AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ROLLER BEARING COMPANY OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3562 13-3426227
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
------------------------------
INDUSTRIAL TECTONICS BEARINGS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 3562 95-4284623
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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RBC LINEAR PRECISION PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3562 06-1465144
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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RBC NICE BEARINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3562 06-1472609
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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60 ROUND HILL ROAD
FAIRFIELD, CT. 06430
(203) 255-1511
(Address, including zip code, and telephone number, including area code, of registrant's executive offices)
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MICHAEL J. HARTNETT
CHIEF EXECUTIVE OFFICER
ROLLER BEARING COMPANY OF AMERICA, INC.
60 ROUND HILL ROAD
FAIRFIELD, CT. 06430
(203) 255-1511
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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COPIES TO:
BRIAN HOFFMANN, ESQ.
MCDERMOTT, WILL & EMERY
50 ROCKEFELLER PLAZA
NEW YORK, NY 10020
(212) 547-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of 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. / /
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
9 5/8% Senior Subordinated
Notes Due 2007.............. $110,000,000 (1) 100% (2) $110,000,000 (2) $33,333.34 (3)
(1) Includes a guarantee of the Notes by each of Industrial Tectonics Bearings
Corporation, RBC Linear Precision Products, Inc. and RBC Nice Bearings, Inc.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Pursuant to Rule 459(n) no separate registration fee is payable in respect
of the guarantees.
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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 SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
ROLLER BEARING COMPANY OF AMERICA, INC.
OFFER TO EXCHANGE ITS
9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF ITS
9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
Unconditionally Guaranteed on a Senior Subordinated Basis by
the Subsidiaries of the Company
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , UNLESS EXTENDED.
Interest payable June 15 and December 15 Due June 15, 2007
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Roller Bearing Company of America, Inc., a Delaware corporation (the "Company"
or "RBC"), hereby
offers upon the terms and subject to the conditions set forth in this Prospectus
and the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"), to exchange an aggregate principal amount of up to
$110,000,000 of 9 5/8% Senior Subordinated Notes Due 2007, Series B (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to the registration statement of
which this Prospectus constitutes a part (including any amendments and
supplements thereto, the "Registration Statement") for a like principal amount
of its 9 5/8% Senior Subordinated Notes Due 2007 (the "Outstanding Notes" and,
together with the Exchange Notes, the "Notes") of the Company with the holders
thereof.
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except that, if the Exchange Offer
is not consummated by December 22, 1997, the interest rate on the Outstanding
Notes will increase by 0.5% until the Exchange Offer is consummated. The
Exchange Notes are offered hereunder in order to satisfy certain obligations of
the Company under the Purchase Agreement dated June 17, 1997 among the Company,
the Subsidiary Guarantors (as defined herein) and Credit Suisse First Boston
Corporation, the initial purchaser of the Outstanding Notes (the "Initial
Purchaser"), and the Registration Rights Agreement dated as of June 17, 1997
(the "Registration Rights Agreement") among the Company, the Subsidiary
Guarantors and the Initial Purchaser. The Exchange Notes evidence the same debt
as the Outstanding Notes and are issued under, and are entitled to the same
benefits under, the Indenture (as defined herein) as the Outstanding Notes. In
addition, the Exchange Notes and the Outstanding Notes are treated as one series
of securities under the Indenture. The Exchange Notes will mature on June 15,
2007, unless previously redeemed. Interest on the Exchange Notes is payable
semi-annually on June 15 and December 15 of each year commencing on December 15,
1997.
(CONTINUED NEXT PAGE)
(CONTINUED FROM PREVIOUS PAGE)
The Exchange Notes will not be redeemable prior to June 15, 2002 except
that, until June 15, 2000, the Company may redeem, at its option, up to an
aggregate of $36 million of the principal amount of the Exchange Notes at the
redemption price set forth herein plus accrued and unpaid interest to the date
of redemption with the net proceeds of one or more Public Equity Offerings (as
defined herein) if at least $74 million principal amount of the Notes remains
outstanding after each such redemption. On or after June 15, 2002, the Exchange
Notes are redeemable at the option of the Company, in whole or in part, at the
prices set forth herein plus accrued and unpaid interest to the date of
redemption. Upon a Change of Control (as defined herein), each holder of
Exchange Notes ("Holder") may require the Company to repurchase such Exchange
Notes at 101% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase. See "Description of the Notes--Change of Control."
The Outstanding Notes have been, and the Exchange Notes are expected to be,
approved for trading in The Private Offerings, Resale and Trading through
Automated Linkages (PORTAL) Market of The Nasdaq Stock Market, Inc. The Exchange
Notes will settle through the book-entry facilities of The Depository Trust
Company.
The Exchange Notes will be senior subordinated unsecured obligations of the
Company. The Exchange Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company,
including the Company's obligations under the bank credit facilities (the
"Senior Credit Facilities") with a group of lenders providing for $16 million of
term loans (the "Term Loans") and up to $54 million of revolving credit loans
and letters of credit (the "Revolving Credit Facility"). As of June 28, 1997,
the amount of Senior Indebtedness of the Company was approximately $26.9
million, and the Company had the ability to borrow up to an additional $43.1
million under the Revolving Credit Facility. The Exchange Notes will be fully
and unconditionally guaranteed on a senior subordinated basis by Industrial
Tectonics Bearings Corporation ("ITB"), RBC Linear Precision Products, Inc.
("LPP") and RBC Nice Bearings, Inc. ("Nice" and, together with ITB and LPP, the
"Subsidiary Guarantors"). See "Description of the Notes--Subsidiary Guarantees"
and "--Certain Covenants." Each Subsidiary Guarantee (as defined herein) will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the relevant Subsidiary Guarantor, including guarantees of the Company's
obligations under the Senior Credit Facilities. The Exchange Notes will rank
PARI PASSU in right of payment with all senior subordinated indebtedness of the
Company and senior to any other subordinated indebtedness of the Company issued
after consummation of the Offering. The indebtedness under the Senior Credit
Facilities is secured by substantially all of the assets of the Company and the
Subsidiary Guarantors.
Prior to the Exchange Offer, there has been no public market for either the
Outstanding Notes or the Exchange Notes. If a market for the Exchange Notes
should develop, the Exchange Notes could trade at a discount from their face
amount. The Company does not intend to list the Exchange Notes on any national
securities exchange. It is not anticipated that an active public market for the
Exchange Notes will develop. Although the Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Notes, it is
not obligated to do so, and any such market-making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes.
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer may be an
"underwriter" within the meaning of the Securities Act and must acknowledge that
it acquired the Outstanding Notes as a result of market-making activities or
other trading activities and will deliver a prospectus in connection with any
resale of such Exchange 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.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such
2
Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transactions. See "The Exchange Offer."
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions on transfer thereof and
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Outstanding Notes held by them. To
the extent that Outstanding Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Outstanding Notes could be
adversely affected. It is not expected that an active market for the Outstanding
Notes will develop while they are subject to restrictions on transfer.
The Company will accept for exchange any and all Outstanding Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be , (the "Expiration
Date"), unless the Exchange Offer is extended by the Company (but in no event to
a date later than ), in its sole discretion, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Tenders of Outstanding Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for payment by the Company. The Exchange Offer is not
conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. The Exchange Notes bear interest from the
last interest payment date of the Outstanding Notes to occur prior to the issue
date of the Exchange Notes or, if no such interest has been paid, from June 23,
1997. Holders of the Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive interest on such Outstanding Notes for any period
subsequent to the last interest payment date to occur prior to the issue date of
the Exchange Notes, if any, and will be deemed to have waived the right to
receive any interest payment on the Outstanding Notes accrued from and after
such interest payment date or, if no such interest has been paid, from June 23,
1997. See "The Exchange Offer." Outstanding Notes may be tendered only in
integral multiples of $1,000.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Outstanding Notes as of , 1997.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
OF OUTSTANDING NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE HISTORICAL FINANCIAL
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES TO "RBC" OR THE "COMPANY" REFER TO ROLLER BEARING
COMPANY OF AMERICA, INC., A DELAWARE CORPORATION, AND ITS PREDECESSORS AND
SUBSIDIARIES AND ALL REFERENCES TO "HOLDINGS" REFER TO ROLLER BEARING HOLDING
COMPANY, INC., A DELAWARE CORPORATION AND THE SOLE STOCKHOLDER OF THE COMPANY.
THE COMPANY
The Company is a leading manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States. Bearings, which
are integral to the manufacture and operation of most machines and mechanical
systems, reduce wear to moving parts, facilitate proper power transmission and
reduce damage and energy loss caused by friction. Many of the Company's products
are custom designed or highly engineered for specific applications to meet
demanding specifications. While the Company manufactures products in all major
bearing categories, the Company focuses primarily on highly technical or
regulated bearing products for niche markets. For the fiscal year ended March
29, 1997, the Company had pro forma net sales of $111.3 million and the
Company's net sales have grown at a compound annual growth rate of approximately
20% from fiscal 1993 to fiscal 1997 (pro forma for acquisitions).
The worldwide market for bearings is estimated by industry sources to be $15
billion, of which approximately $4.5 billion is domestic. The Company targets
the higher end segment of the domestic bearing market where it believes its
value added manufacturing and engineering capabilities enable it to
differentiate itself from its competitors and to enhance profitability. The
Company believes that it is the leading supplier to many of its targeted markets
and maintains secondary positions in other product niches where it believes
market share gains can be achieved. The Company has a diverse customer base,
with sales to more than 1,200 customers in fiscal 1997 and with no single
customer representing 10% of net sales. The Company believes its rapid
turnaround on orders, custom designed engineering and strict adherence to
quality and reliability provide it with significant competitive advantages. The
Company's key customers include Caterpillar, John Deere, Boeing, Pratt &
Whitney, General Electric, Bell Helicopter and Motion Industries.
The Company sells primarily to domestic original equipment manufacturers
("OEMs") and distributors in three markets: industrial, aerospace and
government. Many of the Company's product offerings are in market segments
(market sizes between $30 million and $150 million) which require high service
levels, extensive technical engineering support, short lead times and small
production runs. Generally, such market segments are not as price sensitive as
other segments of the bearing market and are not the primary focus of the three
largest bearing manufacturers. In combination with the Company's efficient
production processes, targeting such market segments has allowed the Company to
achieve higher margins. Additionally, in an effort to generate more stable
revenues, the Company has increased sales to the replacement market. Management
estimates that currently over 60% of the Company's products are sold directly or
indirectly for use in the replacement market.
Approximately 61% of the Company's fiscal 1997 net sales were to the
industrial market segment. The Company believes opportunities exist to increase
sales in this market segment as a result of (i) increasing demand for industrial
machinery in both the domestic and international markets, which is expected to
expand existing OEM selling opportunities, (ii) growth in aftermarket demand as
the installed base continues to expand and (iii) the increased emphasis being
placed on maintenance and repair of capital goods given the increasing cost of
such items.
Approximately 33% of the Company's fiscal 1997 net sales were to the
aerospace market segment for applications in commercial and military aviation.
According to Boeing, worldwide air travel is expected to grow 75% between 1996
and 2006 and the world commercial aircraft fleet is expected to double by 2016.
4
The Company provides bearings for virtually every model of commercial aircraft
in production, as well as many military applications, and its customers include
all major aerospace manufacturers. Sales to the aerospace market segment have
been increasing as a percentage of total sales, a trend which the Company
expects will continue.
Approximately 6% of the Company's fiscal 1997 net sales were to the
government market segment. The Company expects sales to this market segment to
remain stable in the foreseeable future due to (i) increased emphasis on repair
and maintenance of existing military platforms, (ii) sole source supplier
relationships and replacement part sales for existing programs and (iii) long
product lives of existing programs, which should ensure steady sales relating to
such programs for several years.
