration date.
If you tender original notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the exchange of original
notes under the exchange offer. We will pay all charges and expenses, other than
underwriting discounts and commissions and transfer taxes, as part of the
exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE, EXTENSIONS, AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on December
27, 1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral notice, promptly confirmed in writing, or written notice
and will make a public announcement that we have extended the exchange offer
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date unless otherwise required by applicable law
or regulation.
We have the right, in our reasonable discretion, (1) to delay accepting any
original notes, to extend the exchange offer or, if any of the conditions set
forth below under "Conditions" shall not have been satisfied, to terminate the
exchange offer, by giving oral or written notice of such delay, extension or
termination to the exchange agent, or (2) to amend the terms of the exchange
offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement.
If we believe that we have made a material amendment of the terms of the
exchange offer, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the notes of such amendment and we will
extend the exchange offer to the extent required by law.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Book-Entry Interests
The original notes were issued as global securities in fully registered
form without interest coupons. Beneficial interests in the global securities,
held by direct or indirect participants in DTC, are shown on, and transfers of
these interests are effected only through, records maintained in book-entry form
by DTC with respect to its participants.
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If you hold your original notes in the form of book-entry interests and you
wish to tender your original notes for exchange pursuant to the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date
either:
(1) a written or facsimile copy of a properly completed and duly
executed letter of transmittal, including all other documents required by
such letter of transmittal, to the exchange agent at the address set forth
on the cover page of the letter of transmittal, or
(2) a computer-generated message transmitted by means of DTC's
Automated Tender Offer Program system and received by the exchange agent
and forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver original notes held in the form of
book-entry interests:
(A) a timely confirmation of book-entry transfer of such notes into
the exchange agent's account at DTC pursuant to the procedure for
book-entry transfers described below under "-- Book-Entry Transfer" must be
received by the exchange agent prior to the expiration date, or
(B) you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR ORIGINAL NOTES TO US. YOU MAY REQUEST YOUR BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
Certificated Original Notes
Only registered holders of certificated original notes may tender those
notes in the exchange offer. If your original notes are certificated notes and
you wish to tender those notes for exchange pursuant to the exchange offer, you
must transmit to the exchange agent on or prior to the expiration date, a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth
below under "-- Exchange Agent." In addition, in order to validly tender your
certificated original notes:
(1) the certificates representing your original notes must be received
by the exchange agent prior to the expiration date, or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to all Holders
If you tender an original note and you do not withdraw the tender prior to
the expiration date, you will have made an agreement with us in accordance with
the terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
If your original notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your original notes, either make appropriate arrangements to
register ownership of the original notes
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in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(A) original notes tendered in the exchange offer are tendered either
(1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions"
on the letter of transmittal, or
(2) for the account of an eligible institution; and
(B) the box entitled "Special Registration Instructions" on the letter
of transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the letter of transmittal is signed by a person other than you, your
original notes must be endorsed or accompanied by a properly completed bond
power and signed by you as your name appears on those original notes.
If the letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered original notes. This determination will be final and
binding. We reserve the absolute right to reject any and all original notes not
properly tendered or any original notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular original notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final and binding on all
parties.
You must cure any defects or irregularities in connection with tenders of
your original notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of original notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:
(1) you improperly tender your original notes,
(2) you have not cured any defects or irregularities in your tender,
and
(3) we have not waived those defects, irregularities or improper
tender.
The exchange agent will return your notes, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration of the
exchange offer.
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In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for, or offer registered notes for, any
original notes that remain outstanding subsequent to the expiration of the
exchange offer,
(2) terminate the exchange offer, and
(3) to the extent permitted by applicable law, purchase notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers could differ from the terms
of the exchange offer.
By tendering, you will represent to us that, among other things:
(1) you are acquiring the registered notes in the exchange offer in
the ordinary course of your business,
(2) you are not engaging in and do not intend to engage in a
distribution of the registered notes to be acquired by you in the exchange
offer,
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes to be acquired by
you in the exchange offer, and
(4) you are not our "affiliate," or an "affiliate" of any guarantor,
as defined under Rule 405 of the Securities Act.
In all cases, issuance of registered notes for original notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of (a) certificates for your original notes or a
timely book-entry confirmation of your original notes into the exchange agent's
account at DTC, (b) a properly completed and duly executed letter of transmittal
or a computer-generated message instead of the letter of transmittal, and (c)
all other required documents. If any tendered original notes are not accepted
for any reason set forth in the terms and conditions of the exchange offer or if
original notes are submitted for a greater principal amount than you desire to
exchange, the unaccepted or non-exchanged original notes, or original notes in
substitution therefor, will be retained without expense to you. In addition, in
the case of original notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures described
below, the non-exchanged original notes will be credited to your account
maintained with DTC, as promptly as practicable after the expiration or
termination of the exchange offer.
Guaranteed Delivery Procedures
If you desire to tender your original notes and your original notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives from an eligible institution, a written
or facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated original notes, in proper
form for transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by
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the exchange agent within three New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of original notes you are tendering; and
(3) a statement that your tender is being made by the notice of
guaranteed delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the notice of guaranteed
delivery, the eligible institution will deliver the following documents to
the exchange agent:
(A) the certificates for all certificated original notes being
tendered, in proper form for transfer or a book-entry confirmation of
tender,
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal, and
(C) any other documents required by the letter of transmittal.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry
delivery of your book-entry interests into the exchange agent's account at
DTC, or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of original notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of original notes in the exchange offer, a written or
facsimile or, for a DTC participant, a computer-generated transmission notice of
withdrawal must be received by the
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exchange agent at its address listed in this prospectus prior to 5:00 p.m., New
York City time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the original notes to be
withdrawn,
- identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of such original notes,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
original notes register the transfer of the original notes into the name
of the person withdrawing the tender, and
- specify the name in which any original notes are to be registered if
different from that of the person that deposited the original notes to be
withdrawn.
If the original notes have been delivered under the book-entry procedure
set forth above under "-- Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn original notes.
We will determine, in our sole discretion, all questions as to the
validity, form and eligibility, including time of receipt, of withdrawal
notices. Our determination shall be final and binding on all parties. Any
original notes withdrawal will be deemed not to have been validly tendered for
purposes of the exchange offer and registered notes will not be issued in
exchange for such withdrawn original notes unless the withdrawn original notes
are validly retendered. Properly withdrawn original notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.
Any original notes that are tendered but not accepted due to withdrawal,
rejection of tender or termination of the exchange offer will be returned as
soon as practicable to the holder without cost to the holder or, in the case of
original notes tendered by book-entry transfer into the exchange agent's account
at the book-entry transfer facility under the book-entry transfer procedures
described above, these original notes will be credited to an account maintained
with such book-entry transfer facility for the original notes.
CONDITIONS
Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange any original notes, and may terminate the exchange offer
as provided in this prospectus before the acceptance of any original notes, if:
- the exchange offer will violate applicable law or any applicable
interpretation or policy of the SEC staff;
- the original notes are not tendered in accordance with the exchange
offer;
- you do not represent that you are acquiring the registered notes in the
ordinary course of your business, that you are not engaging in and do not
intend to engage in and have no arrangement or understanding with any
person to participate in a distribution of the registered notes and that
you are not an affiliate of us or any guarantor; or
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency, or any injunction, order or decree has
been issued by any court or
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governmental agency, with respect to the exchange offer which, in our
judgment, would reasonably be expected to prohibit, prevent or materially
impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any a condition or may be waived by us in
whole or in part at any time and from time to time in our reasonable discretion.
Our failure at any time to exercise any of the foregoing rights shall not be
deemed a waiver of the right and each right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may (1) refuse to accept any original notes and return all
tendered original notes to the tendering holders or, in the case of original
notes delivered by book-entry transfer within DTC, credit any original notes to
the account maintained within DTC by the DTC participant that delivered the
notes, (2) extend the exchange offer and retain all original notes tendered
prior to the expiration of the exchange offer, subject however, to the rights of
holders to withdraw the tenders of original notes, see "Withdrawal of Tenders"
above, or (3) waive the unsatisfied conditions with respect to the exchange
offer and accept all properly tendered original notes which have not been
withdrawn.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as exchange
agent for the exchange offer. Delivery of letters of transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent as follows:
By Registered or Certified Mail,
Overnight Courier or Hand Delivery:
(718) 234-5001
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Exchange Department
By Facsimile (Eligible Institutions Only):
Attention: Exchange Department
Confirmed by Telephone: (718) 921-8200
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail.)
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable
out-of-pocket expenses under the exchange offer. We will also pay the reasonable
fees and expenses of one firm acting as counsel for the initial purchasers.
Expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
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TRANSFER TAXES
You must pay all transfer taxes, if any, applicable to the exchange of
original notes under the exchange offer. If satisfactory evidence of payment of
the taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of the transfer taxes will be billed directly to you.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
original notes on the date of the exchange. Accordingly, we will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer and the
unamortized expenses relating to the issuance of the original notes will be
amortized over the term of the registered notes.
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DESCRIPTION OF THE REGISTERED NOTES
GENERAL
You can find the definitions of capitalized terms used in this description
and not otherwise defined under "Certain Definitions." In this summary
description of the notes, all references to "WinsLoew," "we," "our," and "us"
are to WinsLoew Furniture, Inc., excluding its subsidiaries, unless the context
clearly indicates otherwise.
We issued the original notes under an indenture dated as of August 24, 1999
among us, our domestic subsidiaries, as guarantors, and American Stock Transfer
& Trust Company, as trustee. The terms of the original notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939. The terms of the registered notes are substantially
identical to the terms of the original notes except that the registered notes
have no transfer restrictions or registration rights. Any original notes that
remain outstanding after the completion of the exchange offer, together with the
registered notes issued in exchange for the original notes will be treated as a
single class of debt securities under the indenture. The original notes, the
registered notes to be issued in the exchange offer and any additional notes
issued under the indenture are collectively referred to as the "notes" in this
summary description.
As discussed in detail below under "Subordination," payments on the notes
and under the guarantees will be subordinated to the payment of Senior Debt. The
indenture permits us and the guarantors to incur additional indebtedness,
including additional Senior Debt, in the future, subject to certain
restrictions.
The following description is a summary of the provisions of the indenture
we believe to be material and of interest to you. It does not restate that
agreement in its entirety. We urge you to read the indenture because the
indenture and not this description, defines your rights as holders of the
registered notes. The indenture is filed as an exhibit to the registration
statement of which this prospectus forms a part.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
(1) are our general unsecured obligations;
(2) are junior in right of payment to all our existing and future
Senior Debt;
(3) are pari passu in right of payment to any of our future senior
subordinated Indebtedness; and
(4) are unconditionally guaranteed by the guarantors.
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THE GUARANTEES
Our payment obligations under these notes are jointly and severally
guaranteed by all of our current and future domestic Restricted Subsidiaries,
which initially include our Subsidiaries listed below:
- Winston Furniture Company of Alabama, Inc.;
- Loewenstein, Inc.
- Texacraft, Inc.
- Tropic Craft, Inc.
- Winston Properties, Inc.
- Pompeii Furniture Co., Inc.
The guarantees:
(1) are general unsecured obligations of each guarantor;
(2) are junior in right of payment to all existing and future Senior
Debt of each guarantor;
(3) are pari passu in right of payment to any future senior
subordinated Indebtedness of each guarantor; and
(4) rank equally with trade payables of each guarantor.
All of our domestic Subsidiaries are designated as Restricted Subsidiaries;
however, under the circumstances described below under "Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries," we are
permitted to designate certain of its Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries are not subject to many of the restrictive covenants
in the Indenture. All of our domestic Restricted Subsidiaries guarantee the
notes. Unrestricted Subsidiaries do not guarantee the notes.
In the event of a bankruptcy, liquidation or reorganization of any
non-guarantors, these non-guarantors must pay the holders of their debt, their
trade creditors and any preferred stockholders before they are able to
distribute any of their assets to us. The guarantors, other than Pompeii,
generated 100% of the consolidated revenues of WinsLoew in the twelve-month
period ended December 31, 1998 and the nine-month period ended September 24,
1999 and held 100% of its consolidated assets as of those dates.
PRINCIPAL, MATURITY AND INTEREST
The notes are our general, unsecured obligations. We issued $105.0 million
aggregate principal of original notes in denominations and integral multiples of
$1,000, maturing on August 15, 2007. We will issue up to the same amount of
registered notes.
Subject to the covenants described below under the caption "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," we may
issue additional notes (the "Additional Notes") under the indenture. The
registered notes issued in connection with the exchange offer and any Additional
Notes that we subsequently issue under the indenture would be treated as a
single class for all purposes under the indenture.
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Interest on the notes accrues at the rate of 12.75% per annum and is
payable semi-annually in arrears on February 15 and August 15 of each year,
commencing on February 15, 2000, to holders of record on the immediately
preceding February 1 and August 1.
Interest on the notes accrues from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months. In addition, the amortization of the original issue
discount on the notes results in an effective yield to maturity of 13.25%.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder gives wire transfer instructions to us, we will make all
principal, premium and interest payments on the holder's notes in accordance
with those instructions. All other payments on the notes are made at the office
or agency of the paying agent and registrar within the city and state of New
York unless we elect to make interest payments by check mailed to the holders at
their address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee currently acts as paying agent and registrar. We may change the
paying agent or registrar without prior notice to the holders of the notes, and
we or any of our Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
The registered holder of a note is treated as the owner of it for all
purposes.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the notes is subordinated in right of payment to the prior payment in
full of all our Senior Debt, whether outstanding on the date of the indenture or
incurred after that date.
The holders of our Senior Debt are entitled to receive payment in full of
all Obligations due in respect of the Senior Debt, including interest after the
commencement of any bankruptcy or insolvency proceeding at the rate specified in
the applicable Senior Debt, before the holders of notes are entitled to receive
any payment with respect to the notes, in the event of any distribution to our
creditors:
(1) in our total or partial liquidation or dissolution;
(2) in our bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to us or our property;
(3) in an assignment for the benefit of our creditors; or
(4) in any marshalling of our assets and liabilities.
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Until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of notes would be entitled will be made to the
holders of Senior Debt, except that holders of notes will be permitted to
receive Permitted Junior Securities and payments made from the trust described
under "-- Legal Defeasance and Covenant Defeasance."
We also are not permitted to make any payment upon or in respect of the
notes, except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance," if
(1) a payment default of the principal of or premium or interest on
any Designated Senior Debt occurs and is continuing beyond any applicable
period of grace; or
(2) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of the Designated Senior Debt
as to which the default relates to accelerate its maturity and the trustee
receives a notice of the default (a "Payment Blockage Notice") from the
holders of the Designated Senior Debt.
Payments on the notes are permitted and required to resume:
(1) in the case of a payment default, upon the date on which that
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
the nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice is permitted to be delivered unless and
until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee will be, or be made, the
basis for a subsequent Payment Blockage Notice unless the nonpayment default is
cured or waived for a period of not less than 90 consecutive days.
We must promptly notify holders of Senior Debt if payment of the notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
our creditors who are holders of Senior Debt. As of September 24, 1999, we had
approximately $95.9 million of consolidated Senior Debt outstanding. We may
incur additional Senior Debt in the future, as described under "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified and
Preferred Stock."
GUARANTEES
Each guarantee is subordinated in right of payment to all existing and
future Guarantor Senior Debt of the guarantor to the same extent as the notes
will be subordinated to our Senior Debt as described under "-- Subordination."
As of September 24, 1999, the guarantors had no Guarantor Senior Debt
outstanding, other than their guarantees of the senior credit facility. The
guarantors are permitted to incur additional Indebtedness, including additional
Guarantor Senior Debt, subject to
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restrictions described under "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified and Preferred Stock." The obligations of each
guarantor under its guarantee are limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors -- Fraudulent Conveyance
Matters."
No guarantor is permitted to consolidate with or merge with or into,
whether or not the guarantor is the surviving entity, another corporation,
person or entity whether or not affiliated with the guarantor unless:
(1) subject to the provisions of the following paragraph, the entity
formed by or surviving any such consolidation or merger, if other than the
guarantor, assumes all the obligations of the guarantor under the notes,
the indenture and the registration rights agreement by entering into a
supplemental indenture in form and substance reasonably satisfactory to the
trustee;
(2) immediately after giving effect to the consolidation or merger, no
Default or Event of Default exists; and
(3) we would be permitted by virtue of its pro forma Fixed Charge
Coverage Ratio, immediately after giving effect to the consolidation or
merger, to incur at least $1.00 of additional Indebtedness under the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified and Preferred Stock";
provided, however, that the merger of any guarantor with or into us or another
guarantor under circumstances where we or the guarantor, as applicable, is the
surviving entity or person will not be subject to the foregoing provisions.
The guarantee of a guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that guarantor (including by way of
merger or consolidation), if we apply the Net Proceeds of that sale or
other disposition, in accordance with the applicable provisions of the
indenture; or
(2) in connection with any sale of all of the capital stock of a
guarantor, if we apply the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture; or
(3) if we designate any Restricted Subsidiary that is a guarantor as
an Unrestricted Subsidiary.
See "Redemption or Repurchase at Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
On or after August 15, 2003, we may redeem the notes at any time, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date fixed for redemption, if redeemed during the twelve-month period
beginning on August 15 of each year indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 106.375%
2004........................................................ 104.250%
2005........................................................ 102.125%
2006 and thereafter......................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, on or prior to August 15, 2002, we may
redeem up to 25% of the aggregate principal amount at maturity of the notes
originally issued, and Additional Notes issued under the indenture, if any, at a
redemption price of 112.75% of the principal amount at maturity thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
fixed for redemption, with the net cash proceeds of one or more underwritten
public offerings of our Capital Stock, other than Disqualified Stock; provided,
however, that
(1) at least 75% of the original aggregate principal amount at
maturity of the notes and any Additional Notes issued under the indenture
remain outstanding immediately after the occurrence of the redemption; and
(2) each redemption occurs within 90 days after the date of the
closing of such an offering of our Capital Stock.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
we are not required to mandatorily redeem or repurchase any of the notes.
SELECTION AND NOTICE
If less than all of the notes are redeemed at any time, selection of notes
for redemption will be made by the trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the notes are
listed, or, if the notes are not listed, on a pro rata basis, by lot or by any
method the trustee deems fair and appropriate; provided, however, that no notes
of $1,000 or less will be redeemed in part.
Notices of redemption will be mailed by first class mail at least 30 but
not more than 60 days before the date fixed for redemption to each holder of
notes to be redeemed at its registered address. Notices of redemption will not
be permitted to be conditional. If any note is to be redeemed in part only, the
notice of redemption that relates to that note will state the portion of the
principal amount at maturity of the note to be redeemed. A new note in principal
amount at maturity equal to the unredeemed portion of the note will be issued in
the name of the holder thereof upon cancellation of the original note.
Notes called for redemption will become due on the date fixed for
redemption. Unless we fail to make the redemption payment, on and after the date
fixed for redemption, interest will cease to accrue on notes or portions of the
notes called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, we are obligated to make an offer (a "Change
of Control Offer") to each holder of notes to repurchase all or any part, equal
to $1,000 or an integral multiple of $1,000, of the holder's notes at an offer
price in cash equal to 101% of the aggregate principal amount at maturity
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date fixed for repurchase (the "Change of Control Payment").
Within 30 business days following a Change of Control, we are required to
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase the notes on the
date specified in the notice, which date is no earlier than 30 days and no later
than 60 days from the date the notice is mailed (the "Change of Control Payment
Date")
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pursuant to the procedures required by the indenture and described in the
notice. We will be required to comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable to the repurchase of the notes
as a result of a Change of Control.
On the Change of Control Payment Date, we are required, to the extent
lawful, to
(1) accept for payment all notes or portions of notes properly
tendered under the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of the notes so
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an officers' certificate stating the aggregate
principal amount at maturity of notes or portions of the notes being
purchased by us.
The paying agent is required to mail promptly to each holder of notes so
tendered the Change of Control Payment for the notes, and the trustee must
promptly authenticate and mail, or cause to be transferred by book entry, to
each holder a new note equal in principal amount at maturity to any unpurchased
portion of the notes surrendered, provided, however, that each new note is in a
principal amount at maturity of $1,000 or an integral multiple of $1,000.
Prior to complying with the provisions of this covenant, but in any event
within 60 days following a Change of Control, we are required to either repay
all outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of notes
required by this covenant. We must publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require us to repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
The senior credit facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which we become a party may prohibit, us
from purchasing any notes following a Change of Control and provide that certain
change of control events with respect to us would constitute a default under
those agreements. In the event a Change of Control occurs at a time when we are
prohibited from purchasing notes, we could seek the consent of our lenders to
the purchase of notes or could attempt to refinance the indebtedness that
contains that prohibition. If we do not obtain a consent or repay that
Indebtedness, it will remain prohibited from purchasing notes. Our failure to
purchase tendered notes following a Change of Control would constitute an Event
of Default under the indenture which, in turn, would constitute a default under
our senior credit facility and possibly under our other Senior Debt. Under those
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes, as described under
"-- Subordination." Our ability to repurchase the notes following a Change of
Control may also be limited by its then existing financial resources.
We are not required to make a Change of Control Offer following a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes validly tendered and not withdrawn under the Change of Control Offer.
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ASSET SALES
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) we or the Restricted Subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the
fair market value, evidenced by a resolution of the Board of
Directors set forth in an officers' certificate delivered to the
trustee, of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration therefor received by us or the
Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided, however, that the amount of
(a) any liabilities, as shown on our or the Restricted Subsidiary's
most recent balance sheet, other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
guarantee, that are assumed by the transferee of any of those assets
pursuant to a customary novation agreement that releases us or the
Restricted Subsidiary from further liability and
(b) any securities, notes or other obligations received by us or
the Restricted Subsidiary from the transferee that are substantially
concurrently converted by us or the Restricted Subsidiary into cash, to
the extent of the cash received, will be deemed to be cash for purposes
of this provision.