The Company believes there will continue to be many consolidation
opportunities within the bearing industry. Since 1992, the Company has acquired
Transport Dynamics Corporation ("TDC"), a manufacturer of plain bearings, Heim
Bearings ("Heim"), a leading producer of rod end and ball bearings, LPP, a
pioneer in grinding techniques for precision ball screws, and Nice, the oldest
active brand name in the domestic bearing industry. Following an acquisition,
management typically rationalizes operations, reduces overhead costs, develops
additional cross-selling opportunities and establishes new customer
relationships.
Management believes that the Company is well positioned to achieve continued
growth and market share gains through (i) increasing sales to the aftermarket,
(ii) continuing its focus on high margin niche market segments where the Company
believes it has a sustainable competitive advantage, (iii) penetrating new
markets with innovative products, (iv) expanding international OEM and
distributor sales and (v) acquiring bearing manufacturers which have
complementary products or similar distribution channels or provide significant
potential for margin enhancement.
COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
- STRONG MANAGEMENT TEAM--The Company's management team possesses extensive
managerial experience in the bearing industry, with its top six operating
executives having an average of over 20 years of bearing industry
experience.
- DESIGN AND MANUFACTURING CAPABILITIES--The Company has manufactured over
20,000 items, many of which have received OEM, military or Federal
Aviation Administration/Parts Manufacturer Approval ("FAA/PMA") product
approvals. Additionally, the Company has demonstrated consistent and
timely delivery performance with shorter lead times than its direct
competitors, particularly in the aerospace market where the Company
believes its lead times are in many cases approximately 50% shorter than
its direct competitors.
- SOLE SUPPLIER/LONG-TERM CUSTOMER RELATIONSHIPS--Many of the Company's
customers have been doing business with the Company for decades. The
Company believes that its customers continue to seek long-term
partnerships with a small number of core suppliers. The Company's customer
relationships are strengthened by the fact that it works jointly with many
of its customers at the design stage in the development of new products.
- FOCUS ON NICHE MARKETS--The Company believes that its reputation and
strategic focus on niche segments of the bearing market, which require
high service levels, extensive technical engineering support, short lead
times and small production runs, provide it with a competitive advantage
over its larger competitors who are often less focused on smaller sales
volume opportunities and generally provide lower levels of technical
support to these niche market segments.
- PROPRIETARY MANUFACTURING PROCESSES--The Company sells products to the
aerospace, industrial and government markets which products typically
require sophisticated engineering and production
5
techniques. The Company believes that its proprietary manufacturing
processes enable it to attract and retain customers who require its
products.
- LOW COST OPERATIONS--The Company believes that its vertically integrated
manufacturing capabilities have allowed it to become a low cost
manufacturer of products within the niche markets it services. By
controlling its manufacturing processes, the Company has been able to
reduce scrap and increase yields of its products. Furthermore, the Company
continually develops proprietary technology to increase efficiency and
enhance economies of scale to further reduce costs.
- COMMITMENT TO QUALITY AND SERVICE--The Company believes that its
commitment to provide consistent, high quality products and service,
flexible manufacturing and custom designed products at competitive prices
form the basis for its strong and diversified customer relationships.
BUSINESS STRATEGY
The Company has developed a business strategy that focuses on maximizing
profitability while growing, both internally and through acquisitions.
MAXIMIZING PROFITABILITY--The Company attempts to maximize profitability
through the implementation of its operating strategy. With respect to higher
volume products, the Company emphasizes production process and related
efficiency programs designed to improve overall profitability and incorporates
its strategy on both a facility and a product basis. Under its operating
strategy, the Company determines achievable market prices and volume levels for
a specific product line. Once these are determined, the Company develops a
manufacturing process that, assuming such volume and price levels, will result
in a targeted gross profit margin. Only product lines where the Company believes
that the developed manufacturing process will yield the targeted margins are
manufactured. Management monitors gross margins of all product lines on a
monthly basis to determine which manufacturing processes should be adjusted.
Additionally, the Company's non-standard custom designed products are typically
not as price sensitive.
EXPANDING GEOGRAPHIC PRESENCE--The Company seeks to expand into geographic
regions not currently served and to exploit new markets and industries for
existing and new products. Recently, the Company increased its sales efforts in
Seattle, Dallas, Chicago and Detroit and believes that, with this increased
field coverage and further geographic expansion in major domestic industrial
geographic regions, including St. Louis, Houston and Kansas City, there is
potential to substantially increase sales of existing product lines. In
addition, the Company is increasing its focus on international sales.
LEVERAGING CUSTOMER RELATIONSHIPS--The Company works closely with many of
its OEM customers to jointly develop and design new products and to improve the
performance of existing products. The Company shares product development and
enters into sole source supply contracts and teaming arrangements with many key
customers, which strengthens and broadens its relationships. The Company
believes that this strategy, together with successful performance under existing
contracts, leads to additional long-term business from key customers.
INCREASING FOCUS ON THE AFTERMARKET--The Company seeks to continue to
increase its sales to key aerospace and industrial distributors. The Company
believes that this strategy helps to generate more stable revenues. In addition,
the Company is generally able to realize higher margins on aftermarket sales.
Management estimates that currently over 60% of the Company's products are sold
directly or indirectly for use in the replacement market.
PURSUING SELECTIVE ACQUISITIONS--The Company has demonstrated expertise in
acquiring niche bearing and precision-engineered component manufacturers which
have complementary products or similar distribution channels or provide
significant potential for margin enhancement. The Company has historically
acquired complementary bearing companies and integrated them effectively into
its existing operations. Since fiscal 1992, the Company has consummated four
acquisitions. Such acquisitions, together with internal growth, have resulted in
increased net sales from $53.8 million in fiscal 1993 to $111.3 million on a
6
pro forma basis in fiscal 1997. The Company intends to pursue selective
acquisitions and to add products and capabilities that are complementary to its
existing operations. The Company believes that there will continue to be
consolidation opportunities within the bearing industry.
INTRODUCING NEW PRODUCT LINES--By focusing on niche products within the
highly engineered bearing market, the Company believes that it can compete
profitably and achieve attractive margins. This product focus leads the Company
to the development of proprietary designs, technology and relationships with
customers that in turn create future sales opportunities. A number of these
products require either OEM, military or FAA/PMA approvals, which provide a
barrier to entry to other bearing manufacturers. Furthermore, the Company
believes that as a result of some of its recent acquisitions, significant cross-
selling opportunities exist to expand its existing product offerings to new
customers or to provide new product lines to existing customers. Additionally,
the Company periodically enters into arrangements with other bearing
manufacturers, whereby the Company sells bearings to such manufacturers for
resale under their brand names.
RECENT DEVELOPMENTS
On June 23, 1997, pursuant to a Redemption and Warrant Purchase Agreement
(the "Recapitalization Agreement") dated May 20, 1997, Holdings effected a
recapitalization of its outstanding capital stock (including the financing and
other transactions consummated by Holdings, the Company and its subsidiaries in
connection therewith, the "Recapitalization"). In connection with the
Recapitalization, all of the outstanding preferred stock of Holdings ("Preferred
Stock") was redeemed by Holdings and substantially all of the outstanding common
stock ("Common Stock") of Holdings and warrants to purchase Common Stock
("Common Stock Purchase Warrants") held by non-management stockholders of
Holdings was redeemed or purchased by Holdings or certain current stockholders
or warrantholders of Holdings (including certain affiliates of the Initial
Purchaser and the purchasers of the Discount Debentures (as defined herein)).
In connection with the financing of the Recapitalization, the Company issued
the Outstanding Notes and entered into the Senior Credit Facilities, and
Holdings issued approximately $74.8 million in Senior Secured Discount
Debentures (the "Discount Debentures") and warrants (the "Discount Warrants") to
purchase 6,731 shares of Class A Common Stock ("Class A Common Stock") for
aggregate gross consideration of $40 million.
Dr. Michael J. Hartnett, the Chairman, President and Chief Executive Officer
of the Company, currently owns approximately 51% (approximately 42% on a fully
diluted basis) of the outstanding capital stock of Holdings, and through the
operation of provisions of Holdings' certificate of incorporation he has the
power to control a majority of the voting rights of all capital stock of
Holdings. See "Securities Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions."
The Company is currently in discussion with several companies and has
recently signed a letter of intent to acquire a bearing business with annual net
sales of approximately $15.0 million, for a purchase price of approximately $7.3
million. There can be no assurance, however, that such acquisition will be
consummated.
------------------------
Roller Bearing Company of America, Inc. was incorporated in Delaware in
August 1987. The Company's principal executive offices are located at 60 Round
Hill Road, P.O. Box 430, Fairfield, Connecticut 06430-0430, and its telephone
number is (203) 255-1511.
7
THE EXCHANGE OFFER
THE OFFER....................... The Company is offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal amount
of Outstanding Notes that are properly tendered and
accepted. The terms of the Exchange Notes are identical in
all material respects to the Outstanding Notes except for
certain transfer restrictions and registration rights
relating to the Outstanding Notes and that, if the
Exchange Offer is not consummated by December 22, 1997,
the interest rate on the Outstanding Notes shall increase
by 0.5% until the Exchange Offer is consummated. The
issuance of Exchange Notes is intended to satisfy certain
obligations of the Company contained in the Registration
Rights Agreement. The Exchange Notes represent the same
debt as the Outstanding Notes, and will be issued, and
holders thereof are entitled to the same benefits as
holders of Outstanding Notes, under the Indenture.
EXPIRATION DATE................. 5:00 P.M., New York City time, on , unless extended.
See "The Exchange Offer--Period for Tendering Outstanding
Notes."
ACCRUED INTEREST ON THE NOTES... The Exchange Notes will bear interest from their date of
issuance ( , unless the Exchange Offer is extended).
Interest on the Outstanding Notes which are exchanged for
Exchange Notes will cease to accrue on the day preceding
the date of issuance of the Exchange Notes. Interest
payable on , with respect to Exchange Notes will
include accrued but unpaid interest due on the Outstanding
Notes for the period from , to the Expiration Date,
and will be paid to holders of record of Exchange Notes as
of .
CONDITIONS OF THE EXCHANGE
OFFER......................... The Exchange Offer is subject to certain customary
conditions, any or all of which may be waived by the
Company. See "The Exchange Offer--Certain Conditions to
the Exchange Offer."
PROCEDURES FOR TENDERING
OUTSTANDING NOTES............. Each holder of Outstanding Notes wishing to accept the
Exchange Offer must complete and sign the Letter of
Transmittal, in accordance with the instructions contained
herein and therein, and forward or hand-deliver such
Letter of Transmittal to the Exchange Agent identified
below at the address set forth herein and therein. Each
exchanging holder will be required to represent in the
Letter of Transmittal that such holder is acquiring the
Exchange Notes in the ordinary course of business, is not
engaged in, and does not intend to engage in, a
distribution of Exchange Notes and is not an affiliate of
the Company or the Subsidiary Guarantors. Any holder of
Outstanding Notes whose Outstanding Notes are registered
in the name of brokers, dealers, commercial banks, trust
companies or nominees is urged to contact such registered
holders promptly if such holder wishes to accept the
Exchange Offer. See "The Exchange Offer--Procedures for
Tendering Outstanding Notes."
8
WITHDRAWAL OF TENDERS........... Tenders of Outstanding Notes may be withdrawn at any time
prior to 5:00 P.M., New York City time, on the Expiration
Date. See "The Exchange Offer--Withdrawal Rights."
ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES......................... The Company will accept for exchange any and all
Outstanding Notes which are properly tendered in the
Exchange Offer prior to 5:00 P.M., New York City time, on
the Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer--Acceptance
of Outstanding Notes for Exchange; Delivery of Exchange
Notes."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ For a discussion of certain federal income tax
consequences of the exchange of the Outstanding Notes, see
"Certain Federal Income Tax Considerations."
RIGHTS OF DISSENTING
NOTEHOLDERS................... Holders of Outstanding Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation
Law in connection with the Exchange Offer.
USE OF PROCEEDS................. There will be no proceeds to the Company from the exchange
of Outstanding Notes pursuant to the Exchange Offer.
EXCHANGE AGENT.................. United States Trust Company of New York, 114 West 47th
Street, New York, New York 10036; telephone (212)
852-1663.
DESCRIPTION OF EXCHANGE NOTES
EXCHANGE NOTES SUBJECT TO
EXCHANGE OFFER................ $110,000,000 aggregate principal amount of 9 5/8% Senior
Subordinated Notes Due 2007, Series B.
COMPARISON WITH OUTSTANDING
NOTES; TRANSFERABILITY........ The Exchange Notes will be freely transferable under the
Securities Act by Holders who are not affiliates of the
Company. The holders of Outstanding Notes currently are
entitled to certain registration rights pursuant to the
Registration Rights Agreement. However, upon consummation
of the Exchange Offer, holders of Outstanding Notes who do
not exchange their Outstanding Notes for Exchange Notes
will no longer be entitled to any registration rights and
will not be able to reoffer, resell or otherwise dispose
of their Outstanding Notes, unless they are subsequently
registered under the Securities Act, which the Company and
the Subsidiary Guarantors will have no obligation to do,
or unless an exemption from the registration requirements
of the Securities Act is available. The Exchange Notes
otherwise will be identical in all respects (including
interest rate, maturity, guarantee and restrictive
covenants) to the Outstanding Notes. See "The Exchange
Offer."
MATURITY DATE................... June 15, 2007.
INTEREST PAYMENT DATES.......... June 15 and December 15 of each year, commencing .
9
OPTIONAL REDEMPTION............. The Exchange Notes are not redeemable prior to June 15,
2002, except that, until June 15, 2000, the Company may
redeem at its option up to an aggregate of $36.0 million
of the principal amount of the Notes at the redemption
price set forth herein plus accrued interest to the date
of redemption with the net proceeds of one or more Public
Equity Offerings of Holdings if at least $74.0 million of
the principal amount of the Notes remains outstanding
after each such redemption. On or after June 15, 2002, the
Exchange Notes are redeemable at the option of the
Company, in whole or in part, at the redemption prices set
forth herein plus accrued interest to the date of
redemption. See "Description of the Notes--Optional
Redemption."
CHANGE OF CONTROL............... Upon a Change of Control, and subject to certain
conditions, each Holder of Exchange Notes may require the
Company to repurchase the Exchange Notes held by such
Holder at 101% of the principal amount thereof plus
accrued interest to the date of repurchase. See
"Description of the Notes--Change of Control."
RANKING......................... The Exchange Notes will be senior subordinated unsecured
obligations of the Company and will be subordinate in
right of payment to all existing and future Senior
Indebtedness of the Company including the Company's
obligations under the Senior Credit Facilities and will
rank PARI PASSU to all future senior subordinated
indebtedness of the Company. As of June 28, 1997, the
amount of Senior Indebtedness of the Company was
approximately $26.9 million and the Company had the
ability to borrow up to an additional $43.1 million under
the Revolving Credit Facility.
GUARANTEES...................... The payment of the principal of and premium (if any) and
interest on the Notes is fully and unconditionally
guaranteed on a senior subordinated basis by the
Subsidiary Guarantors (the "Subsidiary Guarantees"). Each
Subsidiary Guarantee will be subordinated to all existing
and future Senior Indebtedness of the respective
Subsidiary Guarantor, including the guarantee by such
Subsidiary Guarantor of the Company's obligations under
the Senior Credit Facilities. See "Description of the
Notes--Subsidiary Guarantees."
RESTRICTIVE COVENANTS........... The indenture under which the Outstanding Notes were, and
the Exchange Notes are being, issued (the "Indenture")
limits (i) the incurrence of additional debt by the
Company and certain of its subsidiaries, (ii) the payment
of dividends on capital stock of the Company and the
purchase, redemption or retirement of capital stock or
subordinated indebtedness, (iii) investments, (iv) certain
transactions with affiliates, (v) sales of assets,
including capital stock of subsidiaries and (vi) certain
consolidations, mergers and transfers of assets. The
Indenture also prohibits certain restrictions on
distributions from certain subsidiaries. All of these
limitations and prohibitions, however, are subject to a
number of important qualifications. See "Description of
the Notes--Certain Covenants."
10
RISK FACTORS
Prospective participants in the Exchange Offer should consider carefully the
information set forth under the caption "Risk Factors" and all other information
contained in this Prospectus before making any determination as to their
participation.
11
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The summary consolidated historical financial information presented below
for each of the fiscal years in the three-year period ended March 29, 1997, and
at March 29, 1997, has been derived from the audited Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus. The summary
consolidated historical financial information presented below for each of the
fiscal years in the two-year period ended April 2, 1994, has been derived from
the consolidated financial statements of the Company. The information presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus.
FISCAL YEAR ENDED
---------------------------------------------------------
APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29,
1993 1994(A) 1995 1996 1997(B)
--------- --------- --------- ----------- -----------
Statement of Operations Data:
Net sales.............................................. $ 53,837 $ 65,306 $ 73,904 $ 82,233 $ 93,427
Cost of sales.......................................... 36,774 49,596 57,204 60,054 64,215
--------- --------- --------- ----------- -----------
Gross profit........................................... 17,063 15,710 16,700 22,179 29,212
Selling, general and administrative expense............ 8,917 10,201 8,987 11,104 14,537
Other expense, net of other income (c)(d).............. 945 8,694 1,057 1,388 1,473
--------- --------- --------- ----------- -----------
Income (loss) from operations.......................... 7,201 (3,185) 6,656 9,687 13,202
Interest expense, net.................................. 3,471 4,333 6,445 6,165 5,338
--------- --------- --------- ----------- -----------
Income (loss) before income taxes and extraordinary
charge............................................... 3,730 (7,518) 211 3,522 7,864
Provision (benefit) for income taxes................... 1,810 (2,721) 110 1,700 3,224
Extraordinary charge (e)............................... -- -- -- 995 --
--------- --------- --------- ----------- -----------
Net income (loss)...................................... $ 1,920 $ (4,797) $ 101 $ 827 $ 4,640
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
$ 19,200 $ (47,910) $ 1,010 $ 8,270 $ 46,396
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net income (loss) per share..........................
Weighted average number of shares outstanding........ 100 100 100 100 100
Ratio of earnings to fixed charges (f)................. 2.0x (g) 1.0x 1.5x 2.4x
AS OF
MARCH 29, 1997
--------------
Balance Sheet Data:
Cash and cash equivalents....................................................................... $ 859
Working capital................................................................................. 37,636
Property, plant and equipment, net.............................................................. 40,098
Total assets.................................................................................... 124,513
Total debt (including current portion) (h)...................................................... 63,380
Stockholder's equity............................................................................ 37,372
- ------------------------
(a) Includes the results of operations for Heim following the effective date of
its acquisition in May 1993.
(b) Includes the results of operations for LPP and Nice following their
respective effective dates of acquisition as of October 1996 and as of
February 1997.
(c) Includes a consulting fee of $292, $393, $400, $400 and $429 paid to an
affiliate of Aurora Capital Partners, L.P. ("Aurora"), the former principal
stockholder of Holdings, pursuant to a consulting
12
agreement in fiscal 1993, 1994, 1995, 1996 and 1997, respectively. Such
agreement was terminated in connection with the Recapitalization and such
fees will not recur on a post-Recapitalization basis.
(d) Includes a $7,578 non-recurring restructuring charge in fiscal 1994, a $425
non-recurring environmental remediation charge in fiscal 1996 and a $500
non-recurring pension termination charge in fiscal 1997.
(e) The extraordinary charge results from the write-off of unamortized deferred
financing costs in connection with the early extinguishment of debt. The
extraordinary charge is recorded net of tax benefit.
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes and fixed charges. Fixed charges
consist of (i) interest, whether expensed or capitalized, (ii) amortization
of debt expense and discount or premium relating to any indebtedness,
whether expensed or capitalized and (iii) that portion of rental expense
considered to represent interest cost (assumed to be one-third).
(g) Earnings were insufficient to cover fixed charges in fiscal 1994 by $7,518.
(h) For purposes of calculating total debt, the $10,700 aggregate principal
amount of the Company's obligations relating to certain Industrial
Development Revenue Bonds (the "IRBs") is reflected net of $3,901 of
restricted marketable securities held in trust by the trustee for the IRBs.
13
RISK FACTORS
PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER SHOULD CAREFULLY CONSIDER THE
FOLLOWING SPECIFIC RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE EXCHANGE NOTES.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
RBC incurred substantial indebtedness in connection with the
Recapitalization and RBC is highly leveraged. At June 28, 1997, RBC's total
indebtedness was $136.9 million and RBC had the ability to borrow an
additional $43.1 million under the Revolving Credit Facility. For the fiscal
quarter ended June 28, 1997, RBC's ratio of earnings to fixed charges was 1.8
to 1 and as of such date RBC had negative net worth of $18.3 million.
The degree to which RBC is leveraged could have important consequences for
RBC, including the following: (i) the ability of RBC to obtain additional
financing for working capital, capital expenditures, acquisitions, debt service
requirements or other purposes may be impaired; (ii) a substantial portion of
RBC's cash flow from operations will be required to pay RBC's interest expense
and principal repayment obligations and will not be available for its general
corporate needs; (iii) RBC's flexibility to adjust to changing market conditions
may be limited, and its ability to compete against its less highly leveraged
competitors may be reduced; (iv) RBC may be more vulnerable in the event of a
downturn in its business, in the aerospace or heavy equipment industries, or in
any other industry to which RBC markets its products or in the economy
generally; and (v) to the extent that RBC incurs borrowings under the Senior
Credit Facilities, which borrowings will be at variable rates, it will be
vulnerable to increases in interest rates. In order to provide for RBC's working
capital needs, the Senior Credit Facilities provide for up to $54 million of
revolving credit loans (subject to customary conditions to borrowing) which RBC
believes will provide, together with cash flow from operations, sufficient
capital resources to conduct its business for the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
RBC's ability to pay interest on the Exchange Notes and satisfy its other
obligations (including its obligation to purchase the Notes upon a Change of
Control (see "--Obligations in the Event of a Change of Control"), and its
obligations under the Senior Credit Facilities) will depend on its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond its control.
Although RBC believes it will be able to pay its obligations as they come due,
there can be no assurance that it will generate earnings in any future period
sufficient to cover its fixed charges. In the absence of adequate operating
results and cash flows, RBC might be required to adopt alternative strategies
that may include reducing or delaying capital expenditures, disposing of
material assets or operations, refinancing its indebtedness, including the
Exchange Notes, or seeking additional equity capital to meet its debt service
obligations. The Senior Credit Facilities and the Indenture, as well as the
indenture governing the Discount Debentures (the "Discount Indenture"), contain
covenants that restrict RBC's ability to take certain of the foregoing actions,
including selling assets and using the proceeds therefrom. See "--Restrictions
Imposed by Debt Instruments." There can be no assurance as to the timing of such
actions, the ability of RBC to consummate such actions under its or Holdings'
existing financing agreements or the proceeds that RBC could realize therefrom,
and there can be no assurance that any such transactions would be feasible at
the time or that such proceeds would be adequate to meet the obligations then
due. In addition, there can be no assurance that the Subsidiary Guarantors will
generate sufficient cash flow to meet their respective obligations under the
Subsidiary Guarantees. See "Description of Certain Indebtedness," "Description
of the Notes" and "--Ranking of the Exchange Notes and Subsidiary Guarantees."