Within 365 days following the receipt of any Net Proceeds from an Asset
Sale, we will be permitted to apply the Net Proceeds, at our option,
(1) to repay Senior Debt and to correspondingly reduce commitments
with respect to repaid Senior Debt in the case of revolving borrowings; or
(2) to acquire a controlling interest in a Permitted Business; or
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business;
provided, however, that prior to December 31, 2001, amounts repaid pursuant to
clause (1) above with the Net Proceeds from an Asset Sale involving assets
acquired with borrowings under the revolving acquisition line of our senior
credit facility will not constitute a permanent reduction of such commitment;
provided further, however, only to the extent that such repayment does not
otherwise constitute a permanent reduction of the commitment under our senior
credit facility as in effect on the date of the indenture.
Pending the final application of any Net Proceeds, we will be permitted
temporarily to reduce Indebtedness under a revolving credit facility, if any, or
otherwise invest the Net Proceeds in any manner that is not prohibited by the
indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0
million, we will be required to make an offer to all holders of notes and all
holders of other Indebtedness that ranks equally with the notes ("pari passu
Indebtedness") containing provisions similar to those set forth in the indenture
with respect to offers to purchase or redeem the Indebtedness with the proceeds
of sales of assets (an "Asset Sale Offer") to purchase the maximum principal
amount at maturity of notes and such other pari passu Indebtedness that may be
purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer is
equal to 100% of the principal amount at maturity thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date fixed for
purchase,
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and is payable in cash. If any Excess Proceeds remain after completion of an
Asset Sale Offer, we are permitted to use any remaining Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount at maturity of notes and other pari passu Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the trustee will select
the notes to be purchased as provided above under "Selection and Notice." Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds will be reset
at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
We are not permitted to, and cannot permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our or any of our Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving us or any Restricted Subsidiary)
or to any direct or indirect holders of our Equity Interests in their
capacity as such, other than
(a) dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of ours or
(b) to us or any Wholly Owned Restricted Subsidiary of ours
(2) redeem, purchase or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving us, any Equity Interests of ours or any direct or
indirect parent of ours, other than any Equity Interests owned by us or any
Wholly Owned Restricted Subsidiary of ours;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of ours
or any Restricted Subsidiary that is subordinated to the notes, except a
payment of interest or principal at Stated Maturity; or
(4) make any Restricted Investment,
(all payments and other actions set forth in the above list are collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to the Restricted Payment:
(1) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
(2) we, at the time of the Restricted Payment and after giving pro
forma effect thereto as if the Restricted Payment had been made at the
beginning of the applicable four-quarter period, would have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under "-- Incurrence of Indebtedness and Issuance of Disqualified
and Preferred Stock"; and
(3) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (2) and (3) of the next succeeding paragraph), is less than the sum
of
(a) 50% of our Consolidated Net Income for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the
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Indenture to the end of our most recently ended fiscal quarter for which
internal financial statements are available at the time of the
Restricted Payment (or, if the Consolidated Net Income for that period
is a deficit, less 100% of the deficit), plus
(b) 100% of the aggregate net cash proceeds received by us as a
contribution to its common equity capital or from the issue or sale
since the date of the indenture of Equity Interests of ours (other than
Disqualified Stock) or of Disqualified Stock or debt securities of ours
that have been converted into Equity Interests, other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to
a Subsidiary of ours and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified Stock, plus
(c) to the extent that any Restricted Investment that was made
after the date of the Indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of
(i) the cash return of capital with respect to the Restricted
Investment (less the cost of disposition, if any) and
(ii) the initial amount of the Restricted Investment, plus
(d) the amount equal to the net reduction in Investments (other
than Permitted Investments) made by us or any of our Restricted
Subsidiaries in any person or entity resulting from the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries not to exceed the
lesser of
(i) the amount of Investments (valued in each case as provided
under "Designation of Restricted Subsidiaries as Unrestricted
Subsidiaries") previously made by us or our Restricted Subsidiaries
in that Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments, and
(ii) the fair market value of the Investments in the Subsidiary
as of the date that it is redesignated an Unrestricted Subsidiary;
provided, however, that no amount shall be included under this clause
(d) to the extent it is already included in Consolidated Net Income; plus
(e) $5.0 million.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of ours or Indebtedness of ours or that
of any guarantor that is subordinated to the notes or the guarantee, as the
case may be, in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of ours) of,
other Equity Interests of ours (other than any Disqualified Stock);
provided, however, that the amount of any of these net cash proceeds that
are utilized for any redemption, repurchase, retirement, defeasance or
other acquisition will be excluded from clause (3)(b) of the preceding
paragraph;
(3) the redemption, repurchase, retirement, defeasance or other
acquisition of Indebtedness of ours or that of any guarantor that is
subordinated to the notes or the guarantees, as the case may be, with the
net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
and
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(4) the redemption, repurchase or other acquisition or retirement for
value of any Equity Interests of ours or any of our Restricted Subsidiaries
held by any of our or our Restricted Subsidiaries' members of management,
Board of Directors, employees or consultants pursuant to any equity
subscription agreement, stock option agreement or other similar agreement
or any successor arrangement entered into in connection with our
reorganization as a corporation; provided, however, that the successor
arrangement is on terms substantially similar to the arrangement so
replaced; provided, further, that the aggregate price paid for all
redeemed, repurchased, acquired or retired Equity Interests will not exceed
$1.0 million in any twelve month period.
The amount of all Restricted Payments, other than cash, will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by us or the Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment will be determined in good faith by the Board of
Directors whose resolution with respect to that determination will be delivered
to the trustee, who will certify that the valuation was approved by a majority
of disinterested directors, if any. Not later than the date of making any
Restricted Payment, we will be required to deliver to the trustee an officers'
certificate stating that the Restricted Payment was permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED AND PREFERRED STOCK
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and we may not issue any shares of Disqualified Stock and we may not
permit any of its Restricted Subsidiaries to issue any Disqualified Stock or
preferred stock; provided, however, that, so long as no Default or Event of
Default has occurred and is continuing, we are permitted to incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock, and any
guarantor may incur Indebtedness, if the Fixed Charge Coverage Ratio for our
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which the additional
Indebtedness is incurred or the Disqualified Stock is issued would have been at
least 2.0 to 1 from the date of original issuance of the notes through September
30, 2001, and 2.25 to 1 thereafter, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Stock had been issued at the
beginning of that four-quarter period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following (collectively, "Permitted Debt"):
(1) the incurrence by us and the guarantors of Indebtedness at any
time outstanding (with letters of credit being deemed to have a principal
amount equal to our maximum potential liability and that of the guarantors
thereunder) under our senior credit facility in an aggregate amount not to
exceed the greater of:
(a) $155.0 million; or
(b) the sum of
(i) $125.0 million, plus
(ii) 60% of our inventory and that of our Restricted
Subsidiaries, plus 85% of our accounts receivable and those of our
Restricted Subsidiaries, in each case determined in accordance with
GAAP as of the most recent balance sheet
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less the aggregate amount of all Net Proceeds of Asset Sales applied
to permanently repay any of this Indebtedness pursuant to
subparagraph (1) of the second paragraph under "-- Repurchase at the
Option of Holders -- Asset Sales";
(2) the incurrence by us and the guarantors of Indebtedness
represented by the notes (but not to exceed $105.0 million aggregate
principal amount at maturity for purposes of this clause (2)) and
guarantees of any notes issued under the indenture;
(3) any Existing Indebtedness of ours and our Restricted Subsidiaries
of the Existing Indebtedness;
(4) the incurrence of Indebtedness between or among us and any of our
Wholly Owned Restricted Subsidiaries; provided, however, that
(a) if we are the obligor on that Indebtedness, the Indebtedness is
expressly subordinated to the prior payment in full of all Obligations
with respect to the notes and
(b) any subsequent issuance or transfer of Equity Interests that
results in any of this Indebtedness being held by a person or entity
other than us or a Wholly Owned Restricted Subsidiary, and any sale or
other transfer of that Indebtedness to a person or entity that is not
either us or a Wholly Owned Restricted Subsidiary, will be deemed, in
each case, to constitute an incurrence of that Indebtedness by us or the
Restricted Subsidiary, as the case may be;
(5) the incurrence by us or any of our Restricted Subsidiaries of
(a) Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indenture to be
outstanding,
(b) foreign exchange contracts or
(c) currency swap agreements or other similar agreements or
arrangements; provided, however, that the notional amount of any
currency swap agreement does not exceed the principal amount of debt to
which such currency swap agreement relates;
(6) the guarantee by us or any of the guarantors of Indebtedness that
was permitted to be incurred by another provision of this covenant;
(7) the incurrence by us or any of the Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
amount, as applicable) at any time outstanding under this clause, including
all Permitted Refinancing Indebtedness incurred pursuant to clause (8)
above to refund, refinance or replace any Indebtedness incurred pursuant to
this clause (7), not to exceed $15.0 million;
(8) the incurrence by us or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred by the first paragraph of this covenant, or by clauses (2), (3),
(5), (6), (7) and (12) of this covenant;
(9) the incurrence by our Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, the event will be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
ours that was not permitted by this clause (9);
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(10) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, however, that in each such case, the amount
thereof is included in our Fixed Charges as accrued;
(11) the incurrence of Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or purchase money obligations, in each
case, incurred for the purpose of financing our capital expenditures or
those of any of our Restricted Subsidiaries not to exceed $10.0 million at
any one time outstanding; and
(12) the incurrence by us or any of the guarantors of additional
Indebtedness in an aggregate principal amount (or accreted amount, as
applicable) at any time outstanding under this clause, including all
Permitted Refinancing Indebtedness incurred pursuant to clause (8) above to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (12), not to exceed $15.0 million, solely for the purpose of
financing acquisitions of Permitted Businesses; provided, however, that the
Fixed Change Coverage Ratio on a pro forma basis after giving effect to
such acquisitions is at least 2.0 to 1.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in the list above or is entitled to be
incurred pursuant to the first paragraph of this covenant, we will, in our sole
discretion, classify that item of Indebtedness in any manner that complies with
this covenant and the item of Indebtedness will be treated as having been
incurred pursuant to only one of those clauses or pursuant to the first
paragraph of this covenant.
LIMITATION ON OTHER SENIOR SUBORDINATED DEBT
We are not permitted to incur, directly or indirectly, any Indebtedness
that is subordinate in right of payment to any Senior Debt and senior in any
respect in right of payment to the notes and no guarantor is permitted to incur
any Indebtedness that is subordinate or junior in right of payment to its
Guarantor Senior Debt and senior in any respect in right of payment to that
guarantor's guarantee of the notes.
LIENS
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or on any income or
profits therefrom nor to assign or convey any right to receive income therefrom,
in each case to secure Indebtedness or trade payables, except for Permitted
Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to
(1) pay (a) dividends or make any other distributions to us or any of
our Restricted Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, or (b) any
Indebtedness owed to us or any of our Restricted Subsidiaries;
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(2) make loans or advances to us or any of our Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the preceding restrictions does not apply to encumbrances or
restrictions existing under or by reason of
(1) Existing Indebtedness as in effect on the date of the indenture
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof; provided,
however, that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness, as
in effect on the date of the indenture;
(2) our senior credit facility as in effect as of the date of the
indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof;
provided, however, that the amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
are no more restrictive with respect to dividend and other payment
restrictions than those contained in the senior credit facility as in
effect on the date of the indenture;
(3) the indenture, the notes and the guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a person
or entity acquired by us or any of our Restricted Subsidiaries as in effect
at the time of the acquisition (except to the extent the Indebtedness was
incurred or the Capital Stock authorized and issued in connection with or
in contemplation of the acquisition), which encumbrance or restriction is
not applicable to any person or entity, or the properties or assets of any
person or entity, other than the person or entity, or the property or
assets of the person or entity, so acquired; provided, however, that, in
the case of Indebtedness or Disqualified Stock, such Indebtedness or
Disqualified Stock would have been permitted by the terms of the indenture
to be incurred or issued by us or one of our Restricted Subsidiaries;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) of the preceding paragraph;
(8) Permitted Refinancing Indebtedness; provided, however, that the
restrictions contained in the agreements governing the Permitted
Refinancing Indebtedness are no more restrictive than those contained in
the agreements governing the Indebtedness being refinanced;
(9) any agreement for the sale or disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(10) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described under "-- Liens" that
limit our right or any of our Restricted Subsidiaries to dispose of the
assets subject to such Liens;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business; and
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(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We are not permitted to, directly or indirectly: (1) consolidate or merge
with or into another person or entity, whether or not we are the surviving
corporation; or (2) sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more related
transactions to another corporation, person or entity unless
(a) either (i) we are the surviving corporation or (ii) the person
or entity formed by or surviving such a consolidation or merger, if
other than us, or to which the sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation organized
or existing under the laws of the United States, any state thereof or
the District of Columbia;
(b) the person or entity formed by or surviving such a
consolidation or merger, if other than us, or the person or entity to
which the sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all our obligations under the notes
and the indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the trustee;
(c) immediately after the transaction no Default or Event of
Default exists; and
(d) except in the case of our merger with or into one of our Wholly
Owned Restricted Subsidiaries, we or the person or entity formed by or
surviving such a consolidation or merger if other than us, or to which
the sale, assignment, transfer, lease, conveyance or other disposition
has been made
(i) has a Consolidated Net Worth immediately after the
transaction equal to or greater than our Consolidated Net Worth
immediately preceding the transaction and
(ii) at the time of the transaction and after giving pro forma
effect to the transaction as if the transaction had occurred at the
beginning of the applicable four-quarter period, is permitted to
incur at least $1.00 of additional Indebtedness under the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under "-- Incurrence of Indebtedness and Issuance
of Disqualified and Preferred Stock."
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other person. This "Merger, Consolidation, or Sale of Assets" covenant does not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among us and any of our Wholly Owned Subsidiaries or to the merger.
TRANSACTIONS WITH AFFILIATES
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer, convey or
otherwise dispose of any properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(1) the Affiliate Transaction is on terms that are no less favorable
to us or the Restricted Subsidiary than those that would have been obtained
in a comparable transaction by us or the Restricted Subsidiary with an
unrelated person or entity; and
(2) we deliver to the trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that the Affiliate Transaction complies
with the immediately previous clause above and that the Affiliate
Transaction has been approved by a majority of the disinterested members
of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to us of the Affiliate
Transaction from a financial point of view or as to valuation issued by
an accounting, appraisal or investment banking firm of national
standing.
The following items are not deemed to be Affiliate Transactions and,
therefore, are not subject to the provisions of the prior paragraph:
(1) any employment agreement or employment arrangement,
non-competition agreement, confidentiality agreement, stock option
agreement or plan, stock ownership agreement or plan or indemnification
agreement entered into by us or any of our Restricted Subsidiaries with any
employee or director in the ordinary course of business and consistent with
us or the Restricted Subsidiary (including the issuance of any securities
or other payments, awards or grants in securities pursuant thereto) that is
approved by a majority of disinterested directors, if any, or otherwise by
a majority of our Board of Directors;
(2) transactions between or among us and/or our Restricted
Subsidiaries;
(3) payment of reasonable directors' fees to persons who are not
otherwise Affiliates of ours;
(4) any of our obligations pursuant to the Management Agreement;
(5) any Restricted Payment that is permitted by the provisions of the
indenture described above under "-- Restricted Payments;"
(6) loans and advances to our employees or any employees of our
Restricted Subsidiaries in the ordinary course of business and
consistent with past practice; and
(7) the merger or any payments made in connection with the merger.
ADDITIONAL GUARANTEES
If we or any of our Restricted Subsidiaries acquire or create another
domestic Restricted Subsidiary after the date of the indenture, or if any
domestic Unrestricted Subsidiary ceases to be an Unrestricted Subsidiary, then
that Subsidiary will be required to execute a supplemental indenture and
guarantee of the notes and deliver an opinion of counsel, within 10 business
days of the date on which it was acquired, created or ceased to be an
Unrestricted Subsidiary.
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DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors is permitted to designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not cause a Default.
In the event of that designation, all outstanding Investments by us and our
Restricted Subsidiaries, except to the extent repaid in cash, in the Subsidiary
so designated will be deemed to be an Investment at the time of the designation
and will reduce the amount available for Restricted Payments under the first
paragraph of the covenant described above under "Restricted Payments" or
"Permitted Investments," as applicable. All of these outstanding Investments
will be valued at an amount equal to the greatest of
(1) the net book value of those Investments at the time of the
designation;
(2) the fair market value of those Investments at the time of the
designation; and
(3) the original fair market value of those Investments at the time
they were made.
The designation of a Restricted Subsidiary as an Unrestricted Subsidiary is
only permitted if the Restricted Payment would be permitted at that time and if
the Restricted Subsidiary otherwise would meet the definition of an Unrestricted
Subsidiary.
Any designation by the Board of Directors of a Restricted Subsidiary as an
Unrestricted Subsidiary will be required to be evidenced by the filing with the
trustee of a certified copy of the board resolution giving effect to the
designation and an officers' certificate certifying that the designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it
will thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of that Subsidiary will be deemed to be incurred
by a Restricted Subsidiary of ours as of that date and, if the Indebtedness is
not permitted to be incurred as of that date under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified and Preferred
Stock," we will be in default of that covenant.
Our Board of Directors is permitted to at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
the designation will be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of ours of any outstanding Indebtedness of the
Unrestricted Subsidiary and the designation will only be permitted if
(1) the Indebtedness is permitted under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified and Preferred
Stock," calculated on a pro forma basis as if the designation had occurred
at the beginning of the four-quarter reference period; and
(2) no Default or Event of Default would be in existence immediately
following the designation.
SALE AND LEASEBACK TRANSACTION
We are not permitted to, and cannot permit any of our Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided,
however, that we and the guarantors are permitted to enter into a sale and
leaseback transaction if
(1) we or the guarantor could have
(a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to the sale and leaseback transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in
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the first paragraph of the covenant described above under "-- Incurrence
of Indebtedness and Issuance of Disqualified and Preferred Stock"; and
(b) incurred a Lien to secure the Indebtedness pursuant to the
covenant described above under "-- Liens;"
(2) the gross cash proceeds of the sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustee, which will certify that the valuation has been approved by a
majority of the disinterested directors, if any, of the property that is
the subject of the sale and leaseback transaction; and
(3) the transfer of assets in the sale and leaseback transaction is
permitted by, and the net proceeds of the transaction are applied in
compliance with, the covenant described above under "-- Repurchase at the
Option of Holders -- Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
SUBSIDIARIES
We cannot, and cannot permit any of our Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any Wholly Owned Restricted Subsidiary of ours to any person or entity, other
than us or a Wholly Owned Restricted Subsidiary of ours, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
under "-- Asset Sales."
In addition, we cannot permit any Wholly Owned Restricted Subsidiary of ours to
issue any of its Equity Interests, other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares, to any person or entity
other than to us or a Wholly Owned Restricted Subsidiary of ours.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
We cannot permit any of our Restricted Subsidiaries, directly or
indirectly, to guarantee or pledge any assets to secure the payment of any other
Indebtedness of ours unless the Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for the guarantee of the payment
of the notes by such Restricted Subsidiary, which guarantee shall be senior to
or pari passu with such Restricted Subsidiary's guarantee of or pledge to secure
the other Indebtedness, unless the other Indebtedness is Senior Debt, in which
case the guarantee of the notes may be subordinated to the guarantee of such
Senior Debt to the same extent as the notes are subordinated to the Senior Debt.
Notwithstanding the preceding paragraph, the guarantees of the notes
provide by their terms that they will be automatically and unconditionally
released and discharged under the circumstances described above under
"-- Guarantees." The form of the guarantee is attached as an exhibit to the
indenture.
PAYMENTS FOR CONSENT
Neither we nor any of our Restricted Subsidiaries or Affiliates are
permitted to, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any notes for or
as an inducement to any consent, waiver or amendment of any of the
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terms or provisions of the indenture or the notes unless the consideration is
offered to be paid or is paid to all holders of the notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to the consent, waiver or agreement.
BUSINESS ACTIVITIES
We are not permitted to, and cannot permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
REPORTS
Upon the consummation of this exchange offer or the effectiveness of the
shelf registration statement, as the case may be, whether or not required by the
rules and regulations of the SEC, so long as any notes are outstanding, we will
furnish to the holders of notes
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if we were required to file these Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations and that
of our consolidated Subsidiaries, showing in reasonable detail, either on
the face of the financial statements or in the footnotes thereto and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, our financial condition and results of operations and that of
our Restricted Subsidiaries separate from the financial information and
results of operations of our Unrestricted Subsidiaries and, with respect to
the annual information only, a report thereon by our certified independent
accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if we were required to file these reports.
In addition, after the exchange offer or the effectiveness of the Shelf
Registration Statement, whether or not required by the rules and regulations of
the SEC, we will file a copy of all of this information and reports with the SEC
for public availability, unless the SEC will not accept such a filing, and from
and after the date of the indenture will make this information available to
securities analysts and prospective investors upon request. In addition, we
agree that, for so long as any notes remain outstanding, we will file with the
trustee and the SEC (unless the SEC will not accept such filing) the information
required to be delivered pursuant to clauses (1) and (2) above within the time
periods specified in the SEC's rules and regulations and furnish that
information to holders of the notes, securities analysts and prospective
investors upon their request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
indenture:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the notes, whether or not
prohibited by the subordination provisions of the indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the indenture;
(3) failure by us or any Restricted Subsidiary for 30 days to comply
with the provisions described under "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Certain Covenants -- Restricted Payments,"
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"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified and Preferred Stock" or "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets";
(4) failure by us or any Restricted Subsidiary for 30 days after
written notice by the trustee or the holders of at least 25% in principal
amount at maturity of the then outstanding notes to comply with any of its
other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries, whether the Indebtedness or guarantee now exists
or is created after the date of the indenture, which default;
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of any grace
period provided for on the date of the default (a "Payment Default") or
(b) results in the acceleration of the Indebtedness prior to its
scheduled maturity
and, in each case, the principal amount of such Indebtedness, together
with the principal amount of any other Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any guarantee of the notes
is held in any judicial proceeding to be unenforceable or invalid or ceases
for any reason to be in full force and effect or any guarantor, or any
person or entity acting on behalf of any guarantor, denies or disaffirms
its obligations under its guarantee; provided, however, that this clause
(7) shall apply only to a guarantor that is a Significant Subsidiary or a
group of guarantors that, taken together, would constitute a Significant
Subsidiary; and
(8) certain events of bankruptcy or insolvency with respect to us or
any of our Restricted Subsidiaries that constitute a Significant Subsidiary
or any group our Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to us, any Restricted Subsidiary of ours
that constitutes a Significant Subsidiary or any group of our Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable without further action or
notice. If any other Event of Default occurs and is continuing, the trustee or
the holders of at least 25% in principal amount at maturity of the then
outstanding notes are permitted to declare all the notes to be due and payable
immediately.