In connection with the Recapitalization, Holdings issued the Discount
Debentures. See "Description of Certain Indebtedness--Discount Debentures."
Although the Discount Debentures generally do not
14
require the payment of cash interest until December 15, 2002, and do not mature
until June 15, 2009, Holdings will be required to redeem approximately $34
million of the Discount Debentures no later than December 15, 2002. If Holdings
is unable to obtain sufficient cash to make such redemption payment, an event of
default with respect to the Discount Debentures would occur which would allow
the holders thereof to accelerate the Discount Debentures and enforce their
pledge of the capital stock of RBC. Holdings' only asset is the capital stock of
RBC, and the ability of RBC to pay dividends to Holdings is restricted by both
the Senior Credit Facilities and the Indenture. See "Description of the
Notes--Certain Covenants--Limitation on Restricted Payments."
CYCLICAL NATURE OF BUSINESS
The aerospace, heavy equipment and other industries to which the Company
sells its products are, to varying degrees, cyclical and have historically
experienced periodic downturns, which often have had a negative effect on demand
for the Company's products. Prior industry downturns have resulted in negative
effects on the Company's net sales, gross margin and net income. Although the
Company believes that by concentrating on products with strong aftermarket
demand it has reduced its exposure to such business downturns, any future
material weakness in demand in any of these industries could have a material
adverse effect on the financial condition and results of operations of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY CUSTOMERS; GOVERNMENT REGULATION; OEM APPROVALS; DEFENSE
INDUSTRY CONSOLIDATION
The demand for the Company's products is largely dependent on the aerospace
and heavy equipment industries. Sales to the Company's largest customer
accounted for approximately 9.7% of the Company's fiscal 1997 net sales. Sales
to the Company's ten largest customers accounted for approximately 40.2% of the
Company's fiscal 1997 net sales. A substantial portion of its business
relationships are informal and certain of the Company's contractual arrangements
may be terminated at will. Although the Company believes that its business
relationships with its major customers are currently mutually satisfactory,
there can be no assurance that sales to the Company's major customers will
continue at the same level of volume or pricing or that one or more major
customers will not terminate or seek to materially alter the terms of its
relationship with the Company. There can be no assurance that any of the
Company's major customers will not shift its sourcing to other suppliers,
develop in-house manufacturing capabilities for the Company's products or take
other actions which could adversely affect the Company. The loss of any of the
Company's major customers or a substantial decrease in any of such customer's
purchases from the Company, a material decrease in the demand for new aircraft
or heavy equipment or replacement parts therefor or a material deterioration in
the ability of the Company to obtain orders to supply products for aircraft or
heavy equipment could have a material adverse effect on the financial condition
and results of operations of the Company.
A significant portion of the Company's sales are to government agencies or
departments or customers who are government contractors or are regulated by the
government. As such, compliance with various government regulations and
provisions in such customers' contracts may be required. Violations of these
regulations could result in termination of the Company's contracts with such
customers, imposition of fines or suspension or debarment from supplying
component parts for government contracts.
Several of the Company's customers, including many of the Company's largest
customers, have strict manufacturing and quality standards (some of which are
imposed by government regulation) with which the Company must comply. In many
cases, the Company's compliance with such standards must be demonstrated prior
to supplying the product. Failure by the Company to maintain compliance or to
obtain approvals for new products could result in a material loss of sales to
such customers. Additionally, the Company is able to utilize its position as an
approved supplier to certain of such customers in order to promote sales to
other customers. Such opportunities would be lost by any failure to maintain
product
15
approvals. The occurrence of any of the foregoing events could have a material
adverse effect on the financial condition and results of operations of the
Company.
Many of the Company's products are used in a number of different
applications in military equipment and aircraft. The defense industry has been
undergoing rapid consolidation over the last few years. Consolidations and
combinations in the industry may eliminate customers from the market (including
customers of the Company who are acquired by companies that are not customers of
the Company) or produce downward pricing pressures on component parts sales to
the defense industry. Downward pricing pressures on sales of component parts,
the elimination of customers from the industry generally or the loss of the
Company's customers could have a material adverse effect on the financial
condition and results of operations of the Company.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company is subject to various federal, state and local environmental
laws, ordinances and regulations, including those governing discharges of
pollutants into the air and water, the storage, handling and disposal of solid
wastes, hazardous wastes and hazardous substances and the health and safety of
employees ("Environmental Laws"). Agencies responsible for enforcing
Environmental Laws have authority to impose significant civil or criminal
penalties for non-compliance. The Company believes it is currently in material
compliance with all applicable requirements of Environmental Laws, but there can
be no assurance that some future non-compliance will not result in the
imposition of significant liabilities.
The Company also may be liable under Environmental Laws, including the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), state analogs to CERCLA and certain state property transfer laws,
for the costs of investigation and remediation of contamination at facilities
owned or operated by the Company, or at other facilities at which the Company
has disposed of hazardous substances. In connection with such contamination, the
Company may also be liable for natural resource damages, government penalties
and claims by third parties for personal injury and property damage. State
agencies are currently overseeing investigation and remediation activities at
the Company's facilities in Fairfield, Connecticut, West Trenton, New Jersey,
Santa Ana, California, and Rancho Dominguez, California, and the prior property
owner has conducted limited remediation at the Company's Kulpsville,
Pennsylvania facility. The former owners of these facilities have agreed to
indemnify the Company for liabilities arising from environmental conditions that
existed prior to the date of purchase of such facilities by the Company, which
has covered most of the costs of ongoing remediation to date, although the
Company has relinquished the indemnity for the Fairfield, Connecticut facility.
Moreover, there can be no assurance that the indemnities relating to the other
facilities, all of which contain negotiated dollar limits, will be adequate to
resolve any remaining cleanup liabilities or that the indemnifying parties will
continue to perform their indemnification obligations.
Future events, such as new releases of hazardous substances, new information
concerning past releases of hazardous substances, changes in existing
Environmental Laws or their interpretation, and more rigorous enforcement by
regulatory authorities, may give rise to additional expenditures, compliance
requirements or liabilities that could have a material adverse effect on the
financial condition and results of the operations of the Company. See
"Business--Environmental Matters."
ABILITY TO IMPLEMENT ACQUISITION STRATEGY AND ABILITY TO MANAGE GROWTH
A key component of the Company's business strategy is the growth of the
Company's product and customer base through the acquisition of competitors in
similar lines of business and operators in segments of the bearing industry in
which the Company has not historically operated. Although the Company believes
that there currently exist ample opportunities for such acquisitions, there can
be no assurance that the Company will be able to successfully exploit any such
opportunities or that such opportunities will be available in the future. In
order to capitalize on any such acquisition opportunities, the Company may need
16
to obtain additional capital. To raise such capital, the Company may elect to
undertake additional debt financings. The issuance of additional debt securities
or borrowings would result in additional leverage and reduced working capital.
Additionally, the issuances of additional debt securities or borrowings is
restricted by the terms of the Indenture, the Discount Indenture and the Senior
Credit Facilities. There can be no assurance that the Company will be able to
obtain such financing on terms acceptable to the Company, if at all, and the
inability to obtain such financing when desired could have a material adverse
effect on the Company's ability to implement its acquisition strategy and
capitalize on profitable opportunities.
Following the Exchange Offer, the Company intends to grow and expand its
business through internal expansion and acquisitions. If such growth occurs, it
will place demands on the Company's management, employees, operations and
physical and financial resources. To manage its growth, the Company must
continue to implement and improve its operational and financial systems and to
expand, train and manage its employee base, and any inability of the Company to
attract and retrain the executive and managerial personnel required by its
expanding business could have a material adverse effect on the results of
operations and financial condition of the Company. If the Company's systems,
procedures or controls are not adequate to support the Company's operations,
management may not be able to achieve the rapid expansion necessary to exploit
potential market opportunities for the Company's products. In addition, any
anticipated expansion of the Company's marketing efforts outside of the United
States will expose the Company to the economic, political and regulatory
environments within the countries in which the Company's new and potential
customers are located, which may be more restrictive or burdensome than those in
the United States and with which the Company may be unfamiliar.
COMPETITION
Segments of the bearing industry are subject to intense competition, on a
price, quality and customer service basis. The Company faces competition from
other bearing manufacturers, many of whom are diversified manufacturing concerns
and have significantly greater financial and other resources than the Company.
Additionally, certain of the Company's competitors are able to produce their own
raw materials and possess a greater market share in many segments of the bearing
industry than the Company. Such competitors are able to expend greater resources
on research and new product development. The Company believes, however, that by
operating in the markets within the bearing industry in which it competes, it
faces less competition from the larger bearing manufacturers and that
competition in such markets is less dependent on price and the ability to expend
significant financial resources. See "Business--Competition." Additionally, the
Company relies on certain of its competitors for its own raw materials and in
certain circumstances produces products for, and sells products to, its
competitors for resale under such competitors' names. See "Business--Suppliers
and Raw Materials."
FRAUDULENT TRANSFER CONSIDERATIONS
A significant portion of the proceeds of the offering of the Outstanding
Notes were distributed to Holdings, the sole stockholder of the Company, and
used to redeem and purchase Common Stock, Preferred Stock and Common Stock
Purchase Warrants in the Recapitalization. Under relevant federal bankruptcy law
and state fraudulent transfer laws, the Exchange Notes under certain
circumstances may be subject to avoidance or may be subordinated to existing or
future indebtedness of the Company (in addition to the Senior Indebtedness to
which the Exchange Notes are expressly subordinated). Such circumstances would
include a court finding in a suit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as
debtor-in-possession, finding that, after giving effect to the sale of the
Outstanding Notes and the Discount Debentures and the incurrence of the
indebtedness under the Senior Credit Facilities (collectively, the
"Recapitalization Indebtedness") and the application of the net proceeds
therefrom either (a) the Company received less than a reasonably equivalent
value or fair consideration for the issuance of the Outstanding Notes (including
by reason of the fact the proceeds therefrom were distributed to Holdings to
purchase Common Stock, Preferred Stock and Common Stock
17
Purchase Warrants, which courts generally consider of no value to the issuer of
such equity securities or its subsidiaries) and either (i) was insolvent at the
time of such issuance or was rendered insolvent thereby, (ii) was engaged in
business or transactions for which the assets remaining with the Company
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay as such debts matured; or
(b) the Company issued the Outstanding Notes with actual intent to hinder, delay
or defraud its existing creditors. In such case, the court could avoid the
Exchange Notes and order that all or part of any payments on the Exchange Notes
be returned to the Company or to a fund for the benefit of its creditors, or
subordinate the Exchange Notes to some or all other indebtedness of the Company,
or take other action detrimental to the Holders.
In addition, the Company will rely on upstream dividends from its
subsidiaries as a source of payment on the Exchange Notes. Dividend payments are
generally considered to have been made for less than a reasonably equivalent
value as the payor receives no value in return. As a result, such dividend
payments may be attacked by an unpaid creditor of such subsidiary or
representative of such creditors pursuant to the same fraudulent transfer theory
set forth above. If such an attack were successful, the Company's subsidiaries
could be prevented from paying dividends to the Company, or the Company could be
obliged to repay dividends received if such dividends were successfully avoided
as fraudulent transfers. In such case, the ability of the Company to make
payments on the Exchange Notes would be materially impaired.
Upstream guarantees themselves, such as the Subsidiary Guarantees, may be
avoided as fraudulent transfers pursuant to the same fraudulent transfer theory
set forth above. However, each Subsidiary Guarantee is limited in amount to the
maximum amount that can be guaranteed under applicable fraudulent transfer laws.
Accordingly, a Subsidiary Guarantor's obligation under its Subsidiary Guarantee
may be limited or reduced to zero. In determining whether a Subsidiary Guarantor
received reasonably equivalent value, courts generally will consider the
benefits the Subsidiary Guarantor derives from the Company's financing,
management and position and reputation in the marketplace.
The measure of insolvency for purposes of all of the foregoing varies based
upon the law of the jurisdiction applied. Generally, however, an entity would be
considered insolvent if the sum of its debts (including contingent liabilities)
is greater than all of its property at a fair valuation, or if the present fair
saleable value of its assets is less than the amount that will be required to
pay its probable liabilities on its existing debts (including contingent
liabilities), as they become absolute and matured. In addition, an entity may be
presumed insolvent under some fraudulent transfer laws if it is not generally
paying its debts as they become due. Although following the Recapitalization the
Company currently has a negative net worth, the Company believes, based upon
valuations and forecasts, that the Company was at the time of consummation of
the Recapitalization, was at the time the Outstanding Notes were issued, will be
at the time the Exchange Notes are issued, and will continue to be at all times
that payments on the Exchange Notes are made solvent, will have sufficient
capital to carry on its business, and will continue to be able to pay its debts
as they mature. Similarly, the Company believes that, based on such information,
each subsidiary of the Company was at the time of the Recapitalization, was at
the time the Outstanding Notes were issued, will be at the time the Exchange
Notes are issued and will continue to be at the times it is projected to pay
dividends to the Company solvent, will have sufficient capital to carry on its
business and will continue to be able to pay its debts as they mature.
Accordingly, the Company believes that in a bankruptcy case or a lawsuit by
creditors of the Company, none of the Exchange Notes should be held to have been
issued, nor payments on the Exchange Notes held to have been made, in violation
of applicable federal bankruptcy law or state fraudulent transfer laws, and that
in a suit by the creditors of the subsidiaries of the Company, none of the
dividends to the Company should be held to have been made in violation of
applicable federal bankruptcy law or state fraudulent transfer laws. There can
be no assurance, however, as to what standard a court would apply to determine
whether the Company and its subsidiaries were "insolvent" as of the date the
Outstanding Notes or the Exchange Notes were issued; or that, regardless of the
method of valuation, a court would not determine that the Company or its
subsidiaries was insolvent on such other relevant dates. Nor can there be any
assurance that a court would not
18
determine, regardless of whether the Company was solvent on the date the
Exchange Notes were issued, that the payments constituted fraudulent transfers
on another of the grounds set forth above.
RANKING OF THE EXCHANGE NOTES AND SUBSIDIARY GUARANTEES
The Exchange Notes will be subordinated in right of payment to all Senior
Indebtedness of RBC, including RBC's obligations under the Senior Credit
Facilities. As of June 28, 1997, the amount of Senior Indebtedness of RBC was
approximately $26.9 million, and RBC had the ability to borrow an additional
$43.1 million under the Revolving Credit Facility.
Upon any payment or distribution of assets of RBC upon liquidation,
dissolution, reorganization or any similar proceeding, the holders of Senior
Indebtedness will be entitled to receive payment in full before the Holders are
entitled to receive any payment. In addition, RBC may not make any payments in
respect of the Exchange Notes during the continuance of a payment default under
any Senior Indebtedness. Moreover, if certain non-payment defaults exist under
certain Senior Indebtedness, RBC may be prohibited from making any payments in
respect of the Exchange Notes for a specified period of time.
The obligations of RBC under the Exchange Notes and the Senior Credit
Facilities are, subject to certain limitations, guaranteed by the Subsidiary
Guarantors. The Subsidiary Guarantees with respect to the Exchange Notes are
limited in amount to the maximum amount that can be guaranteed under applicable
fraudulent transfer laws and are subordinated to Senior Indebtedness of each
Subsidiary Guarantor to the same extent that the Exchange Notes are subordinated
to Senior Indebtedness of RBC. Accordingly, the obligation of a Subsidiary
Guarantor under its Subsidiary Guarantee may be limited or reduced to zero, and
the ability to collect under any Subsidiary Guarantee may be limited. The
obligations of RBC and its subsidiaries, whether as borrower or guarantor, under
the Senior Credit Facilities are collateralized by substantially all of each
such entity's present and future assets. Any default thereunder could
effectively permit the holders of Senior Indebtedness to control RBC's and its
subsidiaries' cash and other assets which could indirectly prevent RBC from
meeting its debt service obligations on other indebtedness, including the
Exchange Notes. The Exchange Notes will be unsecured and, therefore, do not have
the benefit of such collateral. If RBC becomes insolvent or is liquidated or if
the indebtedness under the Senior Credit Facilities is accelerated, including
any acceleration as a result of a bankruptcy or insolvency of, or other event of
default with respect to, Holdings, the lenders under the Senior Credit
Facilities will be entitled to payment in full from the proceeds of the
collateral prior to any payment to the Holders. In such event, it is possible
that there would be no assets remaining from which claims of the Holders could
be satisfied or, if any assets remain, such assets may be insufficient to fully
satisfy such claims. See "Description of the Notes--Ranking," "--Subsidiary
Guarantees" and "--Certain Covenants."
RESTRICTIONS IMPOSED BY DEBT INSTRUMENTS
The Senior Credit Facilities, the Indenture and the Discount Indenture
contain numerous financial and operating covenants, including, but not limited
to, restrictions on the Company's ability to incur indebtedness, pay dividends,
redeem stock, issue stock, create liens, sell assets, engage in certain mergers
and acquisitions and make investments. Such covenants could materially limit the
Company's ability to finance its future operations or capital needs or to engage
in potentially profitable activities in which the Company might otherwise
engage. The ability of the Company to comply with the covenants and other terms
of the Senior Credit Facilities, the Indenture and the Discount Indenture will
depend on the future performance of the Company. In addition, the Senior Credit
Facilities will require the Company to achieve certain financial ratios, some of
which become more restrictive with the passage of time. The ability of the
Company to comply with its covenants and achieve such ratios may be affected by
events beyond the Company's control. In the event the Company fails to comply
with the various covenants contained in the Senior Credit Facilities the lenders
thereunder would have the ability to accelerate such debt, which would
constitute a default under the Indenture. If the indebtedness under the Senior
Credit Facilities or the
19
Indenture were to be accelerated, there can be no assurance that the assets of
the Company would be sufficient to repay such indebtedness in full. See
"Description of the Notes--Defaults."
OBLIGATIONS IN THE EVENT OF A CHANGE OF CONTROL
Upon a Change of Control, the Company is obligated to make an offer to
purchase all outstanding Notes at a price equal to 101% of the principal amount
of the Notes, plus accrued interest thereon. The Senior Credit Facilities will
prohibit the Company from purchasing any Notes and will also provide that the
occurrence of certain Change of Control events with respect to the Company would
constitute a default thereunder. In the event of a Change of Control, the
Company would be required to repay all borrowings under the Senior Credit
Facilities or obtain the consent of its lenders under the Senior Credit
Facilities to make the purchase of the Notes. If the Company does not obtain
such consent or repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase tendered Notes
would constitute a default under the Indenture, which, in turn, would constitute
a default under the Senior Credit Facilities. There can be no assurance that the
Company will have the financial ability to purchase the Notes upon the
occurrence of a Change of Control. See "Description of the Notes--Change of
Control."
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers. The loss of the services of certain of these executives, including Dr.
Hartnett, could have a material adverse impact on the financial condition and
results of operations of the Company. There can be no assurance that the
services of such personnel will continue to be made available. The Company has
entered into a five-year employment agreement with Dr. Hartnett. See
"Management--Employment Agreement" and "Certain Relationships and Related
Transactions."
LABOR RELATIONS
As of June 28, 1997, the Company had approximately 970 active employees, of
whom approximately 16%, representing employees at the Company's West Trenton,
New Jersey and Fairfield, Connecticut facilities, were represented by the United
Auto Workers ("UAW"), and 8%, representing employees at the Company's
Kulpsville, Pennsylvania facility, were represented by the United Steel Workers
of America (the "USWA"). There can be no assurance that additional employees not
currently represented by unions will not elect to be so represented in the
future.
The Company's agreement with the UAW for the West Trenton, New Jersey
facility expires May 31, 1999, its agreement with the UAW for the Fairfield,
Connecticut facility expires January 31, 1999, and its agreement with the USWA
expires on October 23, 1999. There can be no assurance that any of these
agreements will be renewed when they expire or that the Company will not
experience strikes, work stoppages or other situations.
CONTROLLING STOCKHOLDERS
All of the outstanding stock of the Company is held by Holdings. As of June
28, 1997, Dr. Hartnett owned approximately 43% (approximately 42% on a fully
diluted basis) and members of management of the Company (16 persons) owned
approximately 61% (approximately 62% on a fully diluted basis) of the
outstanding capital stock of Holdings. In addition, through the ownership of
Class B Supervoting Common Stock of Holdings ("Class B Common Stock"), Dr.
Hartnett has, subject to certain limitations, the power to control a majority of
the voting rights of all capital stock of Holdings. Accordingly, management, in
particular Dr. Hartnett, is in a position to control Holdings and the Company
and is able to determine the outcome of any corporate transaction or other
matter submitted to the stockholders of Holdings for
20
approval, including the election of directors, mergers, acquisitions,
consolidations or the sale of all or substantially all of the Company's assets.
See "Certain Relationships and Related Transactions."
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON RESALES
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes, or the ability of Holders to sell their Exchange Notes or the price at
which such Holders may be able to sell their Exchange Notes. If such a market
were to develop, the Exchange Notes could trade at prices that may be higher or
lower than the initial offering price of Outstanding Notes depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. The Initial Purchaser has advised the
Company that it currently intends to make a market in the Exchange Notes. The
Initial Purchaser is not obligated to do so, however, and any market making with
respect to the Exchange Notes may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the Exchange Notes, or that an active market for the Exchange Notes will
develop. The Company does not intend to apply for listing or quotation of the
Exchange Notes, on any securities exchange or stock market; however, the
Outstanding Notes are, Exchange Notes are expected to be, eligible for trading
in The Private Offerings, Resale and Trading through Automated Linkages (PORTAL)
Market of The Nasdaq Stock Market, Inc.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Exchange Notes,
will not be subject to similar disruptions. Any such disruptions could have an
adverse effect on Holders of the Exchange Notes.
21
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange Notes
pursuant to the Exchange Offer.
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth, as of March 29, 1997, (i) the historical
capitalization of the Company and (ii) the capitalization of the Company, pro
forma for the Recapitalization. This table should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company contained elsewhere in this
Offering Circular.
AS OF MARCH 29, 1997
-----------------------
HISTORICAL PRO FORMA
---------- -----------
Total debt:
Pre-Recapitalization Revolving Credit Facility.......................................... $ 24,627 $ --
Pre-Recapitalization Term Loan.......................................................... 27,488 --
Revolving Credit Facility (a)........................................................... -- --
Term Loans.............................................................................. -- 16,000
IRBs, net (b)........................................................................... 6,799 6,799
Capitalized leases...................................................................... 4,466 4,466
Notes................................................................................... -- 110,000
---------- -----------
Total debt.............................................................................. 63,380 137,265
Total stockholder's equity (deficit)...................................................... 37,372 (20,801)
---------- -----------
Total capitalization.................................................................... $ 100,752 $ 116,464
---------- -----------
---------- -----------
- ------------------------
(a) The Revolving Credit Facility is a five-year $54,000 facility, of which
availability is reduced by $10,900 as a result of the issuance of letters of
credit thereunder to support the Company's obligations in respect of the
IRBs.