Holders of the notes are not permitted to enforce the indenture or the
notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in principal amount at maturity of the then outstanding
notes are permitted to direct the trustee in its exercise of any trust or power.
The trustee is permitted to withhold from holders of the notes notice of any
continuing Default, except a Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
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The holders of a majority in aggregate principal amount at maturity of the
notes then outstanding by notice to the trustee are permitted to on behalf of
the holders of all of the notes to waive any existing Default and its
consequences under the indenture except a continuing Default in the payment of
interest, Liquidated Damages, premium on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by us or on our behalf with the intention
of provoking acceleration of the notes and thereby avoiding payment of the
premium that we would have had to pay if we then had elected to redeem the notes
pursuant to the optional redemption provisions of the indenture, an equivalent
premium will also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we are required, upon becoming aware of any
Default, to deliver to the trustee a statement specifying the Default.
NO PERSONAL LIABILITY OF DIRECTORS, ADVISORS, MANAGERS, OFFICERS, EMPLOYEES,
INCORPORATORS, MEMBERS AND STOCKHOLDERS
No director, advisor, manager, officer, employee, incorporator, member or
stockholder of ours or any guarantor, as such, will have any liability for any
of our obligations or those of any guarantor under the notes, the guarantees,
the indenture or for any claim based on, in respect of, or by reason of, those
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes and the guarantees of the notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We are permitted to, at our option and at any time, elect to have all of
our obligations discharged with respect to the outstanding notes and to have
each guarantor's obligation discharged with respect to its guarantee ("Legal
Defeasance") except for
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of and premium, interest and Liquidated Damages,
if any, on the notes when the payments are due from the trust referred to
below;
(2) our obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we are permitted to, at our option and at any time, elect to
have our obligations and each guarantor released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those obligations will not constitute a
Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute Events of Default with respect to the notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance
(1) we are required to deposit irrevocably with the trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in an amount
that will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium,
interest and Liquidated Damages, if any, on the outstanding notes on the
stated maturity or on the applicable date fixed for redemption, as the case
may be, and we must specify whether the notes are being defeased to
maturity or to a particular date fixed for redemption;
(2) in the case of Legal Defeasance, we have delivered to the trustee
an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that
(a) we have received from, or there has been published by, the
Internal Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon, the opinion of counsel will confirm that, the holders
of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of the Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if the Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of the Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if the Covenant Defeasance had not occurred;
(4) no Default has occurred and be continuing on the date of the
deposit (other than a Default resulting from borrowing funds to be applied
to the deposit) and no Event of Default from bankruptcy or insolvency
events occurs, at any time in the period ending on the 123rd day after the
date of deposit;
(5) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which we or any of
our Subsidiaries is a party or by which we or any of our Subsidiaries is
bound;
(6) we have delivered to the trustee an opinion of counsel in
customary form to the effect that after the 123rd day following the
deposit, and assuming no intervening bankruptcy or insolvency event occurs,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) we have delivered to the trustee an officers' certificate stating
that the deposit was not made by us or with the intent of preferring the
holders of notes over our other creditors with the intent of defeating,
hindering, delaying or defrauding our creditors or others; and
(8) we have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent to the Legal
Defeasance or the Covenant Defeasance have been satisfied.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, we are permitted
to amend or supplement the indenture, the notes and the guarantees with the
consent of the holders of at least a majority in principal amount at maturity of
the notes then outstanding, (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes),
and any existing Default or compliance with any provision of the indenture, the
notes or the guarantees may be waived with the consent of the holders of a
majority in principal amount at maturity of the then outstanding notes.
With respect to any notes held by a non-consenting holder, without the
consent of each holder affected an amendment or waiver are not permitted to
(1) reduce the principal amount at maturity of notes whose holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption or repurchase of the
notes, other than provisions relating to the covenants described above
under "-- Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default in the payment of principal of or premium,
interest or Liquidated Damages, if any, on the notes, except a rescission
of acceleration of the notes by the holders of at least a majority in
aggregate principal amount at maturity of the notes and a waiver of the
payment default that resulted from the acceleration;
(5) make any note payable in currency other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, interest or Liquidated Damages, if
any, on the notes;
(7) waive a redemption or repurchase payment with respect to any note
(other than a payment required by one of the covenants described under
"-- Repurchase at the Option of Holders");
(8) release any guarantor from its guarantee; or
(9) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture that relate to subordination requires the consent of both (a) the
holders of at least 75% in aggregate principal amount at maturity of the notes
then outstanding if the amendment would adversely affect the rights of holders
of notes and (b) the holders of Designated Senior Debt.
Notwithstanding the foregoing, without the consent of any holder of notes,
we, a guarantor (with respect to a guarantee or the indenture to which it is a
party) and the trustee is permitted to amend or supplement the indenture, the
notes or any guarantee:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our or any guarantor's
obligations to holders of notes in the case of a merger or consolidation;
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(4) to make any other change that would provide any additional rights
or benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
should it become our creditor ours, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of such a claim as
security or otherwise. The trustee is permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the conflict
within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount at maturity of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
subject to certain exceptions. The indenture also provides that in case an Event
of Default occurs (that cannot be or is not cured), the trustee is required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to those provisions, the trustee is
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless the holder had offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full description of all of these terms, as well
as any other capitalized terms used in this "Description of the Registered
Notes" for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified person or entity,
(1) Indebtedness of any other person or entity existing at the time
the other person or entity is merged with or into becomes a Subsidiary of
the specified person or entity, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, the other person or
entity merging with or into or becoming a Subsidiary of the specified
person or entity; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
the specified person or entity.
"AFFILIATE" of any specified person or entity means any other person or
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with the specified person or entity. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any person or entity, will mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the person or entity, whether through the ownership of voting
securities, by agreement or otherwise; provided, however, that beneficial
ownership of 10% or more of the Voting Equity Interests of a person or entity
will be deemed to be control.
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"ASSET SALE" means
(1) the sale, lease, conveyance or other disposition of any assets or
rights, including, without limitation, by way of sale and leaseback,
excluding sales of services and products in the ordinary course of business
consistent with past practices, provided that the sale, lease, conveyance
or other disposition of all or substantially all of our assets and those of
our Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described under "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under
"-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant; and
(2) the issue or sale by us or any of our Subsidiaries of Equity
Interests of any of our Subsidiaries.
Notwithstanding the foregoing, none of the following will be deemed to be
an Asset Sale:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $2.0 million; or
(b) results in net proceeds to us and our Restricted Subsidiaries of less
than $2.0 million;
(2) a transfer of assets by us to a Wholly Owned Restricted Subsidiary
or by a Wholly Owned Restricted Subsidiary to us or to another Wholly Owned
Restricted Subsidiary;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to us or to another Wholly Owned Restricted Subsidiary;
(4) the transfer of obsolete equipment in the ordinary course of
business; and
(5) a Restricted Payment that is permitted by the covenant described
above under "-- Certain Covenants -- Restricted Payments."
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in that transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in the sale and leaseback transaction (including any
period for which the lease has been extended or may, at the option of the
lessor, be extended).
"BOARD OF DIRECTORS" means
(1) in respect of a limited liability company, the board of advisors
of the limited liability company;
(2) in respect of a corporation, the board of directors of the
corporation, or any authorized committee thereof; and
(3) in respect of any other person or entity, the board or committee
of that person or entity serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
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"CAPITAL STOCK" means
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a person or
entity the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person or entity.
"CASH EQUIVALENTS" means
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof or
any state having maturities of not more than one year from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any domestic commercial bank or U.S. branch of
a foreign commercial bank having capital and surplus in excess of $200-$250
million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in subparagraphs (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in subparagraph (3); and
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Service and in each
case maturing within 270 days after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of our assets and those of our
Subsidiaries taken as a whole to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than to Permitted Holders;
(2) the adoption of a plan relating to our liquidation or dissolution;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as such term is used in Section 13(d)(3) of the Exchange Act),
other than a Permitted Holder, becomes the "beneficial owner" (as that term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person will be deemed to have "beneficial ownership" of all securities
that the person has the right to acquire, whether the right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of our Voting Equity
Interests (measured by voting power rather than number of shares);
(4) the first day on which a majority of the members of our Board of
Directors is not made up of Continuing Directors; or
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(5) we consolidate with, or merge with or into, any person or entity,
or any person or entity consolidates with, or merges with or into, us, in
any such event pursuant to a transaction in which any of our outstanding
Voting Equity Interests is converted into or exchanged for cash, securities
or other property, other than any such transaction where our Voting Equity
Interests outstanding immediately prior to such transaction is converted
into or exchanged for Voting Equity Interests (other than Disqualified
Stock) of the surviving or transferee person or entity constituting a
majority of the outstanding shares of such Voting Equity Interests of such
surviving or transferee person or entity immediately after giving effect to
such issuance.
"CONSOLIDATED EBITDA" means, with respect to any person or entity for any
period, the Consolidated Net Income of the person or entity for that period
plus, to the extent deducted in computing the Consolidated Net Income,
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale; plus
(2) provision for taxes based on income or profits of such person or
entity and its Restricted Subsidiaries for such period; plus
(3) consolidated interest expense whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if
any) pursuant to Hedging Obligations); plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash charges (including non-cash
equity based compensation charges but excluding any non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period); minus
(5) non-recurring non-cash items increasing such Consolidated Net
Income for such period. Notwithstanding the foregoing, (a) the provision
for taxes based on the income or profits of, and the depreciation and
amortization of, a Restricted Subsidiary of a person or entity will be
added to Consolidated Net Income to compute Consolidated EBITDA only to the
extent (and in the same proportion) that the Net Income of the Restricted
Subsidiary was included in calculating the Consolidated Net Income of the
person or entity and only if a corresponding amount would be permitted at
the date of determination to be dividended to us by the Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to
the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
the Restricted Subsidiary or its stockholders and (b) the Net Income (but
not loss) of any Unrestricted Subsidiary will be excluded from Consolidated
Net Income, whether or not distributed to us or one of our Restricted
Subsidiaries.
"CONSOLIDATED NET INCOME" means, with respect to any person or entity for
any period, the aggregate of the Net Income of the person or entity and its
Restricted Subsidiaries for that period, on a consolidated basis, determined in
accordance with GAAP; provided, however, that
(1) the Net Income (but not loss) of any person or entity that is not
a Restricted Subsidiary (including Unrestricted Subsidiaries) or that is
accounted for by the equity method of accounting will be included only to
the extent of the amount of dividends or distributions paid in
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cash in the relevant period to the referent person or entity or a Wholly
Owned Restricted Subsidiary of that person or entity;
(2) the Net Income of any Restricted Subsidiary will be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any person or entity acquired in a pooling of
interests transaction for any period prior to the date of the acquisition
will be excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to any person or entity as of
any date, the sum of
(1) the consolidated equity of the common stockholders or members, as
applicable, of the person or entity and its consolidated Subsidiaries as of
that date; plus
(2) the respective amounts reported on the balance sheet of the person
or entity as of that date with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless the dividends may be declared and paid only out
of net earnings in respect of the year of the declaration and payment, but
only to the extent of any cash received by that person or entity upon
issuance of the preferred stock; less the sum of:
(A) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of the
business) subsequent to the date of the indenture in the book value of
any asset owned by that person or entity by its consolidated Subsidiary;
(B) all investments as of that date in unconsolidated Subsidiaries
and in persons or entities that are not Subsidiaries; and
(C) all unamortized debt discount and expense and unamortized
deferred charges as of that date, in each case, determined in accordance
with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of our Board of Directors who was a member of the Board of Directors on the date
of the indenture or was nominated for election or elected to the Board of
Directors with the approval of a majority of the Continuing Directors who were
members of the Board at the time of the nomination or election.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means any Indebtedness outstanding under our
senior credit facility and any other Senior Debt or Guarantor Senior Debt
permitted to be incurred under the indenture the original principal amount of
which is $25.0 million or more and that has been designated by us as "Designated
Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than as a result of an
optional call for recapitalization by the issuer), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the
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option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the stated maturity date of the notes. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders thereof have the right to require us to repurchase
such Capital Stock upon the occurrence of a change of control or with the
proceeds of an asset sale shall not constitute Disqualified Stock if the terms
of such Capital Stock provide that we may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means up to $24,000 in aggregate principal amount
of Indebtedness in existence on the date of the indenture (other than
Indebtedness under our senior credit facility), until that Indebtedness is
repaid.
"FIXED CHARGE COVERAGE RATIO" means with respect to any person or entity
for any period, the ratio of the Consolidated EBITDA of the person or entity and
its Restricted Subsidiaries for that period to the Fixed Charges of the person
or entity and its Restricted Subsidiaries for the sale period. In the event that
we or any of our Restricted Subsidiaries incurs, assumes, guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to the incurrence, assumption, guarantee or redemption
of such Indebtedness, or the issuance or redemption of such preferred stock and
the application of the proceeds therefrom, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified person or entity
or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to that reference period and on
or prior to the Calculation Date will be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated EBITDA for
that reference period will be calculated without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated EBITDA attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, as though such
operations had been discontinued or such operations or businesses had been
disposed of on the first day of the four-quarter reference period; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded, but only to the extent
that the obligations giving rise to the Fixed Charges will not be
obligations of the referent person or entity or any of its Restricted
Subsidiaries following the Calculation Date.
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"FIXED CHARGES" means, with respect to any person or entity for any period,
the sum, without duplication, of
(1) the consolidated interest expense of the person or entity and its
Restricted Subsidiaries for that period (before amortization or write-off
of debt issuance costs), whether paid or accrued and whether or not
capitalized, including, without limitation, original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging Obligations; plus
(2) the consolidated interest expense of such person or entity and its
Restricted Subsidiaries that was capitalized during the period; plus
(3) any interest expense on Indebtedness of another person or entity
that is guaranteed by the person or entity or one of its Restricted
Subsidiaries or secured by a Lien on assets of the person or entity or one
of its Restricted Subsidiaries, whether or not the guarantee or Lien is
called upon; plus
(4) the product of
(a) all dividend payments, whether or not in cash, on any series of
preferred stock of the person or entity or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests (other
than Disqualified Stock) payable solely in our Equity Interests (other
than Disqualified Stock) or to us or a Restricted Subsidiary of ours;
times
(b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state, local
and foreign statutory tax rate of the person or entity, expressed as a
decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as has been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"GUARANTOR SENIOR DEBT" means with respect to any guarantor
(1) all Indebtedness of the Guarantor outstanding under our senior
credit facility and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of the guarantor permitted to be incurred
under the terms of the indenture, unless the instrument under which the
Indebtedness is incurred expressly provides that it is subordinated or
ranks equally in right of payment to the guarantee of the guarantor; and
(3) all Obligations of the guarantor with respect to the foregoing
Indebtedness.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior
Debt will not include
(1) any liability for federal, state, local or other taxes owed or
owing by the guarantor;
(2) any Indebtedness of the guarantor to any of its Subsidiaries or
other Affiliates;
(3) any trade payables; or
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(4) any Indebtedness that is incurred in violation of the indenture.
"HEDGING OBLIGATIONS" means, with respect to any person or entity, the
obligations of the person or entity under
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect the person or
entity against fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any person or entity, any
indebtedness of the person or entity, whether or not contingent, in respect of
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except such a balance that constitutes an accrued expense or
trade payable;
(6) representing any Hedging Obligations.
If and to the extent any of the foregoing indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of the person or entity prepared in accordance with GAAP. In addition, the
term "Indebtedness" includes all indebtedness of others secured by a Lien on any
asset of the person or entity, whether or not the indebtedness is assumed by
that person or entity, and to the extent not otherwise included, the guarantee
by the person or entity of any indebtedness of any other person or entity.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any person or entity, all investments
by the person or entity in other persons or entities (including Affiliates) in
the form of direct or indirect loans (including guarantees of Indebtedness or
other obligations), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet of such person or
entity prepared in accordance with GAAP (excluding equity in undistributed
earnings). If we or any Subsidiary of ours sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of ours such that, after
giving effect to the sale or disposition, the person or entity is no longer a
Subsidiary of ours, we will be deemed to have made an Investment on the date of
the sale or disposition equal to the fair market value of the Equity Interests
of the Subsidiary not sold or disposed of in an amount determined as provided in
the third paragraph of the covenant described under "-- Certain
Covenants -- Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of that asset,
whether or not filed, recorded or otherwise
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perfected under applicable law, including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction.
"MANAGEMENT AGREEMENT" means that certain Management Agreement, dated as of
the date of the indenture, between Trivest II, Inc. and us.
"NET INCOME" means, with respect to any person or entity, the net income
(loss) of the person or entity, determined in accordance with GAAP and before
any reduction in respect of changes related to preferred stock, excluding,
however:
(1) any gain (but not loss), together with any related provision for
taxes on that gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions); or
(b) the disposition of any securities by the person or entity or
any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of the person or entity or any of its Restricted
Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on the extraordinary or nonrecurring
gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by us or any of
our Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of:
(1) the direct costs relating to the Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof, in each case after taking into
account any available tax credits or deductions and any tax sharing
arrangements; and
(2) amounts required to be applied to the repayment of Indebtedness,
other than Senior Debt, secured by a Lien on the asset or assets that were
the subject of the Asset Sale;
provided, however, if the instrument or agreement governing such Asset Sale
requires the transferor to maintain a portion of the purchase price in escrow
(whether as a reserve for adjustment of the purchase price or otherwise) or to
indemnify the transferee for specified liabilities in a maximum specified
amount, the portion of the cash or Cash Equivalents that is actually placed in
escrow or segregated and set aside by the transferor for such indemnification
obligation shall not be deemed to be Net Proceeds until the escrow terminates or
the transferor ceases to segregate and set aside such funds, in whole or in
part, and then only to the extent of the proceeds released from escrow to the
transferor or that are no longer segregated and set aside by the transferor.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither we nor any of our Restricted Subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness;
(b) is directly or indirectly liable, as a guarantor or otherwise;
or
(c) constitutes the lender;
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(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes being offered hereby) of ours
or any of our Restricted Subsidiaries to declare a default on the other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to our stock or assets or those of any of our
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" will mean and include the manufacture, sale or
distribution of products furnished in the furniture manufacturing industry.
Without limiting the foregoing, "Permitted Business" will include lines of
businesses which are related or complementary to any of the above, including the
acquisition and ownership of firms which are principally but not exclusively
engaged in one or more of the above lines, and any businesses which are, in the
reasonable judgment of the Board of Directors as set forth in a resolution of
the Board of Directors, logical extensions of any of the above.
"PERMITTED HOLDER" means Trivest, Inc. and any Affiliate of Trivest, Inc.
"PERMITTED INVESTMENTS" means
(1) any Investment in us or in a Wholly Owned Restricted Subsidiary of
ours;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any Restricted Subsidiary in a person or
entity, if as a result of the Investment:
(a) the person or entity becomes a Wholly Owned Restricted
Subsidiary of ours; or
(b) the person or entity is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, or is
liquidated into, us or a Wholly Owned Restricted Subsidiary of ours;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under "-- Repurchase at the
Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of ours;
(6) any Hedging Obligation;
(7) other Investments in any person or entity having an aggregate fair
market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause since the date of
the indenture of not more than $12.5 million.
(8) loans and advances to our employees and officers and those of our
Restricted Subsidiaries in the ordinary course of business (including loans
to be used to purchase our Capital Stock where such loans are secured by
such Capital Stock); and
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(9) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of trade creditors or customers or in good faith
settlement of delinquent obligations of trade creditors or customers.
"PERMITTED JUNIOR SECURITIES" means
(1) Equity Interests in us or any guarantor;
(2) debt securities of ours or the relevant guarantor that are
subordinated to all Senior Debt and any debt securities issued in exchange
for Senior Debt or to Guarantor Senior Debt and any debt securities issued
in exchange for Guarantor Senior Debt, as applicable, to substantially the
same extent as, or to a greater extent than, the Notes and the guarantees
will be subordinated, respectively, to Senior Debt and Guarantor Senior
Debt, as applicable.
"PERMITTED LIENS" means
(1) Liens securing Senior Debt or Guarantor Senior Debt of ours and
our Restricted Subsidiaries that was permitted by the terms of the
indenture to be incurred;
(2) Liens in favor of us or any of our Restricted Subsidiaries;
(3) Liens on property of a person or entity existing at the time the
person or entity is merged into or consolidated with us or any Restricted
Subsidiary of ours; provided, however, that the Liens were in existence
prior to the contemplation of the merger or consolidation and do not extend
to any assets other than those of the person or entity merged into or
consolidated with us or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
us or any Restricted Subsidiary of ours; provided, however, that the Liens
were in existence prior to the contemplation of the acquisition and do not
extend by any assets other than the property so acquired;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds, bids, leases, government contracts or
other obligations of a like nature incurred in the ordinary course of
business;
(6) Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith;
(7) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(8) Liens to secure Indebtedness (including Capital Lease Obligations)
incurred in connection with the acquisition of assets by us or our
Restricted Subsidiaries permitted by the covenant described under
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified and Preferred Stock;" provided, however, that
(a) the Indebtedness was incurred by the prior owner of the assets
prior to the acquisition and was not incurred in connection with, or in
contemplation of, the acquisition; and
(b) each such Lien occurs only the assets acquired with that
Indebtedness
(9) Liens existing on the date of the Indenture;
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(10) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision required
in conformity with GAAP has been made;
(11) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances that do
not interfere in any material respect with our business or the business of
any of our Restricted Subsidiaries;
(12) judgment or attachment Liens not giving rise to an Event of
Default;
(13) any interest or title of a lessor in property subject to any
Capital Lease Obligation or other lease;
(14) Liens incurred in the ordinary course of our business or that of
any Restricted Subsidiary with respect to obligations that do not exceed
$5.0 million at any one time outstanding and that
(a) are not incurred in connection with borrowing money or
Obtaining advances or credit (other than trade credit in the ordinary
course of business); and
(b) do not in the aggregate materially detract from the value of
the affected property or materially impair its use in our or such
Restricted Subsidiary's business.