(b) As of March 29, 1997, the aggregate principal amount of the IRBs was
$10,700. The IRBs are presented net of $3,901 of restricted marketable
securities held in trust by the trustee for the IRBs.
22
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The selected consolidated historical financial information presented below
for each of the fiscal years in the three-year period ended March 29, 1997, and
at March 29, 1997, has been derived from the Consolidated Financial Statements
of the Company, which have been audited by Ernst & Young LLP, independent
certified public accountants. The selected consolidated historical financial
information presented below for each of the fiscal years in the two-year period
ended April 2, 1994, has been derived from the consolidated financial statements
of the Company. The information presented below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company contained
elsewhere in this Prospectus.
FISCAL YEAR ENDED
---------------------------------------------------------
APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29,
1993 1994(A) 1995 1996 1997(B)
--------- --------- --------- ----------- -----------
Statement of Operations Data:
Net sales.............................................. $ 53,837 $ 65,306 $ 73,904 $ 82,233 $ 93,427
Cost of sales.......................................... 36,774 49,596 57,204 60,054 64,215
--------- --------- --------- ----------- -----------
Gross profit........................................... 17,063 15,710 16,700 22,179 29,212
Selling, general and administrative expense............ 8,917 10,201 8,987 11,104 14,537
Other expense, net of other income (c)(d).............. 945 8,694 1,057 1,388 1,473
--------- --------- --------- ----------- -----------
Income (loss) from operations.......................... 7,201 (3,185) 6,656 9,687 13,202
Interest expense, net.................................. 3,471 4,333 6,445 6,165 5,338
--------- --------- --------- ----------- -----------
Income (loss) before income taxes and extraordinary
charge............................................... 3,730 (7,518) 211 3,522 7,864
Provision (benefit) for income taxes................... 1,810 (2,721) 110 1,700 3,224
Extraordinary charge (e)............................... -- -- -- 995 --
--------- --------- --------- ----------- -----------
Net income (loss)...................................... $ 1,920 $ (4,797) $ 101 $ 827 $ 4,640
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
$ 19,200 $ (47,970) $ 1,010 $ 8,270 $ 46,396
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net income (loss) per share..........................
Weighted average number of shares outstanding........ 100 100 100 100 100
Ratio of earnings to fixed charges (f)................. 2.0x (g) 1.0x 1.5x 2.4x
AS OF
MARCH 29, 1997
--------------
Balance Sheet Data:
Cash and cash equivalents....................................................................... $ 859
Working capital................................................................................. 37,636
Property, plant and equipment, net.............................................................. 40,098
Total assets.................................................................................... 124,513
Total debt (including current portion)(h)....................................................... 63,380
Stockholder's equity............................................................................ 37,372
- ------------------------
(a) Includes the results of operations for Heim following the effective date of
its acquisition in May 1993.
(b) Includes the results of operations for LPP and Nice following their
respective effective dates of acquisition as of October 1996 and February
1997.
(c) Includes a consulting fee of $292, $393, $400, $400 and $429 paid to an
affiliate of Aurora pursuant to a consulting agreement in fiscal 1993, 1994,
1995, 1996 and 1997, respectively. Such agreement was
23
terminated in connection with the Recapitalization and such fees will not
recur on a post-Recapitalization basis.
(d) Includes a $7,578 non-recurring restructuring charge in fiscal 1994, a $425
non-recurring environmental remediation charge in fiscal 1996 and a $500
non-recurring pension termination charge in fiscal 1997.
(e) The extraordinary charge results from the write-off of unamortized deferred
financing costs in connection with the early extinguishment of debt. The
extraordinary charge is recorded net of tax benefit.
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes and fixed charges. Fixed charges
consist of (i) interest, whether expensed or capitalized, (ii) amortization
of debt expense and discount or premium relating to any indebtedness,
whether expensed or capitalized and (iii) that portion of rental expense
considered to represent interest cost (assumed to be one-third).
(g) Earnings were insufficient to cover fixed charges in fiscal 1994 by $7,518.
(h) For purposes of calculating total debt, the $10,700 aggregate principal
amount of the IRBs is reflected net of $3,901 of restricted marketable
securities held in trust by the trustee for the IRBs.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the results of operations,
financial condition and liquidity of the Company should be read in conjunction
with the Consolidated Financial Statements of the Company contained elsewhere in
this Prospectus.
OVERVIEW
The Company is a leading manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States. The Company
targets the higher end segment of the domestic bearing market, focusing
primarily on highly technical or regulated bearing products for niche markets,
where it believes that its value added manufacturing, engineering capabilities
and high levels of ongoing technical support enable it to differentiate itself
from its competitors and to enhance its profitability. The Company has a diverse
customer base with sales to more than 1,200 customers in fiscal 1997 and with no
single customer amounting to 10% of net sales. The Company sells primarily to
domestic OEMs and distributors in the industrial, aerospace and government
market segments. Approximately 60% of the Company's fiscal 1997 net sales were
sold directly or indirectly for use in the replacement market, which the Company
believes increases the stability of its revenue base. The Company expects to
continue to target sales into the replacement market and expects similar levels
of replacement sales in the near future.
The worldwide market for bearings is estimated by industry sources to be
approximately $15 billion, of which approximately $4.5 billion is domestic. The
significant purchasers of bearings include automotive manufacturers, industrial
equipment and machinery manufacturers, construction and specialized equipment
manufacturers, agricultural machinery manufacturers and commercial and military
aerospace equipment manufacturers. According to Frost & Sullivan, the domestic
bearing market is expected to reach $7.0 billion by 2000.
The aerospace market segment, which represents approximately 33% of the
Company's fiscal 1997 net sales, is expected to show significant future growth.
According to Boeing, worldwide air travel is expected to grow 75% for the period
from 1996 to 2006 and the world fleet is expected to double by 2016. Sales to
the aerospace market segment have been increasing as a percentage of total net
sales, a trend which the Company expects to continue. Demand in the industrial
market segment, which represents approximately 61% of the Company's fiscal 1997
net sales, is also expected to grow due to the increasing demand for industrial
machinery in both domestic and international markets and the trend towards
greater emphasis on maintenance and repair of capital goods given the increasing
cost of such items.
The markets for the Company's products are cyclical and general market
conditions could negatively impact the Company's operating results. The Company
has mitigated its exposure to the cyclicality of the markets for its products by
entering into contractual agreements, sole source relationships or long-term
purchase orders, diversifying across industry market segments and across
multiple market segments within the industrial market segment and increasing
sales to the aftermarket.
The Company's target markets are generally not as price sensitive given the
highly engineered nature of the products and significant contractual/sole source
relationships with its customers. Further, on selected product lines, the
Company sells certain products produced in large volumes to customers in small
quantities to meet specific needs and achieves relatively higher price
realization on such sales. In addition, the Company seeks to expand into
geographic regions not currently served and to exploit new markets and
industries for existing and new products.
The Company's principal raw material is steel, which has historically been
readily available. The Company has been able to pass through increases in raw
material prices to its customers and therefore has not been exposed to raw
material price fluctuations.
25
The Company has improved gross margins primarily due to the implementation
of its operating strategy. Under this strategy, the Company determines
achievable market prices and volume levels for a specific product line. Once
these are determined, the Company develops a manufacturing process that,
assuming such volume and price levels, will result in a targeted gross profit
margin. Only product lines where the Company believes that the developed
manufacturing process will yield the targeted margins are manufactured.
Management monitors gross margins of all product lines on a monthly basis to
determine which manufacturing processes should be adjusted and which product
lines, if any, should be eliminated.
The Company has developed an operating strategy that focuses on growth both
internally and through selective acquisitions, maximizing profitability,
expanding markets and market share and introducing new products. The Company has
recently signed a letter of intent to acquire a bearing business with
approximate annual sales of $15.0 million for a purchase price of approximately
$7.3 million. However, there can be no assurance that such acquisition will be
consummated.
THE RECAPITALIZATION
ACCOUNTING TREATMENT
Stockholders of Holdings who owned approximately 7% of the outstanding
voting shares prior to the effective date of the Recapitalization, owned
approximately 71% of the outstanding voting shares of Holdings immediately
following the Recapitalization. Affiliates of the Initial Purchaser, one of
the Discount Purchasers and a newly appointed director of Holdings owned the
remaining 29% of the voting shares and thus are not controlling shareholders
of either Holdings or the Company. As a result, the transaction did not
result in the establishment of new bases in Holdings' or the Company's assets
and liabilities.
The redemption of shares of Common Stock and Preferred Stock and Common
Stock Purchase Warrants were treated as a recapitalization transaction.
Accordingly, funds disbursed by Holdings and the Company (other than for the
additional compensation described below), were charged against their capital
accounts to the extent permitted by law.
ADDITIONAL COMPENSATION EXPENSE
In connection with the Recapitalization, Holdings redeemed certain Common
Stock Purchase Warrants held by certain members of management of the Company.
Such warrants had been issued to members of management as compensation for
services rendered to the Company in prior periods. In accordance with generally
accepted accounting principles, the redemption of such Warrants by Holdings
resulted in additional compensation expense to the Company of $563 (which was
recorded in the first quarter of fiscal 1998), representing the excess of the
fair value of the Common Stock underlying the Common Stock Purchase Warrants
over the exercise price of such Common Stock Purchase Warrants.
RESULTS OF OPERATIONS
FISCAL YEAR
----------------------------------------------------------------
1995 % 1996 % 1997 %
--------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
Net sales...................................................... $ 73.9 100.0% $ 82.2 100.0% $ 93.4 100.0%
Cost of sales.................................................. 57.2 77.4 60.1 73.1 64.2 68.7
--------- --------- --------- --------- --------- ---------
Gross profit................................................... 16.7 22.6 22.1 26.9 29.2 31.3
Selling, general and administrative expense.................... 9.0 12.2 11.1 13.5 14.5 15.5
Other expense, net of other income............................. 1.1 1.5 1.4 1.7 1.5 1.6
--------- --------- --------- --------- --------- ---------
Income from operations......................................... $ 6.6 8.9% $ 9.6 11.7% $ 13.2 14.2%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
26
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES
The Company's net sales increased by approximately 13.6%, or $11.2 million,
to $93.4 million for fiscal 1997 from $82.2 million for fiscal 1996. Net sales
growth in fiscal 1997 occurred both through internal growth in base business and
through acquisitions. The net sales figure for fiscal 1997 includes partial year
results for LPP, acquired effective October 1996, and Nice, acquired effective
February 1997. These acquisitions contributed approximately $3.2 million and
$2.9 million, respectively, to the Company's fiscal 1997 net sales. Net sales
for the Company without giving effect to such acquisitions increased by
approximately 6.2%, or $5.1 million, to $87.3 million for fiscal 1997 from $82.2
million for fiscal 1996. This increase in net sales of $5.1 million was
primarily due to an increase in aerospace OEM sales of $3.3 million and an
increase in aviation distribution sales of $1.6 million and was offset by $0.8
million relating to the termination of a private labelling agreement in the
industrial OEM market segment.