"PERMITTED REFINANCING INDEBTEDNESS" means any of our Indebtedness or that
of any of our Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of ours or that of any of our Restricted Subsidiaries
(other than intercompany Indebtedness); provided, however, that:
(1) the principal amount (or accreted value, if applicable) of the
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses, costs, fees and
reasonable prepayment premiums and penalties incurred in connection
therewith);
(2) the Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, the
Permitted Refinancing Indebtedness is subordinated in right of payment to
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) the Indebtedness is incurred either by us or by the Restricted
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a person or entity means any Subsidiary of the
referent person or entity that is not an Unrestricted Subsidiary.
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"SENIOR CREDIT FACILITY" means that certain Loan and Security Agreement,
dated as of August 27, 1999 among the lenders party thereto, Heller Financial,
Inc. and CIBC, Inc. as co-agents, BankBoston, N.A., as administrative agent, and
us, including any related notes, guarantees, collateral documents, instruments
and agreements executed in connection therewith, in each case as amended,
restated, modified, supplemented, extended, renewed, replaced, refinanced or
restructured from time to time, whether represented by one or more agreements
and whether one or more Restricted Subsidiaries are added or added or removed as
borrowers or guarantors thereunder or as parties thereto.
"SENIOR DEBT" means
(1) all our Indebtedness outstanding under our senior credit facility
and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of ours permitted to be incurred under the
terms of the indenture, unless the instrument under which that Indebtedness
is incurred expressly provides that it is subordinated or ranks equally in
right of payment to the notes; and
(3) all Obligations of ours with respect to the items listed in the
preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the foregoing list, Senior Debt
will not include
(1) any liability for federal, state, local or other taxes owed or
owing by us;
(2) any Indebtedness of ours to any of our Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the indenture.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as that Regulation is in effect on
the date hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the original documentation governing the
Indebtedness, and will not include any contingent obligations to repay, redeem
or repurchase such an interest or principal prior to the date originally
scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any person or entity,
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the person or entity or one or more
of the other Subsidiaries of that person or entity (or a combination
thereof); and
(2) any partnership
(a) the sole general partner or the managing general partner of
which is the person or entity or a Subsidiary of the person or entity
(b) or the only general partners of which are the person or entity
or of one or more Subsidiaries of the person or entity (or any
combination thereof).
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"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a board resolution,
but only to the extent that the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with us or any Restricted Subsidiary unless the terms of that
agreement, contract, arrangement or understanding are no less favorable to
us or the Restricted Subsidiary than those that might be obtained at the
time from persons or entities that are not Affiliates of ours;
(3) is a person or entity with respect to which neither we nor any of
our Restricted Subsidiaries has any direct or indirect obligation to
subscribe for additional Equity Interests or to maintain or preserve the
financial condition of the person or entity or to cause the person or
entity to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of ours or any of our Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of ours or any of our Restricted Subsidiaries
and has at least one executive officer that is not a director or executive
officer of ours or any of our Restricted Subsidiaries.
"VOTING EQUITY INTERESTS" of any person or entity as of any date means the
Equity Interests of the person or entity that is at the time, entitled to vote
in the election of the Board of Directors or other governing body of the person
or entity.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth)
that will elapse between that date and the making of the payment; by
(2) the then outstanding principal amount of the Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any person or entity means a
Restricted Subsidiary of the person or entity, 99% or more of the outstanding
Capital Stock or other ownership interests of which (other than directors'
qualifying shares) will at the time be owned by the person or entity or by one
or more Wholly Owned Restricted Subsidiaries of the person or entity and one or
more Wholly Owned Restricted Subsidiaries of the person or entity.
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BOOK-ENTRY, DELIVERY AND FORM
Registered notes initially will be represented by one or more notes in
registered, global form without interest coupons in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof. The global notes will
be deposited upon issuance with the trustee, as custodian for DTC, in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
The registered notes that are issued as described under "-- Certificated
Notes" will be issued in the form of registered definitive certificates. The
certificated notes may, unless the global notes have previously been exchanged
for certificated notes, be exchanged for an interest in a global note
representing the principal amount at maturity of registered notes being
transferred.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations and to facilitate the clearance and
settlement of transactions in those securities between participants through
electronic book-entry changes in accounts of its participants. DTC's
participants include securities brokers and dealers (including the initial
purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to DTC's indirect
participants, which are other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a direct or indirect custodial
relationship with a participant. Persons or entities that are not participants
will be permitted to beneficially own securities held by or on behalf of DTC
only through DTC's participants or indirect participants.
We expect that, pursuant to procedures established by DTC, ownership of the
registered notes evidenced by the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of DTC's participants), DTC's participants
and the indirect participants.
Prospective purchasers are advised that the laws of some states require
that specified categories of persons or entities take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer registered notes evidenced by the global notes will be limited to that
extent.
So long as the holder of the global notes is the registered owner of the
registered notes, the holder of the global note will be considered the sole
holder under the indenture of any registered notes evidenced by the global
notes. Beneficial owners of registered notes evidenced by the global notes will
not be considered the owners or holders thereof under the indenture, for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the trustee thereunder. Neither the trustee nor we will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any registered notes registered in the name of
the holder of the global note, on the applicable record date will be payable by
the trustee to or at the direction of the holder of the global note in its
capacity as the registered holder under the indenture. The trustee and we will
be permitted to treat the persons in whose names notes, including the global
notes, are registered as the owners thereof for the purpose of receiving these
payments. Consequently, neither the trustee nor we has or will have any
responsibility or liability for the payment of those amounts to beneficial
owners of notes. We believe, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant participants with these
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records on the records of
DTC. Payments by DTC's participants and indirect participants to the beneficial
owners of the notes will be governed
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by standing instructions and customary practice and will be the responsibility
of DTC's participants or indirect participants.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
global note may, upon request to the trustee, exchange that beneficial interest
for registered notes, in the form of certificated notes. Upon such an issuance,
the trustee is required to register the certificated notes in the name of, and
cause the same to be delivered to, the person or persons (or the nominee of any
thereof). In addition, if
(1) we notify the trustee, in writing, that DTC is no longer willing
or able to act as a depositary and we are not able to locate a qualified
successor within 90 days; or
(2) we, at our option, notify the trustee, in writing, that we elect
to cause the issuance of registered notes in the form of certificated
notes,
then, upon surrender by the holders of the global notes, registered notes in
this form will be issued to each person that the holders of the global note and
DTC identify as being a beneficial owner of the related registered notes.
Neither the trustee nor we will be liable for any delay by any holder of
the global notes or DTC in identifying the beneficial owners of registered notes
and the trustee and we will be permitted to conclusively rely on, and will be
protected in relying on, instructions from the holder of the global notes or DTC
for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the registered notes
represented by the global notes, including principal, premium, interest and
Liquidated Damages, if any, be made by wire transfer of immediately available
funds to the accounts specified by the holder of the global note. With respect
to certificated notes, we will make all payments of dividends, distribution,
principal, premium, interest, Liquidated Damages, if any, and any other payments
by wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no account is specified, by mailing a check to each
holder's registered address.
The registered notes represented by the global notes are expected to trade
in DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in the registered notes will, therefore, be required by DTC to
be settled in immediately available funds. We expect that secondary trading in
the certificated notes will also be settled in immediately available funds.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income and
estate tax considerations relevant to acquiring, holding and disposing of a
registered note. This discussion is based on the Internal Revenue Code of 1986,
Treasury regulations promulgated hereunder, administrative positions of the
Internal Revenue Service or the IRS and judicial decisions now in effect, all of
which are subject to change, possibly with retroactive effect, or to different
interpretations. There can be no assurance that the IRS will not challenge one
or more of the conclusions described herein. We have not obtained, and do not
intend to obtain, a ruling from the IRS with respect to the U.S. federal income
tax consequences of acquiring, holding or disposing of a registered note. This
discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to a particular holder in light of the holder's
circumstances (for example, a person subject to the alternative minimum tax
provisions of the Code). In addition, it is not intended to be wholly applicable
to all categories of investors, some of which (like dealers in securities,
banks, insurance companies, tax-exempt organizations, persons holding a
registered note as part of a "straddle," "hedge," "conversion transaction" or
other risk reduction transaction and persons who have a "functional currency"
other than the U.S. dollar) may be subject to special rules. The discussion also
does not address any aspect of state, local or foreign law, or U.S. federal
estate and gift tax law other than U.S. federal estate tax law as applicable to
a "Non-U.S. Holder" (as defined below). In addition, this discussion is limited
to an original holder of a registered note who acquired an original note
exchanged for the registered note on its original issue date and at its original
issue price within the meaning of Section 1273 of the Code and who will hold the
registered note as a "capital asset" within the meaning of Section 1221 of the
Code.
HOLDERS OF ORIGINAL NOTES ARE ADVISED TO CONSULT THEIR TAX ADVISERS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE REGISTERED NOTES.
EXCHANGE OF NOTES
The exchange of an original note for a registered note pursuant to the
exchange offer should not be a taxable exchange for U.S. Federal income tax
purposes. Accordingly, a registered note acquired in exchange for an original
note should have the same adjusted basis, holding period, issue price, adjusted
issue price, stated redemption price at maturity, yield and accrual periods as
the original note had in the hands of its beneficial owner immediately before
the exchange. The tax consequences of ownership and disposition of a registered
note should be the same as the tax consequences of the ownership and disposition
of the original note surrendered in exchange for it.
Accordingly, in the following discussion, the U.S. Federal income tax
consequences with respect to a registered note assume that the registered note
is treated, for U.S. Federal income tax purposes, as the same note as the
original note for which it was issued and that the registered note has the same
adjusted basis, holding period, issue price, adjusted issue price, stated
redemption price at maturity, yield and accrual periods as the original note had
in the hands of its beneficial owner immediately before the exchange, and that
any amounts that accrue or are paid or payable on an original note are treated
as accruing or as paid or payable on the registered note.
U.S. HOLDERS
The following discussion is limited to a holder of a registered note that
is a "U.S. Holder." For purposes of this discussion, a "U.S. Holder" is a
beneficial owner of a registered note that for U.S. federal income tax purposes
is (i) a citizen or resident (as defined in Section 7701(b) of the Code) of the
United States, (ii) a corporation or partnership (or an entity treated as a
corporation or
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partnership) created or organized in the United States or under the law of the
United States, any state or the District of Columbia, (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of source or (iv)
a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
TAXATION OF STATED INTEREST ON THE REGISTERED NOTES. Generally, payments
of "qualified stated interest" will be includible in a U.S. Holder's gross
income and taxable as ordinary income for U.S. federal income tax purposes at
the time they are paid or accrue in accordance with the U.S. Holder's regular
method of tax accounting. Generally, "qualified stated interest" payments
include stated interest payments that are unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of intervals
between payments.
ORIGINAL ISSUE DISCOUNT ON THE REGISTERED NOTES. The original notes were
issued with original issue discount or "OID," and each registered note therefore
should have the same OID as the original note exchanged therefor. Accordingly,
each U.S. Holder generally will be required to include in income (regardless
whether the U.S. Holder uses a cash or accrual method of accounting for U.S.
federal income tax purposes) in each taxable year, in advance of the receipt of
the corresponding cash payments on a registered note, that portion of the OID,
computed on a constant yield basis, attributable to each day during the year on
which the U.S. Holder holds the registered note.
The amount of OID with respect to each registered note will be equal to the
excess of (i) the "stated redemption price at maturity" of the registered note
over (ii) the "issue price" of the registered note. The "stated redemption price
at maturity" of a registered note will be equal to the sum of all cash payments
required to be made on the registered note other than payments of "qualified
stated interest" (defined above). The "issue price" of a registered note will be
equal to the portion of the "issue price" of the unit that originally was issued
(which constituted an "investment unit" for U.S. federal income tax purposes
consisting of an original note and the associated warrant) allocable to the
original note based upon the relative fair market values of the original note
and the associated warrant comprising the unit. Because the unit was issued for
money, the "issue price" of the unit was the first price at which a substantial
amount of the units was sold for money. For purposes of determining the issue
price of the units, sales to bond houses, brokers, or similar persons or
organizations acting in the capacity as underwriters, placement agents or
wholesalers are ignored.
Under Treasury regulations, we have allocated the issue price of the units
between the original notes and the associated warrants. That allocation will be
binding on all holders of units, unless a holder explicitly discloses (on a form
prescribed by the IRS and attached to the holder's timely-filed U.S. federal
income tax return for the taxable year that includes the acquisition date of the
unit) that its allocation of the issue price of a unit is different from the
issuer's allocation. Our allocation is not, however, binding on the IRS. Based
on our allocation, the issue price of each original note was $962.40.
A U.S. Holder of a debt instrument issued with OID is required for U.S.
federal income tax purposes to include OID in gross income each year under a
constant yield method, regardless of the holder's regular method of tax
accounting. The amount of OID includible in income by a U.S. Holder of a
registered note in any taxable year is the sum of the "daily portions" of the
OID for all days during the taxable year in which the U.S. Holder holds the
registered note. The daily portions of OID required to be included in a U.S.
Holder's gross income in a taxable year will be determined under a constant
yield method by allocating to each day during a taxable year in which the U.S.
Holder holds the registered note a pro rata portion of the OID on that
registered note that is attributable to the "accrual period" in which that day
is included. The amount of the OID attributable to each accrual period is an
amount equal to the excess, if any, of (1) the product of the
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"adjusted issue price" of the registered note at the beginning of that accrual
period and the "yield to maturity" of the registered note (that is, the discount
rate that, when used in computing the present value of all principal and
interest payments to be made under the registered note in the manner prescribed
by Treasury regulations, produces an amount equal to the issue price of the
note) over (2) the amount of any "qualified stated interest" (defined above)
allocable to the accrual period. The "adjusted issue price" of a registered note
at the beginning of the first accrual period (which, as noted above, should be
the first accrual period of the original notes exchanged for the registered
note) will be its issue price. Thereafter, the adjusted issue price at the
beginning of any accrual period will be equal to (a) the sum of the issue price
of the registered note and the aggregate amount of OID that accrued for all
prior accrual periods minus (b) the amount of all prior payments (other than
payments of "qualified stated interest") made on or before the first day of the
accrual period. OID allocable to a final accrual period is the difference
between the amount payable at maturity (other than "qualified stated interest")
and the adjusted issue price of the registered note at the beginning of the
final accrual period. The calculation of OID for an initial short accrual period
may be determined using any reasonable method. We will report to the U.S.
Holders, on a timely basis, the reportable amount of OID and qualified stated
interest income based on our understanding of applicable law.
The registered notes may be redeemed prior to their stated maturity at our
option. For purposes of computing the yield on the registered notes, we will be
deemed to exercise or not to exercise our option to redeem the registered notes
in a manner that minimizes the yield on the registered notes. It is not
anticipated that our ability to redeem the registered notes will affect the
registered notes' yield to maturity.
According to the applicable Treasury regulations, the possibility of a
redemption or repurchase of the registered notes at a premium if there is a
Change of Control or if we sell certain assets and do not use the proceeds as
specified will not affect the amount or timing of interest income recognized by
a holder of a registered note if the likelihood of the redemption or repurchase,
as of the date the original notes were issued, is remote. We intend to take the
position that the likelihood of a redemption or repurchase, if there is a Change
of Control or if we sell certain assets and do not use the proceeds as
specified, is remote under applicable Treasury regulations and similarly do not
intend to treat those possibilities as affecting the yield to maturity of the
registered notes. Accordingly, any premium payable on either of those events
should be includible in gross income by a U.S. Holder at the time the payment is
paid or accrues in accordance with the U.S. Holder's regular method of tax
accounting.
A U.S. Holder may elect to include in gross income, on the constant yield
method, all income on a registered note (including stated interest, OID, de
minimis OID, market discount, acquisition discount, de minimis market discount
and unstated interest), as adjusted by any amortizable bond premium or
acquisition premium. In applying the constant-yield method to a registered note
with respect to which this election has been made, the issue price of the
registered note will equal the electing U.S. Holder's adjusted basis in the
registered note immediately after its acquisition, the issue date of the
registered note will be the date of its acquisition by the electing U.S. Holder,
and no payments on the registered note will be treated as payments of qualified
stated interest. This election will generally apply only to the registered note
with respect to which it is made and may not be revoked without the consent of
the IRS. Any election made with respect to an original note or a registered note
should be treated as an election made with respect to the corresponding
registered note or original note, respectively.
ADJUSTED TAX BASIS. A U.S. Holder's tax basis in a registered note will be
increased by the amount of OID that the U.S. Holder includes in income pursuant
to the foregoing rules through the day preceding the day of disposition and will
be decreased by the amount of any cash payments received on the registered note
(other than payments of qualified stated interest).
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APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS. If the original notes were
"applicable high-yield debt obligations," or AHYDOs, the registered notes also
should be AHYDOs. In that event, we would not be entitled to deduct OID accruing
on the registered notes, to the extent the OID does not exceed the applicable
federal rate, or AFR, plus six percentage points, until we actually pay the OID.
We would be permanently disallowed a deduction for any OID in excess of the AFR
plus six percentage points, and the payment of that amount would be treated as a
dividend, for which a dividends received deduction would be allowable to certain
corporate holders, to the extent it is deemed to be paid out of our current or
accumulated earnings and profits. However, based on the calculation of the issue
price and yield of the original notes, the amount of OID on the original notes
would not be "significant" within the meaning of the AHYDO rules, and therefore
the original notes, and the registered notes, would not be AHYDOs.
SALE, EXCHANGE OR RETIREMENT OF A REGISTERED NOTE. Each U.S. Holder
generally will recognize capital gain or loss upon a sale, exchange or
retirement of a registered note measured by the difference, if any, between (i)
the amount of cash and the fair market value of any property received (except to
the extent that the cash or other property received in respect of a registered
note is attributable to the payment of accrued interest on the registered note
not previously included in income, which amount will be taxable as ordinary
income) and (ii) the holder's adjusted tax basis in the instrument. In each
case, the gain or loss will be long-term capital gain or loss if the registered
note has been held for more than one year at the time of the sale, exchange,
retirement or lapse. Long-term capital gain recognized on a sale, exchange or
retirement of a registered note by certain noncorporate U.S. Holders is subject
to tax at a maximum tax rate of 20%. As noted above, a U.S. Holder's initial
basis in a registered note generally will be the portion of the amount paid for
a unit allocable to the original note based on the relative fair market values
of the original note and the associated warrant. (See "-- Original Issue
Discount on the Notes"). The tax basis in the registered notes may be adjusted
as described in "-- Adjusted Tax Basis" above.
Prospective acquirors of registered notes should be aware that the resale
of a registered note may be affected by the "market discount" rules of the Code,
under which a portion of any gain realized on the retirement or other
disposition of a registered note by a subsequent holder that acquires the
registered note at a market discount generally would be treated as ordinary
income to the extent of the market discount that accrues while that holder holds
the registered note.
POTENTIAL RECHARACTERIZATION OF ORIGINAL NOTES ISSUED BY WINSLOEW ESCROW
CORP. The original notes were issued originally by WinsLoew Escrow Corp., which
was formed solely for the purpose of completing the offering of the original
notes prior to the merger of Trivest Furniture Corporation with and into us.
WinsLoew Escrow Corp. was a wholly owned subsidiary of Trivest Furniture
Corporation and merged with and into Trivest Furniture Corporation as part of
the merger of Trivest Furniture Corporation with and into us. As discussed
above, we believe that as a result of the merger of WinsLoew Escrow Corp. with
and into us, the separate existence of WinsLoew Escrow Corp. should be
disregarded for U.S. federal income tax purposes and thus that the U.S. federal
income tax consequences to a U.S. Holder of acquiring, holding or disposing of a
registered note should be those set forth above. However, it is possible that
the separate existence of WinsLoew Escrow Corp. would not be disregarded for
U.S. federal income tax purposes. Each prospective acquiror of a registered note
is advised to consult its own tax adviser regarding the possibility of such
recharacterization and the tax consequences of such a recharacterization.
INFORMATION REPORTING AND BACKUP WITHHOLDING. A U.S. Holder of a
registered note may be subject, under certain circumstances, to information
reporting and "backup withholding" at a rate of 31% with respect to certain
"reportable payments," including interest on or principal (and premium, if any)
of a registered note and the gross proceeds from a disposition of a registered
note. The backup withholding rules apply if the holder, among other things, (i)
fails to furnish a social security number
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<PAGE> 128
or other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to properly report the receipt of interest or
dividends or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN furnished is the
correct number and that the holder is not subject to backup withholding. A U.S.
Holder who does not provide us with its correct TIN also may be subject to
penalties imposed by the IRS. Backup withholding will not apply with respect to
payments made to certain holders, including corporations and tax-exempt
organizations, provided their exemptions from backup withholding are properly
established. We will report annually to the IRS and to each U.S. Holder of a
registered note the amount of any "reportable payments" and the amount of tax
withheld, if any, with respect to those payments.
Any amounts withheld under the backup withholding rules from a payment to a
U.S. Holder will be allowed as a refund or as a credit against that U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
NON-U.S. HOLDERS
The following discussion is limited to U.S. federal income and estate tax
consequences relevant to a Non-U.S. Holder. As used herein, a "Non-U.S. Holder"
is a beneficial owner of a registered note, that, for U.S. federal income tax
purposes, is (a) a nonresident alien individual, (b) a corporation or
partnership (or an entity treated as a corporation or partnership) created or
organized in or under the law of a country (or a political subdivision thereof)
other than the United States or (c) a foreign estate or trust, which generally
is an estate or trust that is not a U.S. Holder. For purposes of the withholding
tax discussed below (other than backup withholding), a Non-U.S. Holder includes
a nonresident fiduciary of an estate or trust. This discussion does not address
tax consequences relevant to an expatriate or former long-term resident of the
United States or to a person who holds a registered note through a partnership.
A person who holds a registered note through a hybrid entity (that is, an entity
that is fiscally transparent for U.S. federal income tax purposes but not for
foreign tax purposes) may not be entitled to the benefits of a tax treaty. For
example, a person who is a partner in a foreign partnership or beneficiary of a
foreign trust or estate and who is subject to U.S. federal income tax because of
his own status, for example, as a U.S. resident or a foreign person engaged in
trade or business in the United States, may be subject to U.S. federal income
tax even though the foreign partnership, trust or estate is not itself subject
to U.S. federal income tax. For purposes of the following discussion, "U.S.
trade or business income" of a Non-U.S. Holder generally means interest or gain
on a sale, exchange or retirement of a registered note if that interest or gain
is (i) effectively connected with trade or business conducted by the Non-U.S.
Holder within the United States or (ii) in most cases of a resident of a country
with which the United States has an income tax treaty, attributable to a
permanent establishment (or fixed base) of the Non-U.S. Holder in the United
States.
STATED INTEREST AND OID ON THE REGISTERED NOTES. In general, interest (and
premium, if any) paid to, and OID paid to or accrued by, a Non-U.S. Holder of a
registered note will not be subject to U.S. withholding tax if it qualifies for
the portfolio interest exemption, and it will not otherwise be subject to U.S.
federal income tax if it is not U.S. trade or business income of the Non-U.S.
Holder. Interest and OID on a registered note qualify for the portfolio interest
exemption if (i) the Non-U.S. Holder of the registered note (a) does not own,
actually and constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote, (b) is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership and
(c) is not a bank receiving interest on an extension of credit made pursuant to
a loan agreement made in the ordinary course of its trade or business and (ii)
either (a) the Non-U.S. Holder certifies, under penalties of perjury, to us or
the paying agent, as the case may be, that it is a Non-U.S. Holder and provides
its name and address or (b) a securities clearing organization, bank or other
financial institution that
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<PAGE> 129
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the registered note on behalf of the Non-U.S.
Holder certifies, under penalties of perjury, that it or a Financial Institution
between it and the Non-U.S. Holder has received such a certificate and furnishes
the payor with a copy thereof. Recently adopted Treasury regulations that
generally will be effective for payments made on or after January 1, 2001
provide alternative methods for satisfying the certification requirement
described in (ii) above. The new regulations generally will require, in the case
of a registered note held by a foreign partnership, that the certificate
described in (ii) above must be provided by the partners rather than by the
foreign partnership and that the partnership must provide certain information,
including a U.S. TIN.
Interest and premium, if any, and OID paid to or accrued by a Non-U.S.
Holder that constitutes U.S. trade or business income will be subject to U.S.
federal income tax on a net income basis at graduated rates in the same manner
that a U.S. taxpayer is subject to tax and will be exempt from the withholding
tax described above. In the case of a Non-U.S. Holder that is a corporation,
U.S. trade or business income under certain circumstances also will be subject
to an additional branch profits tax at a 30% rate (or, if applicable, a lower
treaty rate). The gross amount of interest (and premium, if any) and OID paid to
a Non-U.S. Holder that does not qualify for the portfolio interest exemption and
that is not U.S. trade or business income will be subject to withholding of U.S.
federal income tax at the rate of 30%, unless a U.S. income tax treaty reduces
or eliminates withholding. To claim the benefit of a tax treaty or to claim an
exemption from withholding because income is U.S. trade or business income, a
Non-U.S. Holder must provide a properly executed Form 1001 or 4224 (or a
successor form), as applicable, prior to the payment of the income. These forms
generally must be updated periodically. Under the new regulations, a Non-U.S.
Holder claiming either of those exemptions will be required to provide an IRS
Form W-8. In addition, under the new regulations, a Non-U.S. Holder who is
claiming the benefits of a tax treaty may be required to obtain a U.S. TIN and
to provide certain documentary evidence issued by a foreign governmental
authority to prove residence in the foreign country. Special procedures are
provided in the new regulations for payments through qualified intermediaries. A
holder of an original note should consult its own tax adviser regarding the
effect, if any, of the new regulations on it.
SALE, EXCHANGE OR RETIREMENT OF A REGISTERED NOTE. Subject to the
discussion below of backup withholding, gain recognized by a Non-U.S. Holder on
a sale, exchange or retirement of a registered note generally will not be
subject to U.S. federal income tax unless (i) the gain is U.S. trade or business
income of the Non-U.S. Holder or (ii) subject to certain exceptions, the
Non-U.S. Holder is an individual who holds the registered note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition.
Prospective acquirors of registered notes should be aware that the resale
of a registered note to a U.S. Holder may be affected by the "market discount"
rules of the Code, under which a portion of any gain realized on retirement or
other disposition of a registered note by a subsequent holder that is a U.S.
Holder that acquires the registered note at a market discount generally would be
treated as ordinary income to the extent of the market discount that accrues
while the U.S. Holder holds the registered note.
POTENTIAL RECHARACTERIZATION OF ORIGINAL NOTES ISSUED BY WINSLOEW ESCROW
CORP. The original notes were issued originally by WinsLoew Escrow Corp., which
was formed solely for the purpose of completing the offering of the original
notes prior to the merger of Trivest Furniture Corporation with and into us.
WinsLoew Escrow Corp. was a wholly owned subsidiary of Trivest Furniture
Corporation and merged with and into Trivest Furniture Corporation as part of
the merger of Trivest Furniture Corporation with and into us. As discussed
above, we believe that, as a result of the merger of WinsLoew Escrow Corp. with
and into us, the separate existence of WinsLoew Escrow Corp. should be
disregarded for U.S. federal income tax purposes and thus that the U.S. federal
income tax
124
<PAGE> 130
consequences to a Non-U.S. Holder of acquiring, holding or disposing of a
registered note should be those set forth above. However, it is possible that
the separate existence of WinsLoew Escrow Corp. would not be disregarded for
U.S. federal income tax purposes. Each prospective acquiror of registered notes
is advised to consult its own tax adviser regarding the possibility of such
recharacterization and the tax consequences of such a recharacterization.
FEDERAL ESTATE TAX. A registered note that is owned, or treated as owned,
by an individual who is not a citizen of the United States and who is not
domiciled in the United States at the time of death will not be subject to U.S.
federal estate tax, provided the individual did not own, actually and
constructively, 10% or more of the total combined voting power of all classes of
our stock entitled to vote and provided the income on the registered note was
not U.S. trade or business income. A registered note that is owned, or is
treated as owned, by an individual who is domiciled in the United States at the
time of death will be subject to U.S. federal estate tax regardless of whether
such holder is neither a citizen nor a resident of the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING. We must report annually to
the IRS and to each Non-U.S. Holder any interest or OID that is subject to U.S.
withholding tax or that is exempt from withholding pursuant to a tax treaty or
the portfolio interest exception. Copies of these information returns also may
be made available under the provisions of a specific treaty or agreement to the
tax authorities of the country in which the Non-U.S. Holder resides. Information
reporting and backup withholding (at a rate of 31%) do not apply to interest or
OID paid to a Non-U.S. Holder if the holder makes the requisite certification or
otherwise establishes an exemption provided that neither we nor our paying agent
has actual knowledge that the holder is not a Non-U.S. Holder or that the
conditions of any other exemption are not, in fact, satisfied.
Backup withholding and information reporting do not apply to our payments
of principal of a registered note to a Non-U.S. Holder if the holder certifies
under penalties of perjury that it is not a U.S. Holder or otherwise establishes
an exemption provided that neither we nor our paying agent has actual knowledge
that the holder is not a Non-U.S. Holder or that the conditions of any other
exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of a registered note to or
through the U.S. office of any broker, U.S. or foreign, is subject to
information reporting and possible backup withholding unless the owner certifies
under penalties of perjury that it is not a U.S. Holder or otherwise establishes
an exemption provided that the broker does not have actual knowledge that the
holder is not a Non-U.S. Holder or that the conditions of any other exemption
are not, in fact, satisfied.
The proceeds of a disposition of a registered note by a Non-U.S. Holder to
or through a foreign office of a broker will not be subject to backup
withholding. However, information reporting will apply in the case of a "U.S.
related broker" unless the broker has documentary evidence in its files of the
Non-U.S. Holder's foreign status and has no actual knowledge to the contrary or
unless the Non-U.S. Holder otherwise establishes an exemption. A broker is a
"U.S. related broker" if the broker is a United States person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50%
or more of whose income from all sources for a designated period is from
activities that are effectively connected with the conduct of trade or business
within the United States or, with respect to payments made on or after January
1, 2001, a foreign partnership that, at any time during its taxable year, is
owned 50% or more (by income or capital interest) by United States persons or is
engaged in the conduct of trade or business in the United States. The new
regulations provide certain presumptions under which a Non-U.S. Holder will be
subject to backup withholding and information reporting unless the Non-U.S.
Holder provides a certification as to its status as a Non-U.S. Holder.
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<PAGE> 131
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or as a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes for its own account in
connection with the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such registered notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by broker-dealers during the period referred to below in connection with resales
of the registered notes received in exchange for original notes if such original
notes were acquired by such broker-dealers for their own accounts as a result of
market-making activities or other trading activities. We have agreed that we
will make this prospectus, as it may be amended or supplemented from time to
time, available to any broker-dealer in connection with resales of registered
notes for a period ending one year after the effective date of the registration
statement, subject to extension under certain limited circumstances. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the registration
rights agreement, including certain indemnification rights and obligations.
We will not receive any cash proceeds from the issuance of the registered
notes offered hereby or from the sale of registered notes by broker-dealers.
Exchange notes received by broker-dealers for their own accounts in connection
with the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the registered notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
and/or the purchaser of any registered notes. Any broker-dealer that resells
registered notes that were received by it for its own account in connection with
the exchange offer and any broker or dealer that participates in a distribution
of such registered notes may be deemed to be an "underwriter" within the meaning
of the Securities Act, and any profit on any such resale of registered notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the effective date of the registration
statement, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
those documents in the letter of transmittal. We have agreed to indemnify those
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
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<PAGE> 132
LEGAL MATTERS
The legality of the registered notes offered hereby will be passed upon for
us by Greenberg Traurig, P.A., Miami, Florida.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We've
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing. The financial statements as of
December 31, 1998 for Pompeii appearing in this prospectus have been audited by
Infante, Lago & Company, independent auditors, as set forth in their report
thereon appearing elsewhere herein.
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<PAGE> 133
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WINSLOEW PAGE
- -------- ----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income For the Years Ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity For the
Years Ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 24, 1999 AND
SEPTEMBER 25, 1998
Consolidated Balance Sheets as of September 24, 1999
(Unaudited) and December 31, 1998......................... F-21
Consolidated Statements of Income For the Three Months and
Nine Months Ended September 24, 1999 and September 25,
1998 (Unaudited).......................................... F-22
Consolidated Statements of Cash Flows For the Nine Months
Ended September 24, 1999 and September 25, 1998
(Unaudited)............................................... F-23
Notes to Consolidated Financial Statements (Unaudited)...... F-24
POMPEII
- -------
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
Report of Infante, Lago & Company, Independent Auditors..... F-31
Balance Sheet as of December 31, 1998....................... F-32
Statement of Operations for the Year Ended December 31,
1998...................................................... F-33
Statement of Stockholders' Equity for the Year Ended
December 31, 1998......................................... F-34
Statement of Cash Flows for the Year Ended December 31,
1998...................................................... F-35
Notes to Financial Statements............................... F-36
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND 1998
Balance Sheets as of June 30, 1999 (Unaudited) and December
31, 1998.................................................. F-39
Statements of Income for the Six Months Ended June 30, 1999
and 1998 (Unaudited)...................................... F-40
Statements of Cash Flows for the Six Months Ended June 30,
1999 and 1998 (Unaudited)................................. F-41
Notes to Financial Statements............................... F-42
</TABLE>
F-1
<PAGE> 134
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
STOCKHOLDERS OF WINSLOEW FURNITURE, INC.
We have audited the accompanying consolidated balance sheets of WinsLoew
Furniture, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. 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 WinsLoew
Furniture, Inc. and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 29, 1999
F-2
<PAGE> 135
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 475 $ 707
Cash in escrow.............................................. 1,000 --
Accounts receivable, less allowances for doubtful accounts
of $1,694 and $788 at December 31, 1998 and 1997,
respectively.............................................. 23,647 22,031
Inventories................................................. 12,206 10,433
Prepaid expenses and other current assets................... 4,638 7,409
Net assets of discontinued operations....................... -- 1,470
------- -------
Total current assets...................................... 41,966 42,050
Net assets of discontinued operations....................... -- 4,548
Property, plant and equipment, net.......................... 13,948 12,023
Goodwill, net............................................... 27,176 21,021
Other assets, net........................................... 1,463 772
------- -------
$84,553 $80,414
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 47 $ 515
Accounts payable............................................ 4,377 3,395
Other accrued liabilities................................... 9,952 8,203
Net liabilities of discontinued operations.................. 1,750 --
------- -------
Total current liabilities.............................. 16,126 12,113
Long-term debt, net of current portion...................... 1,400 15,908
Deferred income taxes....................................... 801 1,367
------- -------
Total liabilities...................................... 18,327 29,388
------- -------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.0l per share, 5,000,000
shares authorized, none issued......................... -- --
Common stock-par value $.0l per share, 20,000,000 shares
authorized, 7,294,408 and 7,526,508 shares issued and
outstanding at December 31, 1998 and 1997,
respectively........................................... 73 75
Additional paid-in capital.................................. 19,797 24,926
Retained earnings........................................... 46,356 26,025
------- -------
Total stockholders' equity............................. 66,226 51,026
------- -------
$84,553 $80,414
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 136
WINSLOEW FURNITURE, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales............................................ $141,360 $122,145 $117,405
Cost of sales........................................ 87,232 79,431 78,029
-------- -------- --------
Gross profit......................................... 54,128 42,714 39,376
Selling, general and administrative expenses......... 23,124 21,427 21,472
Amortization......................................... 1,122 992 1,444
-------- -------- --------
Operating income..................................... 29,882 20,295 16,460
Interest expense..................................... 635 2,296 3,083
-------- -------- --------
Income from continuing operations before income
taxes.............................................. 29,247 17,999 13,377
Provision for income taxes........................... 10,947 6,838 4,834
-------- -------- --------
Income from continuing operations............... 18,300 11,161 8,543
Loss from discontinued operations, net of taxes...... -- (718) (259)
Gain (loss) from sale of discontinued operations, net
of taxes........................................... 2,031 (8,200) --
-------- -------- --------
Net income...................................... $ 20,331 $ 2,243 $ 8,284
======== ======== ========
Basic earnings (loss) per share:
Income from continuing operations.................. $ 2.46 $ 1.49 $ 0.98
Loss from discontinued operations, net of taxes.... -- (0.09) (0.03)
Gain (loss) from sale of discontinued operations,
net of taxes.................................... 0.27 (1.10) --
-------- -------- --------
Net income...................................... $ 2.73 $ 0.30 $ 0.95
======== ======== ========
Weighted average number of shares.................... 7,450 7,484 8,724
======== ======== ========
Diluted earnings (loss) per share:
Income from continuing operations.................. $ 2.40 $ 1.48 $ 0.98
Loss from discontinued operations, net of taxes.... -- (0.10) (0.03)
Gain (loss) from sale of discontinued operations,
net of taxes.................................... 0.27 (1.08) --
-------- -------- --------
Net income...................................... $ 2.67 $ 0.30 $ 0.95
======== ======== ========
Weighted average number of shares and common stock
equivalents........................................ 7,624 7,563 8,730
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 137
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995................. 8,967,112 $90 $37,640 $15,498 $53,228
Exercise of stock options.................. 25,100 -- 187 -- 187
Repurchase and cancellation of stock....... (576,925) (6) (3,958) -- (3,964)
Repurchase and cancellation of stock from
affiliated company....................... (933,504) (9) (9,326) -- (9,335)
Net income................................. -- -- -- 8,284 8,284
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1996................. 7,481,783 75 24,543 23,782 48,400
Exercise of stock options.................. 94,725 1 872 -- 873
Repurchase and cancellation of stock....... (50,000) (1) (489) -- (490)
Net income................................. -- -- -- 2,243 2,243
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1997................. 7,526,508 75 24,926 26,025 51,026
Exercise of stock options.................. 63,900 1 924 -- 925
Repurchase and cancellation of stock....... (296,000) (3) (6,053) -- (6,056)
Net income................................. -- -- -- 20,331 20,331
--------- --- ------- ------- -------
BALANCE, DECEMBER 31, 1998................. 7,294,408 $73 $19,797 $46,356 $66,226
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 138
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $20,331 $ 2,243 $ 8,284
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 2,618 2,634 2,979
Provision for losses on accounts receivable................. 1,331 42 1,759
Change in net assets held for sale.......................... 6,743 14,710 1,591
Changes in operating assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable....................................... (2,210) 1,875 (617)
Inventories............................................... (1,164) 1,182 288
Prepaid expenses and other current assets................. 2,779 (3,871) 50
Other assets.............................................. 843 691 (144)
Accounts payable.......................................... 792 (591) 1,841
Other accrued liabilities................................. (357) 3,386 (497)
Deferred income taxes..................................... (566) (310) 690
------- -------- --------
Total adjustments....................................... 10,809 19,748 7,940
------- -------- --------
Net cash provided by operating activities............... 31,140 21,991 16,224
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals...................... (942) (425) (1,351)
Proceeds from disposition of business....................... -- 2,119 --
Proceeds from disposition of business held in escrow........ (1,000) -- --
Investment in subsidiary.................................... (9,323) -- --
------- -------- --------
Net cash provided by (used in) investing activities..... (11,265) 1,694 (1,351)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit agreements.............. (10,837) (19,872) (65)
Payments on long-term debt.................................. (4,139) (4,386) (4,225)
Proceeds from issuance of common stock, net................. 925 873 187
Repurchase and cancellation of stock........................ (6,056) (490) (3,964)
Repurchase and cancellation of stock from affiliated
company................................................... -- -- (9,335)
Proceeds front issuance of long-term debt................... -- -- 3,030
------- -------- --------
Net cash used in financing activities................... (20,107) (23,875) (14,372)
------- -------- --------
Net increase (decrease) in cash and cash equivalents.... (232) (190) 501
Cash and cash equivalents at beginning of year.............. 707 897 396
------- -------- --------
Cash and cash equivalents at end of year.................... $ 475 $ 707 $ 897
======= ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................... $ 695 $ 2,318 $ 3,296
Income taxes paid........................................... $ 9,579 $ 6,048 $ 3,937
======= ======== ========
Investing activities included the acquisition of Tropic
Craft in 1998. Assets acquired, liabilities assumed and
consideration paid was as follows:
Fair value of assets acquired............................. $10,078
Cash acquired............................................. (43)
Liabilities assumed....................................... (712)
-------
$ 9,323
=======
</TABLE>
See accompanying notes.
F-6
<PAGE> 139
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of WinsLoew
Furniture, Inc. ("WinsLoew") and its subsidiaries (the "Company"). All material
intercompany balances and transactions have been eliminated.
BUSINESS
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual, contract seating and ready-to-assemble ("RTA")
furniture. WinsLoew's casual furniture products are distributed through
independent manufacturer's representatives, and are constructed of extruded and
tubular aluminum, wrought iron and cast aluminum. These products are distributed
through fine patio stores, department stores and full line furniture stores
nationwide. WinsLoew's contract seating products are distributed to a customer
base which includes architectural design firms, restaurant and lodging chains.
WinsLoew's RTA products include promotionally priced coffee and end tables, wall
units and rolling carts. Distribution of RTA furniture products is primarily
through mass merchandisers, catalogue wholesalers and specialty retailers. The
Company performs periodic credit evaluations of its customers' financial
condition and determines if collateral is needed on a customer by customer
basis.
CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents all highly liquid
investments which have maturities at the date of purchase of three months or
less. The Company maintains its cash in bank deposit accounts which, at times,
may exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in, first-out ("FIFO") and weighted average methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation on a straight-line basis over the following estimated useful lives:
building and improvements, 8 to 40 years; manufacturing equipment, 2 to 10
years; office furniture and equipment, 3 to 7 years; and vehicles, 3 to 5 years.
GOODWILL
Goodwill is amortized on a straight-line basis over forty years from the
date of the respective acquisition. The carrying value of goodwill is reviewed
if the facts and circumstances suggest it may be impaired. If the review, using
undiscounted cash flows over the remaining amortization period, indicates that
the cost of goodwill will not be recoverable, the Company's carrying value are
reduced.
F-7
<PAGE> 140
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED COSTS (OTHER ASSETS)
Loan acquisition costs and related legal fees, included in other assets,
are deferred and amortized over the respective terms of the related debt.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
basis of assets and liabilities for financial reporting purposes and the related
basis for income tax purposes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to SFAS No. 128 requirements.
The numerators for the earnings per share calculation are set forth on the
face of the accompanying income statements. The only difference between the
denominator for the basic and dilutive calculations are the number of shares
added to basic for the dilutive effect of employee stock options.
REVENUE RECOGNITION
Sales are recorded at time of shipment from the Company's facilities to
customers.
USE OF ESTIMATES
The preparation of the consolidated financial statements requires the use
of estimates in the amounts reported. Actual results could differ from those
estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS
The Company follows the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations to account for its stock option plan. Under provisions of APB
No. 25, no compensation expense has been recognized for stock option grants.
FOREIGN CURRENCY FORWARD CONTRACTS
The Company has exposure to losses which may result from settlement of
certain raw materials purchases denominated in a foreign currency. To reduce
this exposure, the Company has entered into forward contracts to buy foreign
currency. These forward contracts are accounted for as hedges, therefore, gains
and losses from settlement of the forward contracts are used to offset gains and
losses from settlement of the liability for the purchased raw materials. Gains
and losses are recognized in the same period in which gains or losses from the
raw material purchases are recognized. The
F-8
<PAGE> 141
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is exposed to losses on the forward contracts in the event it does not
purchase the raw materials, however, the Company does not anticipate this event.
At December 31, 1998 the Company did not have any forward contracts
outstanding. There were no significant deferred gains or (losses) and actual
gains (losses) included in cost of sales were ($12,000), $30,000 and $15,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The standard establishes principles for the
disclosure of information about operating segments in financial statements. The
adoption did not have any effect on the Company's primary financial statements,
but did effect the disclosure of segment information contained in Note 9.
2. DISCONTINUED OPERATIONS
During 1997 the Company adopted a plan to dispose of its RTA operations.