GROSS PROFIT
Gross profit increased by approximately 32.1%, or $7.1 million, to $29.2
million for fiscal 1997 from $22.1 million for fiscal 1996. Gross margin during
the period increased from 26.9% to 31.3%. Fiscal 1996 gross profit includes the
effect of a write-down of inventory of $1.4 million, primarily related to
previous acquisitions. Excluding this write-down, gross profit as a percentage
of net sales in 1996 would have been 28.6% as compared to 31.3% in 1997. This
improvement of 2.7% is primarily attributed to overhead absorption, increased
sale of custom products and improved pricing and was partially offset by lower
margins relating to the acquisition of LPP and Nice.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased by approximately
30.6%, or $3.4 million, to $14.5 million for fiscal 1997 from $11.1 million in
fiscal 1996. Selling, general and administrative expense as a percentage of net
sales increased from approximately 13.5% in fiscal 1996 to approximately 15.5%
in fiscal 1997. Fiscal 1996 selling, general and administrative expense reflects
an adjustment of $1.2 million relating to a reduction in other post-employment
benefits ("OPEB") liability. Excluding this adjustment, selling, general and
administrative expense in fiscal 1996 would have been $12.3 million, or
approximately 15.0% of net sales, as compared to 15.5% in fiscal 1997. The
increase of 0.5% was primarily attributable to an increase in selling
expenditures to support geographic expansion and increased corporate expenses to
support the growing organizational infrastructure.
INCOME FROM OPERATIONS
Income from operations increased by approximately 37.5%, or $3.6 million, to
$13.2 million for fiscal 1997 from $9.6 million for fiscal 1996. The increase in
income from operations was attributable to the same factors that contributed to
the increased gross profit less the increased selling, general and
administrative expense. Income from operations increased to 14.2% of net sales
for fiscal 1997 from 11.7% for fiscal 1996. Operating earnings were reduced by a
one-time non-recurring estimated charge of $0.5 million related to the
termination of the West Trenton pension fund made and accrued for in fiscal
1997. Similarly, fiscal 1996 income from operations reflects a charge for
environmental expenditures of $0.4 million.
27
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
The Company's net sales increased by approximately 11.2%, or $8.3 million,
to $82.2 million for fiscal 1996 from $73.9 million for fiscal 1995. This
increase in net sales was primarily due to a $3.5 million increase in aerospace
sales and a $3.3 million increase in industrial sales.
GROSS PROFIT
Gross profit increased by approximately 32.3%, or $5.4 million, to $22.1
million for fiscal 1996 from $16.7 million for fiscal 1995. Gross profit as a
percentage of net sales during the period increased from 22.6% to 26.9%. The
$5.4 million improvement reflected a decrease of $1.7 million in preproduction
costs and a decrease of $1.2 million in inventory write-offs. The additional
$2.5 million improvement was primarily the result of the increased level of net
sales in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased by approximately
23.3%, or $2.1 million, to $11.1 million for fiscal 1996 from $9.0 million in
fiscal 1995. Selling, general and administrative expense as a percentage of net
sales increased from approximately 12.2% in fiscal 1995 to approximately 13.5%
in fiscal 1996. Fiscal 1996 selling, general and administrative expense reflects
a $1.2 million adjustment relating to a reduction in OPEB liability. Excluding
such adjustment, selling, general and administrative expense as a percentage of
sales would have been 15.0% in fiscal 1996, as compared to 12.2% in fiscal 1995.
The increase of 2.8% was primarily attributable to increased corporate expenses
to support the growing organizational infrastructure, including an increased
number of field sales representatives, expanded product management and upgrades
in management information systems.
INCOME FROM OPERATIONS
Income from operations increased by approximately 45.5%, or $3.0 million, to
$9.6 million for fiscal 1996 from $6.6 million for fiscal 1995. Income from
operations increased to 11.7% of net sales for fiscal 1996 from 8.9% for fiscal
1995. The increase in income from operations was attributable to the same
factors that contributed to increased gross profit less increased selling,
general and administrative expense. Fiscal 1996 income from operations reflect a
charge for environmental expenditures of $0.4 million.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1997 COMPARED TO FISCAL 1996
Net cash provided by operating activities was $12.7 million for fiscal 1997
compared to $1.4 million for fiscal 1996. The increase of $11.3 million was
primarily attributable to an increase in income from operations and improvements
in net cash from working capital.
Net cash used in investing activities was $17.7 million for fiscal 1997
compared to $4.6 million for fiscal 1996. The increase was primarily
attributable to cash used in the acquisitions of LPP and Nice and the purchase
of the Heim facility which was previously leased by the Company.
Net cash provided by financing activities for fiscal 1997 was $5.5 million
compared to $3.6 million for 1996. The net increase was primarily related to
borrowings under the revolving credit facility with Heller Financial, Inc. which
was terminated in connection with the Recapitalization in connection with the
above mentioned acquisitions.
28
FISCAL 1996 COMPARED TO FISCAL 1995
Net cash provided by operating activities was $1.4 million for fiscal 1996
compared to $(1.0) million used in operating activities for fiscal 1995. The
increase of $2.4 million was primarily attributable to an increase in income
from operations.
Net cash used in investing activities was $4.6 million for fiscal 1996
compared to $7.3 million for fiscal 1995. The difference was primarily due to
the reduced purchase of restricted marketable securities in 1996 relating to the
IRBs, offset by higher capital expenditures.
Financing activities reflected proceeds from a new financing arrangement and
sale of Preferred Stock by Holdings, the proceeds of which were contributed to
the capital of the Company, used to redeem existing bank debt and other
obligations. In fiscal 1995, the primary source of financing was the proceeds
from the IRBs.
LIQUIDITY
The Company's liquidity needs arise primarily from debt service on the
Recapitalization Indebtedness and for acquisitions. As of June 28, 1997, the
Company had outstanding approximately $136.9 million of indebtedness, primarily
consisting of $110.0 million principal amount of the Notes and the Term Loans of
$16.0 million. Additionally, the Company had the ability to borrow up to $54.0
million under the Revolving Credit Facility of which $10.9 million was utilized
for the issuance of letters of credit securing the Company's obligations
relating to the IRBs. See "Risk Factors--Substantial Leverage; Ability to
Service Debt."
Principal and interest payments under the Senior Credit Facilities and
interest payments on the Notes represent significant liquidity requirements for
the Company. With respect to the Term Loans, the Company is required to make
scheduled principal payments commencing in September 1997. The Term Loans bear
interest at a floating rate based upon the interest rate option elected by the
Company. See "Description of Certain Indebtedness." As a result of the
indebtedness to be incurred in connection with the Recapitalization, the
Company's post-Recapitalization interest expense will be higher and will have a
greater proportionate impact on net income in comparison to pre-Recapitalization
periods.
The Company's historical capital expenditures since 1995 have in substantial
part resulted from implementing its manufacturing and marketing strategy to
improve operating efficiency. The Company's capital expenditures were $2.9
million, $4.9 million and $5.8 million for the fiscal years ended April 2, 1995,
March 30, 1996 and March 29, 1997, respectively. Capital expenditures are
expected to be $7.0 million for the fiscal year ended March 28, 1998.
The Company believes that cash flows from operations and amounts available
under the Revolving Credit Facility will provide adequate funds for ongoing
operations, planned capital expenditures and debt service payments for the
foreseeable future. The Company's ability to borrow is limited by the terms of
the Senior Credit Facilities and the Indenture. See "Risk Factors--Restrictions
Imposed by Debt Instruments," "Description of Certain Indebtedness--Senior
Credit Facilities" and "Description of the Notes."
29
BUSINESS
GENERAL
The Company is a leading manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States. Bearings, which
are integral to the manufacture and operation of most machines and mechanical
systems, reduce wear to moving parts, facilitate proper power transmission and
reduce damage and energy loss caused by friction. Many of the Company's products
are custom designed or highly engineered for specific applications to meet
demanding specifications. While the Company manufactures products in all major
bearing categories, the Company focuses primarily on highly technical or
regulated bearing products for niche markets. For the fiscal year ended March
29, 1997, the Company had pro forma net sales of $111.3 million. The Company's
net sales have grown at a compound annual growth rate ("CAGR") of approximately
20%, from fiscal 1993 to fiscal 1997, pro forma for acquisitions.
The worldwide market for bearings is estimated by industry sources to be $15
billion, of which approximately $4.5 billion is domestic. The Company targets
the higher end market segment of the domestic bearing market where it believes
its value added manufacturing and engineering capabilities enable it to
differentiate itself from its competitors and to enhance profitability. The
Company believes that it is the leading supplier to many of its targeted markets
and maintains secondary positions in other product niches where it believes
market share gains can be achieved. The Company has a diverse customer base,
with sales to more than 1,200 customers in fiscal 1997 and with no single
customer representing 10% of net sales. The Company believes its rapid
turnaround on orders, custom designed engineering and strict adherence to
quality and reliability provide it with significant competitive advantages. The
Company's key customers include Caterpillar, John Deere, Boeing, Pratt &
Whitney, General Electric, Bell Helicopter and Motion Industries.
The Company sells primarily to domestic OEMs and distributors in three
markets: industrial, aerospace and government. Many of the Company's product
offerings are in market segments (market sizes between $30 million and $150
million) which require high service levels, extensive technical engineering
support, short lead times and small production runs. Generally, such market
segments are not as price sensitive as other market segments of the bearing
market and are not the primary focus of the three largest bearing manufacturers.
In combination with the Company's efficient production processes, targeting such
market segments has allowed the Company to achieve higher margins. Additionally,
in an effort to generate more stable revenues, the Company has increased sales
to the replacement market. Management estimates that currently over 60% of the
Company's products are sold directly or indirectly for use in the replacement
market.
Approximately 61% of the Company's fiscal 1997 net sales were to the
industrial market segment. The Company believes opportunities exist to increase
sales in this market segment as a result of (i) increasing demand for industrial
machinery in both the domestic and international markets, which is expected to
expand existing OEM selling opportunities, (ii) growth in aftermarket demand as
the installed base continues to expand and (iii) the increased emphasis being
placed on maintenance and repair of capital goods given the increasing cost of
such items.
Approximately 33% of the Company's fiscal 1997 net sales were to the
aerospace market segment for applications in commercial and military aviation.
According to Boeing, worldwide air travel is expected to grow 75% between 1996
and 2006 and the world commercial aircraft fleet is expected to double by 2016.
The Company provides bearings for virtually every model of commercial aircraft
in production, as well as many military applications, and its customers include
all major aerospace manufacturers. Sales to the aerospace market segment have
been increasing as a percentage of total sales, a trend which the Company
expects will continue.
Approximately 6% of the Company's fiscal 1997 net sales were to the
government market segment. The Company expects sales to this segment to remain
stable in the foreseeable future due to (i) increased
30
emphasis on repair and maintenance of existing military platforms, (ii) sole
source supplier relationships and replacement part sales for existing programs
and (iii) long product lives of existing programs, which should ensure steady
sales relating to such programs for several years.
The Company believes there will continue to be many consolidation
opportunities within the bearing industry. Since 1992, the Company has acquired
TDC, a manufacturer of plain bearings, Heim, a leading producer of rod end and
ball bearings, LPP, a pioneer in grinding techniques for precision ball screws,
and Nice, the oldest active brand name in the domestic bearing industry.
Following an acquisition, management typically rationalizes operations, reduces
overhead costs, develops additional cross-selling opportunities and establishes
new customer relationships.
Management believes that the Company is well positioned to achieve continued
growth and market share gains through (i) increasing sales to the aftermarket,
(ii) continuing its focus on high margin niche market segments where the Company
believes it has a sustainable competitive advantage, (iii) penetrating new
markets with innovative products, (iv) expanding international OEM and
distributor sales and (v) acquiring bearing manufacturers which have
complementary products or similar distribution channels or provide significant
potential for margin enhancement.
COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
- STRONG MANAGEMENT TEAM--The Company's management team possesses extensive
managerial experience in the bearing industry, with its top six operating
executives having an average of over 20 years of bearing industry
experience.