WinsLoew's RTA products included ergonomically-designed computer workstations,
which the Company denoted as "space savers", promotionally-priced coffee and end
tables, wall units and rolling carts and an extensive line of futons, futon
frames and related accessories. Distribution of RTA furniture products was
primarily through mass merchandisers, catalogue wholesalers and specialty
retailers. As a result of this decision, the Company recorded a pre-tax non-cash
charge totaling $12.4 million ($8.2 million net of taxes) in the fourth quarter
of 1997 relating to the disposal of the RTA operations. The charge can be
summarized as follows:
<TABLE>
<S> <C>
Write-off of goodwill in connection with sale of assets..... $ 3,902,000
Reduction of inventory value................................ 2,791,000
Reduction of property to net realizable value............... 2,067,000
Reduction of accounts receivable value...................... 1,390,000
Other liabilities/reserves.................................. 1,050,000
Accrual for losses through disposition...................... 1,200,000
-----------
Total.................................................. $12,400,000
===========
</TABLE>
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses and completed the liquidation of the futon business. At the end of
1997 and during 1998, the Company attempted to sell its remaining RTA facility
but was unable to obtain a satisfactory offer. The Company devoted significant
management time to the operation resulting in improved profitability by the end
of 1998. Due to the recovery, the Company decided, during the fourth quarter of
1998, to retain Southern Wood.
As a condition of the sale mentioned above, WinsLoew is required to hold in
escrow $1.0 million of the sales proceeds to provide indemnification to the
purchaser for claims arising from the date of purchase to December 31, 1999.
F-9
<PAGE> 142
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The operating results of the discontinued operations are summarized as
follows (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Net sales.................................................. $4,432 $15,921 $26,574
Income before taxes........................................ -- (1,178) (385)
Net loss................................................... -- (718) (259)
Net loss per share -- diluted.............................. -- (0.10) (0.03)
</TABLE>
The net assets of the discontinued operations at December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ -- $3,449
Current liabilities, including reserve for estimated losses
through disposal date..................................... (1,750) (1,979)
------- ------
Net assets/liabilities of discontinued operations,
current................................................ $(1,750) $1,470
======= ======
Property, net............................................... $ -- $ 478
Goodwill, net............................................... -- 4,018
Other assets................................................ -- 52
------- ------
Net assets of discontinued operations, non-current........ $ -- $4,548
======= ======
</TABLE>
Under the provisions of SFAS No. 5, Accounting for Contingencies, the
Company has evaluated the contingencies related to the sale of its discontinued
RTA operation and the liquidation of its discontinued futon operations. This
evaluation resulted in a net liability of $1,750,000 which is comprised of
$1,160,000 for the settlement of warranty claims and product returns in
accordance with the Company's warranty policy and contractual indemnity related
to the sale of the RTA operations, $200,000 in contingent liabilities related to
the closing of the sale of the RTA operations, $250,000 of litigation involving
a disputed trade name and $140,000 of miscellaneous items. The contingent
amounts are expected to be finalized by December 31, 1999 and settled during
2000.
The total assets and liabilities of the subsequently retained Southern Wood
operation for the period classified as a discontinued operation were $4.0
million and $1.1 million, respectively, at December 31, 1997.
The operating results of the subsequently retained Southern Wood operation
for each of the years the operation was reported as a discontinued operation are
summarized as follows (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Net sales................................................... $11,689 $7,396 $10,710
Income before taxes......................................... 1,004 399 30
Net income.................................................. 611 247 18
Net income per share -- diluted............................. 0.08 0.03 --
</TABLE>
During 1998, the Company recorded pre-tax income from the disposition of
discontinued operations totaling $3.2 million ($2.0 million net of taxes). The
components are as follows:
F-10
<PAGE> 143
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Gain on liquidation of Futon operations..................... $ 2,425,000
Reversal of reserves related to Southern Wood............... 1,857,000
Loss on sale of remaining RTA operation..................... (1,093,000)
-----------
Total............................................. $ 3,189,000
===========
</TABLE>
The reversal of reserves is comprised of $1,157,000 related to the
write-down of assets to net realizable values $400,000 estimated loss from
operations, and $300,000 for estimated costs of disposal. The amounts were a
reversal of the amounts accrued in 1997 for discontinued operations related to
Southern Wood.
The loss on the sale of the remaining RTA operation is the actual loss
incurred on the sale of the business in 1998.
As a result of the Board's decision to retain Southern Wood, the
consolidated financial statements for 1997 and 1996 have been reclassified to
reflect the results of operations and assets and liabilities, net of reserves
for discontinued operations, of Southern Wood as a continuing operation.
3. ACQUISITION AND DISPOSITION
During the third quarter of 1997 the Company disposed of certain assets of
its wrought iron business in the casual furniture product line. The sale
generated proceeds of $2.1 million. This business accounted for net sales of
$5.7 million and $11.0 million in the years ended December 31, 1997 and 1996,
respectively. The operating income of this business was not material to
consolidated operating income. During the third quarter of 1997, the Company
recorded approximately $230,000 of costs associated with the sale in selling,
general and administrative expenses.
In June 1998, the Company purchased all of the stock of Villella, Inc.
d/b/a Tropic Craft Aluminum Furniture Manufacturers ("Tropic Craft") for $9.3
million. In addition, the seller will be entitled to receive a contingent
purchase price payment of up to $1.0 million upon achievement of targeted
earning performance with respect to the years ending June 30, 1999 and June 30,
2000. Tropic Craft is engaged in the design and manufacture of contract casual
furniture. The acquisition resulted in goodwill of $6.9 million. Funds for the
acquisition were provided under WinsLoew's credit facility. The acquisition was
accounted for under the purchase method and, accordingly, the operating results
of Tropic Craft have been included in the consolidated operating results since
the date of acquisition.
The following unaudited pro forma information has been prepared assuming
that the acquisition of Tropic Craft occurred on January 1, 1997. Permitted pro
forma adjustments include only the effects of events directly attributable to
the transaction that are factually supportable and expected to have a continuing
impact. The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire period
presented. In addition, they
F-11
<PAGE> 144
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are not intended to be a projection of future results and do not reflect any
synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $144,752 $127,108
Income from continuing operations........................... 18,946 11,298
Net income.................................................. 20,977 2,380
Income from continuing operations per share -- diluted...... 2.49 1.49
Net income per share -- diluted............................. 2.76 0.32
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit.................................... $1,400 $ 1,546
Term loan................................................... -- 2,287
Acquisition line of credit.................................. -- 12,500
Other....................................................... 47 90
------ -------
1,447 16,423
Less: current portion....................................... 47 515
------ -------
$1,400 $15,908
====== =======
</TABLE>
SENIOR CREDIT FACILITIES
The Company's Senior Credit Facility, as amended, provides for $62.5
million which matures in February 2001, and is collateralized by substantially
all of the assets of the Company. The facility consists of a working capital
revolving line of credit (maximum of $40 million), a term loan (originally $10
million) and an acquisition line of credit (maximum of $12.5 million). The
working capital revolving line of credit allows the Company to borrow funds up
to a certain percentage of eligible inventories and accounts receivable. The
term loan requires quarterly repayments. The acquisition line of credit converts
to a term loan with principal payments due in quarterly installments.
Additionally, a payment equal to 50% of cash flow, as defined, is required for
each year within 90 days of year-end. WinsLoew's amended Senior Credit Facility
provides the Company with a variable amount available under the revolving line
of credit. Effective each June 30, the maximum amount available under its
revolving line of credit is $20 million. The Company may, at its option, elect
to increase the revolving line of credit at each December 31 through the
following June 30 to a maximum of $40 million. As of December 31, 1998, WinsLoew
elected to increase the revolving line of credit to $35 million.
The WinsLoew's Senior Credit Facility allows the Company to borrow up to
$10 million under its line of credit to purchase shares of the Company's common
stock (see Note 5 below). At December 31, 1998 there was $6.1 million available
for this purpose.
F-12
<PAGE> 145
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rates on the components of the Senior Credit Facility are
either the base rate plus a spread, or the LIBOR rate plus a spread, as elected
by the Company. The spread is determined by the leverage ratio, as defined, for
the twelve month period ending each quarter. At December 31, 1998, the loans are
priced at the base rate plus 0.25% (8.25% at December 31, 1998). If any LIBOR
loans had been outstanding at December 31, 1998 they would have been priced at
the LIBOR rate plus 1.25%. In addition, WinsLoew pays an unused facility fee of
.375% per annum on a quarterly basis in arrears.
The agreement requires the Company to meet certain financial ratios for
leverage, interest coverage, tangible net worth and includes other provisions
generally common in such agreements including restrictions on dividends,
additional indebtedness and capital expenditures. At December 31, 1998, the
Company was in compliance with its debt covenants. The carrying value of the
revolving line of credit approximated its fair value at December 31, 1998.
5. CAPITAL STOCK
On January 23, 1998, the Board approved a plan authorizing the repurchase
of 1,000,000 shares of the Company's stock in the open market at times and
prices deemed advantageous. During 1998, the Company retired 296,000 shares of
common stock purchased for $6.1 million. Subsequent to December 31, 1998 the
Company has purchased 92,500 shares at a cost of $2.6 million. Currently, under
the Board approved repurchase plan, there are 611,500 shares available for
repurchase.
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for taxes related to continuing operations.... $10,947 $6,838 $4,834
Benefit for taxes related to discontinued operations.... -- (375) (126)
Provision (benefit) for taxes related to loss on sale of
discontinued operations............................... 1,158 (4,200) --
------- ------ ------
Total provision for taxes............................. $12,105 $2,263 $4,708
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................... $10,128 $3,985 $4,478
Deferred.............................................. 856 (1,936) (251)
State:
Current............................................... 989 496 542
Deferred.............................................. 132 (282) (61)
------- ------ ------
$12,105 $2,263 $4,708
======= ====== ======
</TABLE>
F-13
<PAGE> 146
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 and 1997, deferred tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs............................... $ 173 $ 415
Reserves and accruals..................................... 2,894 3,660
State net operating loss carryforwards.................... 304 344
------- -------
Deferred tax assets.................................... 3,371 4,419
------- -------
Deferred tax liabilities:
Intangible asset basis difference......................... (191) (98)
Excess of tax over book depreciation...................... (611) (1,194)
Prepaid expenses.......................................... (94) (93)
Other..................................................... (504) (75)
------- -------
Deferred tax liabilities.................................. (1,400) (1,460)
------- -------
Deferred income taxes, net............................. $ 1,971 $ 2,959
======= =======
Included in:
Other current assets/liabilities.......................... $ 2,772 $ 4,326
Deferred income taxes..................................... (801) (1,367)
------- -------
$ 1,971 $ 2,959
======= =======
</TABLE>
The following table summarizes the differences between the federal income
tax rate and the Company's effective income tax rate for financial statement
purposes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate..................................... 35.0% 34.0% 34.0%
State income taxes.......................................... 3.4 4.7 2.2
Goodwill amortization....................................... 2.1 9.3 2.0
Other....................................................... (3.4) 2.2 (2.0)
---- ---- ----
Effective tax rate.......................................... 37.1% 50.2% 36.2%
==== ==== ====
</TABLE>
7. RELATED PARTY TRANSACTIONS
In October 1994, WinsLoew entered into a ten-year agreement (the
"Investment Services Agreement") with Trivest, Inc. ("Trivest"). Trivest and the
Company have certain common shareholders, officers and directors. Pursuant to
the Investment Services Agreement, Trivest provides corporate finance, financial
relations, strategic and capital planning and other management advice to the
Company. The base compensation is $500,000, subject to cost of living increases
and increases for additional businesses acquired. For 1998, 1997 and 1996, the
amount expensed was $641,000, $628,000 and $604,000, respectively. In 1996, the
Company retired 933,504 shares of its common stock purchased from an affiliated
company at $10 per share.
F-14
<PAGE> 147
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, manufacturing facilities and
various items of equipment under operating leases. Some leases for office and
manufacturing space contain renewal options and provisions for increases in
minimum payments based on various measures of inflation. Rental expense amounted
to approximately $830,000, $769,000, and $792,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Operating lease agreements in effect at
December 31, 1998, have the following remaining minimum payment obligations:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $765
2000........................................................ 740
2001........................................................ 744
2002........................................................ 714
2003........................................................ 306
2004 - 2007................................................. 757
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain employees. The
agreements provide for minimum salary levels and bonuses based on a percentage
of pre-tax operating income, as defined in the agreements.
EMPLOYEE BENEFIT PLANS
The Company has an employee benefit plan established under the provisions
of Section 401(k) of the Internal Revenue Code. Full-time employees who meet
various eligibility requirements may voluntarily participate in the plan. The
plan provides for voluntary employee contributions through salary reduction, as
well as discretionary employer contributions. Company contributions were
$161,000 and $143,000 in 1998 and 1997, respectively.
STOCK OPTION PLAN
In 1994, the Company established a Stock Option Plan (the "Plan") as a
means to retain and motivate key employees and directors. The Compensation
Committee of the Board of Directors administers and interprets the Plan and is
authorized to grant options to all eligible employees of the Company and
non-employee directors. The Plan provides for both incentive stock options and
non-qualified stock options. Options are granted under the Plan on such terms
and at such prices as determined by the Compensation Committee, except that the
per share exercise price of incentive stock options cannot be less than the fair
market value of the Company's common stock on the date of grant. The Company has
reserved 1,500,000 shares of common stock for issuance upon exercise of stock
options. All options which have been granted have a term of ten years and vest
ratably over five years.
Pro forma net income and earnings per share have been determined as if the
Company had accounted for its employee stock options as compensation expense
based on their fair value. Fair value was estimated at the date of grant using a
Black-Scholes option pricing model for 1998, 1997 and 1996 assuming a risk-free
interest rate of 4.83%, 6.45% and 6.2% for 1998, 1997 and 1996,
F-15
<PAGE> 148
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, a volatility factor for the Company's common stock of .608, .411
and .532 in 1998, 1997 and 1996, respectively and a weighted-average expected
life of the options of six years. The pro forma information is not likely to be
representative of the effects of options on pro forma net income in future years
because the Company is required to include only options granted since 1994 in
the pro forma information.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net income........................................ $20,035 $2,068 $8,198
======= ====== ======
Pro forma income (loss) per share, diluted:
Income from continuing operations......................... $ 2.36 $ 1.45 $ 0.97
Loss from discontinued operations, net of taxes........... -- (0.09) (0.03)
Gain (loss) from sale of discontinued operations, net of
taxes.................................................. 0.27 (1.08) --
------- ------ ------
Net income............................................. $ 2.63 $ 0.28 $ 0.94
======= ====== ======
</TABLE>
Information with respect to WinsLoew's Plan is as follows:
<TABLE>
<CAPTION>
1998
---------------------------------
WEIGHTED
AVERAGE EXERCISE
OPTIONS PRICE 1997 1996
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Options outstanding at January
1.............................. 784,850 $ 9.19 671,550 738,450
Granted........................ 40,000 $20.62 250,000 25,000
Exercised...................... (63,900) $ 8.25 (94,725) (25,100)
Canceled....................... (18,050) $ 9.29 (41,975) (66,800)
-------------- -------------- --------------
Options outstanding at
December 31.................. 742,900 $ 9.89 784,850 671,550
============== ============== ==============
Exercise prices per share...... $5.88 - $23.44 $5.88 - $16.06 $5.88 - $11.63
Options exercisable at
December 31.................. 422,060 $ 9.20 407,100 480,400
============== ============== ==============
Options available for grant at
December 31.................. 573,375 595,325 803,350
============== ============== ==============
</TABLE>
F-16
<PAGE> 149
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information with regard to options outstanding and exercise price at
December 31 is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
AT DECEMBER 31,
WEIGHTED 1998
WEIGHTED AVERAGE --------------------
AVERAGE OPTIONS OUTSTANDING REMAINING WEIGHTED
EXERCISE --------------------------- LIFE AVERAGE
EXERCISE PRICE PRICE 1998 1997 1996 AT 12/31/98 SHARES PRICE
- -------------- -------- ------- ------- ------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.88 - $6.67....................... $ 6.16 255,800 291,850 356,250 6.1 160,240 $ 6.20
8.66................................ 8.66 8,200 10,250 10,250 6.2 4,920 8.66
10.00 - 10.50....................... 10.35 240,900 284,750 158,550 7.3 104,900 10.16
11.13 - 11.63....................... 11.56 163,000 163,000 146,500 5.4 145,000 11.61
12.63............................... 12.63 20,000 20,000 -- 8.6 4,000 12.63
16.06............................... 16.06 15,000 15,000 -- 8.9 3,000 16.06
17.00............................... 17.00 17,500 -- -- 9.0 -- --
23.44............................... 23.44 22,500 -- -- 9.4 -- --
------- ------- ------- -------
Total 9.89 742,900 784,850 671,550 7.0 422,060 9.20
======= ======= ======= =======
</TABLE>
The estimated weighted average fair value of options granted in 1998 is
$12.51 per option. The weighted average remaining contractual life for options
granted in 1998 is 9.3 years.
LITIGATION AND LIABILITY CLAIMS
The Company is, from time to time, involved in routine litigation including
general liability and worker's compensation claims. It is the opinion of
management that sufficient insurance has been purchased to cover current and
potential general liability and worker's compensation claims. None of such
litigation in which the Company is presently involved is believed to be material
to its liquidity, financial position or results of operations.
9. OPERATING SEGMENTS
The Company has three segments organized and managed based on the products
sold. These reportable segments are described in Note 1.
The Company evaluates performance and allocates resources based on gross
profit. The accounting policies are the same as those described in the summary
of significant accounting policies. There are no intersegment sales/transfers.
Export revenues are not material.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Casual products............................................ $ 59,733 $ 56,363 $ 58,066
Contract seating products.................................. 69,938 58,386 48,629
Ready to assemble products................................. 11,689 7,396 10,710
-------- -------- --------
Total revenues........................................... $141,360 $122,145 $117,405
======== ======== ========
SEGMENT GROSS PROFIT:
Casual products............................................ $ 28,227 $ 24,164 $ 23,812
Contract seating products.................................. 23,439 17,256 14,126
Ready to assemble products................................. 2,462 1,294 1,438
-------- -------- --------
Total segment gross profit............................... 54,128 42,714 39,376
</TABLE>
F-17
<PAGE> 150
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reconciling items:
Selling and general and administrative expenses.......... 23,124 21,427 21,472
Amortization............................................. 1,122 992 1,444
-------- -------- --------
Operating income........................................... 29,882 20,295 16,460
Interest expense, net...................................... 635 2,296 3,083
-------- -------- --------
Income from continuing operations before income taxes...... $ 29,247 $ 17,999 $ 13,377
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Casual products............................................ $ 1,550 $ 1,532 $ 1,956
Contract seating products.................................. 425 411 360
Ready to assemble products................................. 309 341 349
-------- -------- --------
Total.................................................... 2,284 2,284 2,665
Reconciling items:
Corporate................................................ 334 350 314
-------- -------- --------
Total depreciation and amortization...................... $ 2,618 $ 2,634 $ 2,979
======== ======== ========
</TABLE>
F-18
<PAGE> 151
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
EXPENDITURES FOR (DISPOSAL OF) LONG
LIVED ASSETS, NET:
Casual products............................................. $ (24) $ 790 $ 629
Contract seating products................................... 129 236 162
Ready to assemble products.................................. 103 (576) 61
------- ------- -------
Total.................................................. 208 450 852
Reconciling items:
Corporate................................................. 734 (25) 499
------- ------- -------
Total expenditures for long lived assets, net.......... $ 942 $ 425 $ 1,351
======= ======= =======
SEGMENT ASSETS:
Casual products............................................. $51,880 $41,964 $48,086
Contract seating products................................... 23,486 21,836 22,372
Ready to assemble products.................................. 6,496 3,974 6,246
------- ------- -------
Total.................................................. 81,862 67,774 76,704
Reconciling items:
Corporate................................................. 2,691 6,622 2,518
Assets held for sale...................................... -- 6,018 20,728
------- ------- -------
Total consolidated assets.............................. $84,553 $80,414 $99,950
======= ======= =======
</TABLE>
The Company has one contract seating customer that accounted for 17%, 16%
and 10% of consolidated revenues in the years ended December 31, 1998, 1997 and
1996, respectively.
10. SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified
below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials............................................. $ 9,288 $ 8,146
Work in process........................................... 1,521 1,089
Finished goods............................................ 1,397 1,198
-------- --------
$ 12,206 $ 10,433
======== ========
Property, plant and equipment:
Land...................................................... $ 2,628 $ 1,834
Building and improvements................................. 10,838 9,273
Manufacturing equipment................................... 9,464 9,146
Office equipment.......................................... 1,953 1,776
Construction in progress.................................. 81 74
Vehicles.................................................. 176 141
-------- --------
25,140 22,244
Accumulated depreciation.................................... (11,192) (10,221)
-------- --------
$ 13,948 $ 12,023
======== ========
</TABLE>
F-19
<PAGE> 152
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Other accrued liabilities:
Compensation, commissions and employee benefits........... $ 3,063 $ 2,324
Customer deposits......................................... 1,749 1,559
Income taxes.............................................. 1,546 971
Interest.................................................. 24 88
Other..................................................... 3,570 3,261
-------- --------
$ 9,952 $ 8,203
======== ========
</TABLE>
Depreciation expense for continuing operations was $1,496,000, $1,642,000,
and $1,535,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Accumulated amortization at December 31, 1998 and 1997 related to goodwill
was $6,348,000 and $5,564,000, respectively. Accumulated amortization at
December 31, 1998 and 1997 related to other intangible assets was $1,110,000 and
$773,000, respectively.
11. SUBSEQUENT EVENTS
In January 1999, the Company entered into a non-binding letter of intent
(the "letter") to pursue a potential merger in which the Company's public
shareholders would receive $30.00 per share in cash. The purchasing entity would
be formed by the Chairman of the Board of Directors and other members of
management. A Special Committee of the Company's Board of Directors was
established to review the proposal and it has recommended the letter.
The letter permits the Company to solicit and consider superior proposals
subject to the payment of a termination fee to the management group upon the
acceptance of another offer. The proposed merger is subject to, among other
things, approval by the Company's shareholders and the Special Committee.
Accordingly, there can be no assurance that the merger will be consummated.
F-20
<PAGE> 153
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 24, DECEMBER 31,
1999 1998
-------------- -------------
(IN THOUSANDS EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 762 $ 475
Cash in escrow.............................................. 1,000 1,000
Accounts receivable, less allowances for doubtful
accounts.................................................. 17,720 23,647
Inventories................................................. 13,409 12,206
Prepaid expenses and other current assets................... 4,300 4,638
-------- -------
Total current assets................................... 37,191 41,966
Property, plant and equipment, net.......................... 13,847 13,948
Goodwill, net............................................... 238,950 27,176
Other assets................................................ 7,843 1,463
-------- -------
$297,831 $84,553
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 2,787 $ 47
Accounts payable............................................ 4,863 4,377
Other accrued liabilities................................... 14,602 9,952
Net liabilities of discontinued operations.................. 1,619 1,750
-------- -------
Total current liabilities.............................. 23,871 16,126
Long-term debt, net of current portion...................... 194,243 1,400
Deferred income taxes....................................... 911 801
-------- -------
Total liabilities...................................... 219,025 18,327
-------- -------
Commitments and contingencies............................... -- --
Stockholders' equity:
Common stock; par value $.01 per share, 1,000,000 and
20,000,000 shares authorized, 780,000 and 7,294,408
shares issued and outstanding at September 24, 1999 and
December 31, 1998, respectively........................ 8 73
Additional paid-in capital.................................. 79,392 19,797
Retained earnings (deficit)................................. (594) 46,356
-------- -------
Total stockholders' equity............................. 78,806 66,226
-------- -------
$297,831 $84,553
======== =======
</TABLE>
See accompanying notes.
F-21
<PAGE> 154
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 25,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................... $40,147 $36,258 $120,736 $106,726
Cost of sales....................... 24,719 22,731 72,733 66,829
------- ------- -------- --------
Gross profit........................ 15,428 13,527 48,003 39,897
Selling, general and administrative
expenses.......................... 6,048 6,943 19,318 17,673
Amortization........................ 977 319 1,611 806
------- ------- -------- --------
Operating income.................... 8,403 6,265 27,074 21,418
Interest expense.................... 2,203 137 2,280 824
------- ------- -------- --------
Income before income taxes.......... 6,200 6,128 24,794 20,594
Provision for income taxes.......... 3,373 2,337 10,433 7,731
------- ------- -------- --------
Net income........................ $ 2,827 $ 3,791 $ 14,361 $ 12,863
======= ======= ======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 155
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 24, SEPTEMBER 25,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 14,361 $ 12,863
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................... 2,760 1,916
Provision for losses on accounts receivable................. 446 512
Going private transaction expenses.......................... 201 --
Change in net assets held for sale.......................... -- 8,206
Changes in operating assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable....................................... 5,907 4,478
Inventories............................................... 2,891 878
Prepaid expenses and other current assets................. 607 2,780
Other assets.............................................. 297 (628)
Accounts payable.......................................... (118) (10)
Other accrued liabilities................................. 3,248 2,598
Deferred income taxes..................................... 110 (622)
-------- --------
Total adjustments....................................... 16,349 20,108
-------- --------
Net cash provided by operating activities............... 30,710 32,971
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals...................... (275) (1,131)
Going private transaction................................... (280,289) --
Investment in subsidiary.................................... (18,220) (9,320)
-------- --------
Net cash used in investing activities................... (298,784) (10,451)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 196,093 --
Proceeds from issuance of common stock warrants and common
stock, net................................................ 79,400 846
Deferred financing costs.................................... (6,622) --
Repurchase and cancellation of stock........................ -- (5,335)
Net payments under revolving credit agreements.............. (510) (15,297)
-------- --------
Net cash provided by (used in) financing activities..... 268,361 (19,786)
-------- --------
Net increase in cash and cash equivalents................... 287 2,734
Cash and cash equivalents at beginning of period............ 475 707
-------- --------
Cash and cash equivalents at end of period.............. $ 762 $ 3,441
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................... $ 377 $ 500
Income taxes paid........................................... $ 11,380 $ 6,189
======== ========
Investing activities included the acquisition of Pompeii in 1999 and Tropic Craft in 1998.
Assets acquired, liabilities assumed and consideration paid was as follows:
Fair value of assets acquired............................. $ 20,098 $ 11,665
Cash acquired............................................. (3) (46)
Liabilities assumed....................................... (1,875) (2,299)
-------- --------
Consideration paid........................................ $ 18,220 $ 9,320
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 156
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of WinsLoew
Furniture, Inc. and subsidiaries (the "Company" or "WinsLoew") do not include
all disclosures provided in the annual consolidated financial statements. These
unaudited consolidated financial statements should be read in conjunction with
the annual consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission.
All material intercompany balances and transactions have been eliminated.
The preparation of these unaudited consolidated financial statements requires
the use of estimates in the amounts reported.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the results for the interim
periods. The results of operations are presented for the Company's three-and
nine-month periods ended September 24, 1999 and September 25, 1998. The results
of operations for these periods are not necessarily indicative of the results to
be expected for the full year.
2. GOING PRIVATE TRANSACTION
From December 19, 1994 through August 27, 1999, WinsLoew's common stock was
traded on the NASDAQ National Market under the symbol "WLFI". On August 27,
1999, WinsLoew and Trivest Furniture Corporation (Trivest Furniture), a newly
formed Florida corporation (organized by an investor group led by Trivest II,
Inc. (Trivest), including certain private investment funds affiliated with
Trivest and certain members of WinsLoew's senior management, for the purpose of
acquiring WinsLoew) was merged with and into WinsLoew, with WinsLoew being the
surviving corporation. The merger was approved by majority vote of the
shareholders on August 27, 1999. Pursuant to the merger, each holder of the
outstanding WinsLoew common stock, other than stock held by Trivest Furniture,
received $34.75 per share in cash, without interest, and the holder of each
outstanding stock option received a cash payment equal to the difference between
$34.75 and the exercise price of the option.
Funds to pay the cash merger consideration, option cancellation payments
and related fees and expenses were provided by the following sources: (1) the
net proceeds from the sale of units consisting of 12 3/4% senior subordinated
notes due 2007 and warrants to purchase common stock; (2) borrowings of term
loans and drawings on a revolving line of credit under our senior credit
facility; (3) cash equity contributions from members of the Trivest investment
group; and (4) rollover equity contributions from members of the Trivest
investment group (see Note 4). Upon consummation of the merger, persons
affiliated or associated with Trivest beneficially owned approximately 93.8% of
WinsLoew's common stock, members of management held approximately 5.1% of
WinsLoew's common stock, and certain key employees and independent sales
representatives held approximately 1.1% of WinsLoew's common stock.
F-24
<PAGE> 157
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
WinsLoew accounted for the transaction in accordance with the purchase
method of accounting. The following tables set forth the sources and uses of the
funds for the transaction (see Notes 4 and 5).
<TABLE>
<CAPTION>
USES
--------------
(IN THOUSANDS)
<S> <C>
Cost of stock and stock options............................. $268,256
Expense of transaction...................................... 14,350
--------
Total............................................. $282,606
========
</TABLE>
<TABLE>
<CAPTION>
SOURCES
--------------
<S> <C>
Senior Subordinated Notes and Warrants...................... $102,452
Senior Credit Facility...................................... 95,000
Cash equity investment...................................... 66,167
Rollover equity investment.................................. 11,833
Available cash on hand...................................... 7,154
--------
Total............................................. $282,606
========
</TABLE>
The write-off of unamortized loan costs related to the Company's former
credit facility in the amount of $0.2 million are reflected in the accompanying
consolidated statements of income for the three and nine month periods ended
September 24, 1999.
The following unaudited pro forma information has been prepared assuming
that the transaction and the acquisitions, as discussed in Note 7, occurred on
January 1, 1998. Permitted pro forma adjustments include only the effects of
events directly attributable to the transactions that are factually supportable
and expected to have a continuing impact. The pro forma results are not
necessarily indicative of what actually would have occurred if the transaction
had been in effect for the entire period presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 24, SEPTEMBER 25,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $128,864 $120,405
Net income (loss)........................................... $ 1,729 $ (572)
</TABLE>
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 24, SEPTEMBER 25,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ 10,272 $ 9,288
Work in process............................................. 1,305 1,521
Finished goods.............................................. 1,832 1,397
-------- --------
$ 13,409 $ 12,206
======== ========
</TABLE>
F-25
<PAGE> 158
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. LONG-TERM DEBT
Proceeds from borrowings under the Company's senior credit facility and the
sale of units, consisting of 12 3/4% senior subordinated notes due 2007 and
warrants to purchase common stock, were used to finance a portion of the
consideration in the merger of WinsLoew with Trivest Furniture (see Note 2).
SENIOR CREDIT FACILITY
In connection with the merger, WinsLoew entered into a senior credit
facility (Facility) provided by a syndicate of financial institutions. The
Facility, which matures in December 2004, provides for borrowings of up to $155
million and is collateralized by substantially all of the assets of the Company.
The Facility consists of a working capital line of credit (maximum of $40
million), term loans (aggregate of $95 million) and an acquisition line of
credit (maximum of $20 million). The working capital line of credit allows the
Company to borrow funds up to a certain percentage of eligible inventories and
accounts receivable. At September 24, 1999, the carrying value of the working
capital line of credit, $0.9 million, approximated its fair value. The term
loans consist of three term loans, with principal balances and applicable
interest rates at September 24, 1999, as follow:
<TABLE>
<CAPTION>
TERM LOAN A TERM LOAN B TERM LOAN C
----------------- ------------- -------------
<S> <C> <C> <C>
Principal balance............................ $25 million $62.5 million $7.5 million
Eurodollar rate.............................. 8.9375% 9.4375% 9.4375%
Maturity date................................ December 21, 2004 June 30, 2006 June 30, 2006
</TABLE>
At the option of the Company, the interest rates under the Facility are
either: (1) the base rate, which is the higher of the prime lending rate or 0.5%
in excess of the federal funds effective rate, plus a margin, or (2) the
adjusted Eurodollar rate plus a margin. The margins of different loans under the
Facility vary according to a pricing grid. The margins for base rate loans range
from zero to 1.0% for the working capital line of credit, term loan A and the
acquisition line of credit and from 1.0% to 1.5% for term loan B and term loan
C, in each case depending on WinsLoew's consolidated leverage ratio. The margins
for Eurodollar rate loans range from 2.0% to 3.0% for the working capital line
of credit, term loan A and the acquisition line of credit and from 3.0% to 3.5%
for term loan B and term loan C, in each case depending on WinsLoew's
consolidated leverage ratio. As of September 24, 1999, the loans are priced at
the Eurodollar rate plus a margin of 3.0% for the working capital line of
credit, term loan A and acquisition line of credit and a margin of 3.5% for the
term loan B and term loan C.
The outstanding balance of term loan A is due 12.0% in 2000, 12.0% in 2001,
24.0% in 2002, 24.0% in 2003 and 28.0% in 2004. The outstanding balance of term
loan B is due 1.0% in each of 2000, 2001, 2002, 2003 and 2004 and 47.5% in each
of 2005 and 2006. The entire outstanding balance of the term loan C is due in
2006. Amounts outstanding under the acquisition line of credit at December 31,
2001 convert to a term loan with the balance payable 20.0% in 2002, 30.0% in
2003 and 50.0% in 2004.
The Company must pay commitment fees (1) at a rate per annum equal to 0.5%
of the undrawn amounts of the working capital line of credit, subject to a
reduction to 0.375% per annum depending upon its consolidated leverage ratio and
(2) at a rate per annum of 0.75% on the undrawn amount of the acquisition line
of credit during the revolving period, subject to a reduction to 0.5% (or 0.375%
depending upon its consolidated leverage ratio) per annum from and after the
date on which at least $10.0 million is outstanding under the acquisition line
of credit.
F-26
<PAGE> 159
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Facility contains customary covenants and restrictions on the Company's
and its subsidiaries' ability to issue additional debt or engage in certain
activities and includes customary events of default. In addition, the Facility
specifies that the Company must meet or exceed defined fixed charge and interest
coverage ratios and must not exceed defined leverage ratios. At September 24,
1999, the Company was in compliance with such covenants.
The Facility is secured by a pledge of the capital stock of all the
Company's domestic subsidiaries.
SENIOR SUBORDINATED NOTES AND WARRANTS
In connection with the merger, the Company issued 105,000 units (Units)
consisting of $105 million aggregate principal amount at maturity of 12 3/4%
senior subordinated notes due 2007 (Notes) and warrants (Warrants) to purchase
an aggregate of 24,129 shares of its capital stock. Each Unit consists of $1,000
aggregate principal amount at maturity of Notes and a warrant to purchase 0.2298
shares of common stock at an exercise price of $0.01 per share. The issue price
of each Unit was $975.73, of which the Company allocated $962.40 to the Notes
and $13.33 to the Warrant. The Notes are general unsecured obligations of the
Company and are junior in the right of payment to the Company's debt that does
not expressly provide that it ranks equally with or junior to the Notes,
including the Company's obligations under its senior credit facility. The Notes
are unconditionally guaranteed by the direct and indirect domestic subsidiaries
of WinsLoew and bear interest at 12 3/4%, which is payable semi-annually on
February 15 and August 15 beginning on February 15, 2000. The Notes will mature
on August 15, 2007.
On or after August 15, 2003, the Company may redeem the Notes, in whole or
in part, at any time at the following redemption prices:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003...................................................... 106.375%
2004...................................................... 104.250%
2005...................................................... 102.125%
2006 and thereafter....................................... 100.000%
</TABLE>
The Company may, at its option, at any time prior to August 15, 2002,
redeem up to 25% of the Notes using the net proceeds of an underwritten public
offering of capital stock.
The Warrants are exercisable on or after the occurrence of certain events.
Assuming full exercise of the Warrants, the aggregate number of shares would
approximate 3% of the common stock of WinsLoew. The Warrants expire on August
15, 2007. The Company estimates the value of the Warrants at $1.4 million, which
is reflected as "additional paid-in capital" in the accompanying unaudited
consolidated balance sheet.
The indenture under which the Notes are issued requires the Company to meet
a minimum fixed charge coverage ratio and includes other provisions generally
common in such indentures including restrictions on dividends, additional
indebtedness and asset sales. At September 24, 1999, the Company was in
compliance with such covenants.
Maturities of long-term debt for the five years succeeding September 24,
1999 are $2.8 million in 2000, $3.7 million in 2001, $6.0 million in 2002, $6.7
million in 2003 and $7.5 million in 2004.
F-27
<PAGE> 160
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. CAPITAL STOCK
WinsLoew has authorized 1,000,000 shares of $0.01 par value common stock.
At September 24, 1999, there were 780,000 shares issued and outstanding.
6. DISCONTINUED OPERATIONS
At September 24, 1999, there have not been any material changes in the net
liabilities of discontinued operations as compared to December 31, 1998.
7. ACQUISITIONS
On July 23, 1999, the Company purchased the stock of Miami Metal Products
d/b/a Pompeii Furniture Industries, Inc. and its affiliate, Industrial Mueblera
Pompeii De Mexico, S.A. De C.V. (Pompeii), which are involved in the design and
manufacture of casual furniture sold in the residential and contract markets.
The purchase price of approximately $18.2 million, including fees and expenses,
was paid in cash and funded with internally generated funds. The acquisition
resulted in goodwill of approximately $14.0 million and was accounted for under
the purchase method of accounting and, accordingly, the operating results of
Pompeii have been included in the consolidated operating results since the date
of acquisition.
On June 30, 1998, the Company purchased the stock of Tropic Craft, Inc.
(Tropic Craft), a company involved in the design and manufacture of casual
furniture sold in the contract market. The purchase price of approximately $9.3
million was paid in cash and was financed under the Company's senior credit
facility. The acquisition resulted in goodwill of approximately $8.4 million and
was accounted for under the purchase method of accounting and, accordingly, the
operating results of Tropic Craft have been included in the consolidated
operating results since the date of acquisition.
Unaudited pro forma information assuming that the acquisitions of Pompeii
and Tropic Craft occurred on January 1, 1998 is presented in Note 2.
F-28
<PAGE> 161
WINSLOEW FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. SEGMENT INFORMATION
The Company has three segments organized and managed based on the products
sold. The Company evaluates performance and allocates resources based on gross
profit. There are no intersegment sales/transfers. Export revenues are not
material.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 24, SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 25,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES:
Casual products.............................. $ 18,471 $ 15,898 $ 58,110 $ 47,423
Contract seating products.................... 17,913 17,431 51,485 50,833
Ready to assemble products................... 3,763 2,929 11,141 8,470
-------- -------- -------- --------
Total net sales.................... $ 40,147 $ 36,258 $120,736 $106,726
SEGMENT GROSS PROFIT:
Casual products.............................. $ 8,442 $ 7,038 $ 27,470 $ 21,754
Contract seating products.................... 6,102 5,832 17,911 16,349
Ready to assemble products................... 884 657 2,622 1,794
-------- -------- -------- --------
Total segment gross profit......... 15,428 13,527 48,003 39,897
Reconciling items:
Selling, general and administrative
expenses................................... 6,048 6,943 19,318 17,673
Amortization................................. 977 319 1,611 806
-------- -------- -------- --------
Operating Income........................... 8,403 6,265 27,074 21,418
Interest expense-net......................... 2,203 137 2,280 824
-------- -------- -------- --------
Income before income taxes................... $ 6,200 $ 6,128 $ 24,794 $ 20,594
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 24, DECEMBER 31,
1999 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SEGMENT ASSETS:
Casual products.............................. $ 61,511 $ 51,880
Contract seating products.................... 24,021 23,486
Ready to assemble products................... 7,131 6,496
-------- --------
Total.............................. 92,663 81,862
Reconciling item:
Corporate.................................... 205,168 2,691
-------- --------
Total consolidated assets.......... $297,831 $ 84,553
======== ========
</TABLE>
F-29
<PAGE> 162
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Miami Metal Products, Inc., d/b/a Pompeii Furniture Industries
Miami, Florida
We have audited the accompanying balance sheet of Miami Metal Products,
Inc., d/b/a Pompeii Furniture Industries as of December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Miami Metal Products, Inc.
d/b/a Pompeii Furniture Industries as of December 31, 1998, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As more fully described in Note 8, certain buildings leased by the Company
do not meet local building codes and may require a significant investment by the
landlord to be in compliance with these codes. Until such time as the property
is in compliance with the building codes, the local government has the authority
to restrict the operational use of the properties involved, at which time, the
Company would need to consider an alternative location in order to continue
operations. The ultimate outcome of this situation is not determinable at this
time. Accordingly, no adjustments that may result from the final resolution of
this uncertainty have been reflected in the accompanying financial statements.
/s/ Infante, Lago & Company
July 16, 1999
F-30
<PAGE> 163
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 607,613
Accounts receivable, net of allowance for doubtful
accounts of $68,246.................................... 1,093,951
Inventory................................................. 3,000,468
Prepaid expenses and other current assets................. 471,329
----------
Total Current Assets.............................. 5,173,361
Property, plant and equipment, net.......................... 265,975
Deposits and other assets................................... 13,214
----------
Total Assets...................................... $5,452,550
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $1,107,720
Customer deposits......................................... 393,393
----------
Total Current Liabilities......................... 1,501,113
----------
Stockholders' equity:
Common stock:
Class A, 5,000 shares authorized, $0.10 par value, 100
shares issued and outstanding.......................... 10
Class B 45,000 shares authorized, nonvoting, $0.10 par
value, 900 shares issued and outstanding............... 90
Additional paid in capital................................ 15,900
Retained earnings......................................... 3,935,437
----------
Total Stockholders' Equity........................ 3,951,437
----------
Total Liabilities and Stockholders' Equity........ $5,452,550
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 164
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Sales (net)................................................. $14,512,901
Cost of Goods Sold.......................................... 8,592,312
-----------
Gross Profit...................................... 5,920,589
Operating Expenses:
General and Administrative Expenses....................... 1,069,843
Selling Expenses.......................................... 2,022,440
-----------
Total Operating Expenses.......................... 3,092,283
-----------
Income from Operations...................................... 2,828,306
Other Income (Expenses):
Interest Income (net)..................................... 24,873
Other Expenses............................................ (180,297)
-----------
Total Other Income (Expenses)..................... (155,424)
-----------
Net Income.................................................. $ 2,672,882
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 165
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------
CLASS A CLASS A CLASS B
NO PAR $0.10 PAR $0.10 PAR ADDITIONAL
---------------- ---------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EQUITY TOTAL
------ ------ ------ ------ ------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance..... 50 -- -- -- $16,000 $3,808,799 $3,824,799
Stock retirement and
recapitalization.... (50) -- 100 $10 900 $90 (100) -- --
Distributions......... (2,546,244) (2,546,244)
Net income............ 2,672,882 2,672,882
---- -- --- --- --- --- ------- ---------- ----------
Ending Balance........ -- -- 100 $10 900 $90 $15,900 $3,935,437 $3,951,437
==== == === === === === ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 166
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Operating Activities:
Net Income.................................................. $2,672,882
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.............................................. 154,934
Loss on sale of property plant and equipment.............. 15,679
Changes in asset and liability accounts:
Increase in accounts receivable........................ (224,605)
Increase in inventory.................................. (420,461)
Increase in prepaid expenses and other current
assets................................................ (385,030)
Decrease in accounts payable and accrued expenses...... (28,830)
Decrease in customer deposits.......................... (685,674)
----------
Net Cash Provided By Operating Activities......... 1,098,895
----------
Investing Activities:
Purchase of property, plant and equipment................. (155,880)
Decrease in deposits and other assets..................... 118,064
----------
Net Cash Used In Investing Activities............. (37,816)
----------
Financing Activities:
Proceeds from sale of property, plant and equipment....... 1,500,000
Payment of distribution to stockholders................... (2,456,610)
----------
Net Cash Used In Financing Activities............. (956,610)
----------
Net Change In Cash.......................................... 104,469
Cash and cash equivalents at January 1, 1998................ 503,144
----------
Cash and cash equivalents at December 31, 1998.............. $ 607,613
==========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 8,432
==========
Supplemental Schedule of Non-Cash Investing and Financing Activities
During 1998, the Company distributed certain equipment to its
stockholders at book value as follows:
Vehicles.................................................. $ 89,634
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 167
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Miami Metal Products, Inc. (the "Company") was organized
under the laws of the State of Florida and operates as a manufacturer and
distributor of fine furniture.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses during the reported period. Actual results could differ from those
estimates.
CASH EQUIVALENTS -- Cash equivalents are defined as highly liquid
investments with original maturities of 90 days or less.
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
temporary cash investments and accounts receivable.
The Company maintains its cash accounts with a high credit quality
financial institution. The total cash balance is insured by the FDIC up to
$100,000 per bank. At December 31, 1998 the Company maintained funds in excess
of the insured limit by approximately $508,000.
Concentrations of credit with respect to accounts receivable are limited
because the majority of the accounts receivable are with large retail customers
and for international customers, for which the Company maintains current letters
of credit. As of December 31, 1998, the Company had no significant concentration
of credit risk.
INVENTORIES -- Inventories are primarily composed of raw materials and
work-in-process and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT -- Property, plant, and equipment is
recorded at cost. Depreciation is calculated using accelerated methods over the
estimated useful lives of the assets, which range from five to ten years.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Values of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and cannot be
determined with precision. The estimated fair values of the Company's financial
instruments, which includes all cash, accounts receivable, and accounts payable,
approximates the carrying value as reflected in the accompanying financial
statements as of December 31, 1998.
REVENUE RECOGNITION -- Revenue from the sale of furniture is recognized
when the furniture is shipped. Customer deposits represents deposits on orders
received from customers for furniture that has not been completed and shipped.
INCOME TAXES -- The Company, with the consent of its shareholders, has
elected under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, the shareholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
deferred tax asset, liability or provision for income taxes is included in the
accompanying financial statements.
FUTURE ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting
Standards Board issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and
F-35
<PAGE> 168
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard on January 1, 2000 to affect its
financial statements.
NOTE 2 -- INVENTORY
Inventory consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Raw materials............................................... $1,482,198
Work in process............................................. 1,171,644
Finished goods, includes items in the showrooms............. 346,626
----------
$3,000,468
==========
</TABLE>
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at December 31,
1998:
<TABLE>
<S> <C>
Manufacturing and warehouse equipment....................... $1,358,144
Office equipment and furniture.............................. 340,683
----------
1,698,827
Less: Accumulated depreciation.............................. 1,432,852
----------
Property, plant and equipment, net.......................... $ 265,975
==========
</TABLE>
Depreciation expense for the year ended December 31, 1998 approximated
$155,000.
NOTE 4 -- COMMON STOCK
The Company was recapitalized during 1998, at which time all Class A, no
par stock, was retired. For each share of Class A, no par stock retired
stockholders received two shares of Class A, $0.10 par stock and 18 shares of
Class B, $0.10 par, non-voting stock.
NOTE 5 -- EMPLOYEE BENEFIT PLAN
The Company has a (401K) Profit Sharing Plan covering all full-time
employees who are age twenty-one or older. Each year, participants may
contribute up to 20 percent of pretax annual compensation, as defined.
Participants are immediately vested in their contribution plus actual earnings
thereon. Vesting in the Company's discretionary contribution portion of their
accounts plus actual earnings thereon is based on years of continuous service. A
participant is 100 percent vested after seven years of credited service. The
Company made matching contributions to the Plan of approximately $18,000 during
the year ended December 31, 1998.
F-36
<PAGE> 169
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS
LEASES -- The Company leases various office and showroom space in Miami,
North Carolina, and Nevada under terms of operating leases. The total future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
1999........................................................ $ 497,591
2000........................................................ 495,230
2001........................................................ 471,300
2002........................................................ 389,300
2003........................................................ 218,750
----------
$2,072,171
==========
</TABLE>
Rent expense approximated $320,000 for the year ended December 31, 1998.
LITIGATION -- The Company has been named as a defendant in several lawsuits
in the normal course of its business. The Company believes that these lawsuits
are without merit and is vigorously defending itself against all claims. In the
opinion of management, the amount of ultimate liability, if any, with respect to
these matters cannot be determined at this time. The accompanying financial
statements do not include any accruals with regard to these pending litigation.
PRODUCT WARRANTIES -- The Company sells its products with unconditional
repair or replacement warranties. Based upon the Company's experience on the
amount of claims actually made, the accompanying financial statements do not
reflect an accrual for future warranty claims.
NOTE 7 -- RELATED PARTY TRANSACTIONS
During 1998, the Company sold the land and buildings which house its
offices and factories to Nitram Partners, Ltd., ("Nitram"), a related party by
way of common management, at the approximate carrying value of the assets,
$1,500,000, which approximates fair market value. In conjunction with this sale,
the Company entered into an agreement with Nitram to lease these facilities at a
base rent of $375,000 per year for five years. The base rent is subject to
increase based on certain escalation clauses.
The Company assembles some of its product at a facility located in Mexico
which is owned by the stockholders of the Company. The facility has no other
customers or source of revenue. During 1998, the Company paid this facility
approximately $248,000 to cover the facility's expenses. The Company has
guaranteed all of the facility's liabilities.
NOTE 8 -- UNCERTAINTY
Certain buildings leased by the Company do not meet local building codes
and may require a significant investment by the landlord, a related party by
common management, to be in compliance with these codes. Until such time as the
property is in compliance with the building codes, the local government has the
authority to restrict the operational use of the properties involved, at which
time, the Company would need to consider an alternative location in order to
continue operations. The landlord has indicated that the necessary improvements
will be made to the property under lease, however, the ultimate outcome of this
situation is not determinable at this time. During 1998, the Company has paid
certain costs on behalf of the landlord in connection with the process involved
F-37
<PAGE> 170
MIAMI METAL PRODUCTS, INC.
D/B/A POMPEII FURNITURE INDUSTRIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
with obtaining an occupational license. No adjustments that may result from the
final resolution of this uncertainty have been reflected in the accompanying
financial statements.
NOTE 9 -- OTHER EXPENSES
Other expenses consists of the following:
<TABLE>
<S> <C>
Costs related to the sale of the Company.................... $122,296
Costs incurred on behalf of landlord...................... 37,242
Loss on sale of property, plant and equipment............. 15,679
Miscellaneous............................................. 5,080
--------
$180,297
========
</TABLE>
NOTE 10 -- SUBSEQUENT EVENTS
On November 23, 1998 the Company signed an agreement to sell all the
outstanding stock of the Company. This stock purchase agreement terminates on
October 31, 1999.
NOTE 11 -- IMPACT OF YEAR 2000 (UNAUDITED)
The Company has determined that it will be required to upgrade certain
portions of its software, hardware and equipment so that its systems and
equipment will function properly with respect to dates in the year 2000 and
thereafter. The Company will use both internal and external resources to upgrade
and test certain software for year 2000 readiness. In connection with its
ongoing efforts to be year 2000 compliant, the Company has previously replaced
or modified a significant portion of its key financial and operational systems
that were not year 2000 compliant. Remaining financial and operational systems
have been assessed and detailed plans have been developed and are being
implemented to make the necessary modifications to ensure year 2000 compliance.
The financial impact of making the required system changes for year 2000 are not
expected to have a material impact on the Company's financial statements. The
Company anticipates completing the Year 2000 Project by September, 1999.
The costs for the Year 2000 Project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources. The Company's
operating results could be materially impacted if actual costs of the Year 2000
project are significantly higher than management estimates or if the systems and
equipment of the Company or those of other companies on which it relies are not
compliant in a timely manner.
The Company has not initiated formal communications with its significant
suppliers and large payors to determine the extent to which the Company's
operations are vulnerable to those parties' failure to remediate their own Year
2000 issues. There can be no guarantee that the systems of other companies or
payors will be timely converted and would not have an adverse effect on the
Company's operations.
F-38
<PAGE> 171
MIAMI METAL PRODUCTS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -----------------
(IN THOUSANDS EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $1,488 $ 607
Accounts receivable, less allowances for doubtful
accounts.................................................. 648 1,094
Inventories................................................. 3,555 3,001
Prepaid expenses and other current assets................... 686 471
------ ------
Total current assets.............................. 6,377 5,173
Property, plant and equipment, net.......................... 190 266
Other assets................................................ 13 13
------ ------
$6,580 $5,452
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $1,204 $1,108
Customer deposits........................................... 712 393
------ ------
Total current liabilities......................... 1,916 1,501
Stockholders' equity:
Class A Common stock; par value $0.10 per share, 5,000
shares authorized, 100 shares issued and outstanding... -- --
Class B Common stock; par value $0.10 per share, 45,000
shares authorized, 900 shares issued and outstanding... -- --
Additional paid-in capital................................ 16 16
Retained earnings......................................... 4,648 3,935
------ ------
Total stockholders' equity........................ 4,664 3,951
------ ------
$6,580 $5,452
====== ======
</TABLE>
See accompanying notes.
F-39
<PAGE> 172
MIAMI METAL PRODUCTS, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $ 7,077 $ 7,302
Cost of sales............................................... 4,315 4,545
-------- --------
Gross profit................................................ 2,762 2,757
Selling, general and administrative expenses................ 1,832 1,657
-------- --------
Operating income............................................ 930 1,100
Interest income -- net...................................... 14 13
Other expenses.............................................. (231) --
-------- --------
Net income................................................ $ 713 $ 1,113
======== ========
</TABLE>
See accompanying notes.
F-40
<PAGE> 173
MIAMI METAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 713 $1,113
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 78 102
Changes in operating assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable.................................... 446 (134)
Inventories............................................ (554) 396
Prepaid expenses and other current assets.............. (215) (380)
Other assets........................................... -- 118
Accounts payable and accrued expenses.................. 96 (210)
Customer deposits...................................... 319 (396)
------ ------
Total adjustments................................. 170 (504)
------ ------
Net cash provided by operating activities......... 883 609
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals...................... (2) (73)
------ ------
Net cash used in investing activities............. (2) (73)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions............................................... -- (600)
------ ------
Net cash used in financing activities............. -- (600)
------ ------
Net increase (decrease) in cash and cash equivalents........ 881 (64)
Cash and cash equivalents at beginning of period............ 607 503
------ ------
Cash and cash equivalents at end of period.................. $1,488 $ 439
====== ======
</TABLE>
See accompanying notes.
F-41
<PAGE> 174
MIAMI METAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Miami Metal Products,
Inc. (the "Company") that are for interim periods do not include all disclosures
provided in the annual financial statements. These unaudited financial
statements should be read in conjunction with the annual financial statements
and notes thereto.
The preparation of the financial statements requires the use of estimates
in the amounts reported.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the results for the interim periods. The
results of operations are presented for the Company's six-month periods ended
June 30, 1999 and 1998, respectively. The results of operations for these
periods are not necessarily indicative of the results to be expected for the
full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................... $2,067 $1,482
Work in process.................................. 1,293 1,172
Finished goods................................... 195 347
------ ------
$3,555 $3,001
====== ======
</TABLE>
3. INCOME TAXES
The Company has elected to have its income or loss reported directly to the
shareholders under provisions for S Corporations by the Internal Revenue Code.
Accordingly, no deferred tax asset, liability or provision for income taxes is
included in the accompanying financial statements.
4. OTHER EXPENSES
Other expense consists of costs related to the sale of the Company (see
Note 5).
5. SUBSEQUENT EVENTS
On November 23, 1998 the Company signed an agreement to sell all the
outstanding stock of the Company to WinsLoew Furniture, Inc. The transaction was
completed on July 30, 1999.
F-42
<PAGE> 175
- -------------------------------------------------------
- -------------------------------------------------------
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized any dealer, salesperson or anyone
else to provide you with different information. We may not make an offer of the
registered notes in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date of this prospectus.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information... i
Cautionary Note Regarding Forward-
Looking Statements.................. ii
Prospectus Summary.................... 1
Risk Factors.......................... 15
The Merger............................ 24
Use of Proceeds....................... 26
Capitalization........................ 27
Selected Historical Consolidated
Financial Data...................... 28
Unaudited Pro Forma Financial Data.... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 33
Business.............................. 42
Management............................ 57
Principal Shareholders................ 62
Certain Transactions.................. 63
Description of Capital Stock.......... 66
Description of the Senior Credit
Facility............................ 66
The Exchange Offer.................... 69
Description of the Registered Notes... 80
Book Entry, Delivery and Form......... 117
Certain United States Federal Income
Tax Consequences.................... 119
Plan of Distribution.................. 126
Legal Matters......................... 127
Experts............................... 127
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until __________, 2000, all dealers effecting transactions in the
registered notes, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(WINSLOEW FURNITURE, INC. LOGO)
WINSLOEW FURNITURE, INC.
OFFER TO EXCHANGE
$105,000,000
ALL OUTSTANDING ORIGINAL 12 3/4% SERIES A
SENIOR SUBORDINATED NOTES DUE 2007
FOR
REGISTERED 12 3/4% SERIES B
SENIOR SUBORDINATED NOTES DUE 2007
--------------------
PROSPECTUS
--------------------
________ , 1999
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 176
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in that statute. The
registrant's Amended and Restated Articles of Incorporation provide that the
registrant shall indemnify its executive officers and directors to the fullest
extent permitted by law either now or hereafter. The registrant has also entered
into an agreement with each of its directors and certain of its officers wherein
it agrees to indemnify each of them to the fullest extent permitted by law. In
general, Florida law permits a Florida corporation to indemnify its directors,
officers, employees and agents, and persons serving at the corporation's request
in such capacities for another enterprise against liabilities arising from
conduct that such persons reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the registrant in a proceeding by or in the
right of the registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.*
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Registrant's Restated Articles of Incorporation
3.2 Registrant's Bylaws
4.1 Indenture dated as of August 24, 1999 between WinsLoew
Escrow Corp. (whose obligations have been assumed by the
Registrant) and American Stock Transfer & Trust Company,
including form of 12 3/4% Senior Subordinated Note Due 2007
4.2 Supplemental Indenture dated as of August 27, 1999 among
Trivest Furniture Corporation, the Registrant, the
Registrant's domestic subsidiaries and American Stock
Transfer & Trust Company
4.3 Registration Rights Agreement dated as of August 24, 1999
among WinsLoew Escrow Corp. (whose obligations have been
assumed by the Registrant) and Bear, Stearns & Co., Inc.,
BancBoston Robertson Stephens Inc. and First Union Capital
Markets Corp.
4.4 Form of Registered Note (included in Exhibit 4.1)
5.1 Opinion of Greenberg Traurig, P.A.
10.1 Form of Indemnification Agreement entered into between the
Registrant and each of the Registrant's executive officers
and directors
10.2 Business Lease dated November 18, 1993 between Loewenstein,
Inc. and Emanuel Vanzo
10.3 Lease Agreement commencing December 15, 1995 between
Teachers Insurance and Annuity Association and Winston
Furniture Company of Alabama, Inc.
</TABLE>
II-1
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.4 Lease dated April, 1996 between La Salle National Trust,
N.A. and Winston Furniture Company of Alabama, Inc.
10.5 Lease dated May 24, 1996 between La Salle National Trust,
N.A. and Winston Furniture Company of Alabama, Inc.
10.6 Agreement dated August 1, 1996 between Winston Furniture
Company of Alabama, Inc. and the Retail, Wholesale and
Department Store Union, AFL-CIO
10.7 Contract for Sale and Purchase dated June 29, 1998 between
Villella, Inc. and Thomas L. Villella, as Trustee of the
Thomas L. Villella Family Trust
10.8 Stock Purchase Agreement dated June 30, 1998 between Thomas
Villella and Winston Furniture Company of Alabama, Inc.
10.9 Employment Agreement dated June 30, 1999 between Peter
Villella and Tropic Craft, Inc.
10.10 Stock Purchase Agreement dated as of June 30, 1998 between
the Registrant and Vertiflex Company
10.11 Pricing Agreement dated December 1, 1998 between
Loewenstein, Inc., Gregson Furniture Industries and Marriott
International, Inc.
10.12 Lease dated August 1, 1998 between Nitram Partners, Ltd. and
Miami Metal Products, Inc., as amended
10.13 Stock Purchase Agreement, dated as of November 23, 1998
among Winston Furniture Company of Alabama, Inc., and Miami
Metal Products, Inc., Industrial Mueblera Pompeii de Mexico,
S.A. de C.V. and certain named sellers, as amended
10.14 Lease Agreement dated March 1, 1999 between E.V. Ferrell,
Jr., Sarah T. Ferrell and Pompeii Furniture Industries
10.15 Employment Agreement dated July 30, 1999 between Winston
Furniture Company of Alabama, Inc. and Perry B. Martin
10.16 Consulting Agreement dated July 30, 1999 between Winston
Furniture Company of Alabama, Inc. and Leo Martin
10.17 Purchase Agreement dated August 19, 1999 among WinsLoew
Escrow Corp., Trivest Furniture Corporation (each of whose
obligations have been assumed by the Registrant) and Bear,
Stearns & Co. Inc., BancBoston Robertson Stephens Inc. and
First Union Capital Markets Corp.
10.18 Warrant Agreement dated as of August 24, 1999 between
WinsLoew Escrow Corp. (whose obligations have been assumed
by the Registrant) and American Stock Transfer & Trust
Company
10.19 Loan and Security Agreement dated as of August 27, 1999
among the Registrant, its domestic subsidiaries, the lenders
named therein, Bankboston, N.A. as administrative agent,
Heller Financial, Inc. and CIBC, Inc. as co-agents for the
lenders
10.20 Investors Agreement dated August 27, 1999 among Trivest
Furniture Corporation, Trivest Furniture Partners, Ltd.,
Trivest Fund II Group, Ltd., and various investors
identified therein
10.21 Exchange and Subscription Agreement dated August 27, 1999
among Trivest Furniture Corporation and various investors
identified therein
10.22 WinsLoew 1999 Key Employee Equity Plan
10.23 Form of Subscription Agreement (included in Exhibit 10.22)
10.24 Form of Shareholders' Agreement (included in Exhibit 10.22)
10.25 Management Agreement dated August 27, 1999 between the
Registrant and Trivest II, Inc.
10.26 Employment Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney
10.27 Employment Agreement dated August 27, 1999 between the
Registrant and R. Craig Watts
10.28 Employment Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.
10.29 Severance Agreement dated August 27, 1999 between the
Registrant and Bobby Tesney
</TABLE>
II-2
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.30 Severance Agreement dated August 27, 1999 between the
Registrant and Vincent A. Tortorici, Jr.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Infante, Lago & Company
23.3 Consent of Greenberg Traurig, P.A. (included in Exhibit 5.1)
24.1 Powers of Attorney (included in signature pages)
25.1 Statement of Eligibility of Trustee
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal with respect to Exchange Offer
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
99.4 Forms of Tender Instruction Letter
</TABLE>
* All exhibits listed were filed previously.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS
1. 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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
2. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE> 179
3. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-4
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
WINSLOEW FURNITURE, INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY President, Chief Executive November 18, 1999
- ----------------------------------------------------- Officer and Director
Bobby Tesney (Principal Executive
Officer)
* Vice President and Chief November 18, 1999
- ----------------------------------------------------- Financial Officer, Treasurer
Vincent A. Tortorici, Jr. and Assistant Secretary
(Principal Financial and
Accounting Officer)
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
* Director November 18, 1999
- -----------------------------------------------------
Peter W. Klein
* Director November 18, 1999
- -----------------------------------------------------
David M. Solomon
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-5
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
WINSTON FURNITURE COMPANY OF ALABAMA
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY Chief Executive Officer and November 18, 1999
- ----------------------------------------------------- Director (Principal
Bobby Tesney Executive Officer)
* Chief Financial Officer, Vice November 18, 1999
- ----------------------------------------------------- President -- Finance
Vincent A. Tortorici, Jr. and Administration
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-6
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
LOEWENSTEIN, INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
President
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY President and Director November 18, 1999
- ----------------------------------------------------- (Principal Executive
Bobby Tesney Officer)
* Vice President, Treasurer and November 18, 1999
- ----------------------------------------------------- Assistant Secretary
Vincent A. Tortorici, Jr. (Principal Financial and
Accounting Officer)
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-7
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
TEXACRAFT, INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY Chief Executive Officer and November 18, 1999
- ----------------------------------------------------- Director (Principal
Bobby Tesney Executive Officer)
* Vice President, Treasurer and November 18, 1999
- ----------------------------------------------------- Assistant Secretary
Vincent A. Tortorici, Jr. (Principal Financial and
Accounting Officer)
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
* Director November 18, 1999
- -----------------------------------------------------
Jerry C. Camp
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-8
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
TROPIC CRAFT, INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY Chief Executive Officer and November 18, 1999
- ----------------------------------------------------- Director (Principal
Bobby Tesney Executive Officer)
* Vice President -- Finance, November 18, 1999
- ----------------------------------------------------- Treasurer and Assistant
Vincent A. Tortorici, Jr. Secretary (Principal
Financial and Accounting
Officer)
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
* Director November 18, 1999
- -----------------------------------------------------
Jerry C. Camp
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-9
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
WINSTON PROPERTIES, INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of November 18, 1999
- ----------------------------------------------------- Directors
Earl W. Powell
/s/ BOBBY TESNEY Chief Executive Officer and November 18, 1999
- ----------------------------------------------------- Director (Principal
Bobby Tesney Executive Officer)
* Vice President, Treasurer and November 18, 1999
- ----------------------------------------------------- Assistant Secretary
Vincent A. Tortorici, Jr. (Principal Financial and
Accounting Officer)
* Director November 18, 1999
- -----------------------------------------------------
William F. Kaczynski, Jr.
* Director November 18, 1999
- -----------------------------------------------------
Jerry C. Camp
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-10
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Birmingham,
state of Alabama on November 18, 1999.
POMPEII FURNITURE CO., INC.
By: /s/ BOBBY TESNEY
------------------------------------
Bobby Tesney
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BOBBY TESNEY Chief Executive Officer November 18, 1999
- ----------------------------------------------------- (Principal Executive
Bobby Tesney Officer) and Director
* Vice President, Treasurer and November 18, 1999
- ----------------------------------------------------- Assistant Secretary
Vincent A. Tortorici, Jr. (Principal Financial and
Accounting Officer)
</TABLE>
* By Bobby Tesney as attorney-in-fact.
II-11