- DESIGN AND MANUFACTURING CAPABILITIES--The Company has manufactured over
20,000 items, many of which have received OEM, military or FAA/PMA product
approvals. Additionally, the Company has demonstrated consistent and
timely delivery performance with shorter lead times than its direct
competitors, particularly in the aerospace market where the Company
believes its lead times are in many cases approximately 50% shorter than
its direct competitors.
- SOLE SUPPLIER/LONG-TERM CUSTOMER RELATIONSHIPS--Many of the Company's
customers have been doing business with the Company for decades. The
Company believes that its customers continue to seek long-term
partnerships with a small number of core suppliers. The Company's customer
relationships are strengthened by the fact that it works jointly with many
of its customers at the design stage in the development of new products.
- FOCUS ON NICHE MARKETS--The Company believes that its reputation and
strategic focus on niche segments of the bearing market, which require
high service levels, extensive technical engineering support, short lead
times and small production runs, provide it with a competitive advantage
over its larger competitors who are often less focused on smaller sales
volume opportunities and generally provide lower levels of technical
support to these niche market segments.
- PROPRIETARY MANUFACTURING PROCESSES--The Company sells products to the
aerospace, industrial and government markets which products typically
require sophisticated engineering and production techniques. The Company
believes that its proprietary manufacturing processes enable it to attract
and retain customers who require its products.
- LOW COST OPERATIONS--The Company believes that its vertically integrated
manufacturing capabilities have allowed it to become a low cost
manufacturer of products within the niche markets it services. By
controlling its manufacturing processes, the Company has been able to
reduce scrap and increase yields of its products. Furthermore, the Company
continually develops proprietary technology to increase efficiency and
enhance economies of scale to further reduce costs.
31
- COMMITMENT TO QUALITY AND SERVICE--The Company believes that its
commitment to provide consistent, high quality products and service,
flexible manufacturing and custom designed products at competitive prices
form the basis for its strong and diversified customer relationships.
BUSINESS STRATEGY
The Company has developed a business strategy that focuses on maximizing
profitability while growing, both internally and through acquisitions.
MAXIMIZING PROFITABILITY--The Company attempts to maximize profitability
through the implementation of its operating strategy. With respect to higher
volume products, the Company emphasizes the production process and related
efficiency programs designed to improve overall profitability and incorporates
its strategy on both a facility and a product basis. Under its operating
strategy, the Company determines the achievable market prices and volume levels
for a specific product line. Once these are determined, the Company develops a
manufacturing process that, assuming such volume and price levels, will result
in a targeted gross profit margin. Only product lines where the Company believes
that the developed manufacturing process will yield the targeted margins are
manufactured. Management monitors gross margins of all product lines on a
monthly basis to determine which manufacturing processes should be adjusted.
Additionally, the Company's non-standard custom designed products are typically
not as price sensitive.
EXPANDING GEOGRAPHIC PRESENCE--The Company seeks to expand into geographic
regions not currently served and to exploit new markets and industries for
existing and new products. Recently, the Company increased its sales efforts in
Seattle, Dallas, Chicago and Detroit and believes that, with this increased
field coverage and further geographic expansion in major domestic industrial
geographic regions, including St. Louis, Houston and Kansas City, there is
potential to substantially increase sales of existing product lines. In
addition, the Company is increasing its focus on international sales.
LEVERAGING CUSTOMER RELATIONSHIPS--The Company works closely with many of
its OEM customers to jointly develop and design new products and to improve the
performance of existing products. The Company shares product development and
enters into sole source supply contracts and teaming arrangements with many key
customers, which strengthens and broadens its relationships. The Company
believes that this strategy, together with successful performance under existing
contracts, leads to additional long-term business from key customers.
INCREASING FOCUS ON THE AFTERMARKET--The Company seeks to continue to
increase its sales to key aerospace and industrial distributors. The Company
believes that this strategy helps to generate more stable revenues. In addition,
the Company is generally able to realize higher margins on aftermarket sales.
Management estimates that currently over 60% of the Company's products are sold
directly or indirectly for use in the replacement market.
PURSUING SELECTIVE ACQUISITIONS--The Company has demonstrated expertise in
acquiring niche bearing and precision-engineered component manufacturers which
have complementary products or similar distribution channels or provide
significant potential for margin enhancement. The Company has historically
acquired complementary bearing companies and integrated them effectively into
its existing operations. Since fiscal 1992, the Company has consummated four
acquisitions. Such acquisitions, together with internal growth, have resulted in
increased net sales from $53.8 million in fiscal 1993 to $111.3 million on a pro
forma basis in fiscal 1997. The Company intends to pursue selective acquisitions
and to add products and capabilities that are complementary to its existing
operations. The Company believes that there will continue to be consolidation
opportunities within the bearing industry.
INTRODUCING NEW PRODUCT LINES--By focusing on niche products within the
highly engineered bearing market, the Company believes that it can compete
profitably and achieve attractive margins. This product focus leads the Company
to the development of proprietary designs, technology and relationships with
32
customers that in turn create future sales opportunities. A number of these
products require either OEM, military or FAA/PMA approvals, which provide a
barrier to entry to other bearing manufacturers. Furthermore, the Company
believes that as a result of some of its recent acquisitions, significant cross-
selling opportunities exist to expand its existing product offerings to new
customers or to provide new product lines to existing customers. Additionally,
the Company periodically enters into arrangements with other bearing
manufacturers, whereby the Company sells bearings to such manufacturers for
resale under their brand names.
ACQUISITION HISTORY
In July 1991, the Company's current Chairman, President and Chief Executive
Officer, Dr. Hartnett, teamed up with affiliates of Aurora to implement a plan
to acquire a series of small to medium size domestic companies in the roller and
ball bearing industry. In March 1992, the Company's capital stock was acquired
for $52 million by RBC Acquisition Company, which was subsequently merged into
the Company and the Company became a wholly-owned subsidiary of Holdings. Since
1992, the Company has acquired TDC, a manufacturer of plain bearings, for $5.8
million, Heim, a leading producer of rod end and ball bearings, for $6.8
million, LPP, a pioneer in grinding techniques for precision ball bearing
screws, for $5.5 million, and Nice, the oldest active brand name in the domestic
bearing industry, for $7.5 million.
The Company has historically acquired complementary bearing companies and
integrated them effectively into its existing operations. Following an
acquisition, management typically rationalizes operations, reduces overhead
costs, develops additional cross-selling opportunities and establishes new
customer relationships. As a result of its integration efforts and internal
growth spurred by an effective marketing strategy, the Company's sales have
increased from $53.8 million in fiscal year 1993 to $111.3 million on a pro
forma basis for fiscal 1997.
The Company believes that there will continue to be consolidation
opportunities within the bearing industry. The Company is currently in
discussion with several companies, and has recently signed a letter of intent to
acquire a bearing company with annual sales of approximately $15.0 million for a
purchase price of approximately $7.3 million. There can be no assurance that
this acquisition or any other acquisition will occur, or on what terms. See
"Risk Factors--Ability to Implement Acquisition Strategy and Ability to Manage
Growth." Priority will be given to acquiring bearing companies with sales in the
$15 million to $25 million range. Additionally, the Company will seek smaller
"fold-in" acquisitions (businesses whose products can be manufactured at the
Company's existing facilities).
INDUSTRY
Bearings are integral to the manufacture and operation of machines and
mechanical systems. Bearings serve to reduce the wear to moving parts, ensure
proper power transmission and reduce damage and energy loss caused by friction.
Demand for bearings generally follows the market for products in which bearings
are incorporated and the general economy as a whole. Purchasers of bearings
include (i) automotive manufacturers, (ii) industrial equipment and machinery
manufacturers, (iii) producers of commercial and military aerospace equipment,
(iv) agricultural machinery manufacturers and (v) construction and specialized
equipment manufacturers. The Company estimates that approximately one-third of
all bearings manufactured are for use in the automobile industry, a market in
which the Company does not currently compete.
In 1994, according to the 1995 Frost & Sullivan Bearing Industry Review,
U.S. sales of bearings approximated $4.5 billion and worldwide sales of bearings
approximated $15 billion. The domestic bearing industry grew at a CAGR of 3.6%
between 1990 and 1994. The domestic bearing market is comprised of three primary
product categories: ball bearings (approximately $1.7 billion), roller bearings
(approximately $2.27 billion) and plain bearings (approximately $0.5 billion).
33
Ball bearings are used for high speed applications; roller bearings for
lower speed, heavily loaded applications; and plain bearings for sliding action
and misalignment applications.
The domestic market for standard bearings is dominated by three major
international competitors who, according to Frost & Sullivan, control 55% of the
total market (The Timken Company ("Timken"), Torrington Company ("Torrington")
and SKF USA, Inc. ("SKF")). The balance of the domestic market, consisting
primarily of specialty and custom engineered bearings, is more fragmented. Due
to the shorter production runs and significant post-sale technical support
associated with these products, they are not the primary focus of the larger
bearing manufacturers. A group of smaller companies (including the Company)
frequently establish leading positions, in market share and reputation, in
certain of these niche product lines. Furthermore, competition in these niche
markets is based on lead times and reliability of product and service, and these
markets are generally not as price sensitive as the markets for standard
bearings.
CUSTOMERS AND MARKETS
The Company supplies bearings to OEMs and distributors in the industrial,
aerospace and government markets. The industrial OEM market segment continues to
be the largest market segment for the Company, accounting for 42% of the
Company's fiscal 1997 net sales. While the Company's sales in its target markets
have historically been concentrated on OEMs, the Company has recently shifted
its focus in the aerospace and industrial market segments towards replacement
part sales. The Company believes this generates more stable revenues. The
Company's top ten customers comprised 40.2% of the Company's fiscal 1997 net
sales and no single customer comprised more than 9.7% of net sales. Five of the
Company's top ten customers are distributors and the remaining five are OEMs.
The following table summarizes the Company's sales to its three market
segments:
INDUSTRIAL AEROSPACE GOVERNMENT
-------------------------- ------------------------------ -------------------------------
Applications: Heavy equipment Helicopters (CH46,CH47), Helicopters (CH46, CH47,
Mining equipment Airplanes (737, 747, 757, 767, Blackhawk)
Machine tools 777, DC10, MD80, MD90) Airplanes (C2130, F14, F15,
Agricultural equipment Aircraft engines (PW4000, F16, F18, F117
Pumps CFM56, V2500) Armored vehicles (M60, M117)
Customers: OEMS: OEMS: U.S. Army
Caterpillar Boeing U.S. Navy
John Deere Lockheed Martin U.S. Air Force
Euclid Hitachi Bell Helicopter U.S. Marine Corps
General Electric Foreign Military Sales
Pratt & Whitney
DISTRIBUTORS: DISTRIBUTORS:
Motion Industries Aerospace Bearing Support
Applied Industrial Dixie Aerospace Bearings WS
Technologies Wilson
Kaman
Percentage of fiscal OEMS: 42% OEMS: 23% 6%
1997 net sales: DISTRIBUTORS: 19% DISTRIBUTORS: 10%
34
INDUSTRIAL
Industrial bearings are used in a wide range of industries such as heavy
equipment, machine tools, agricultural equipment, pumps and packaging. Nearly
all mechanical devices and machinery require bearings to relieve friction where
one part moves relative to another. The Company's products target existing
market applications in which the Company's engineering and manufacturing
capabilities provide it with a competitive advantage in the marketplace.
The Company manufactures a wide range of roller, ball and plain bearings for
industrial uses. See "-- Products." Sales to the industrial market segment
accounted for 61% of the Company's fiscal 1997 net sales. Approximately 69% of
such sales were to OEMs while 31% were to distributors. Within the industrial
market, the Company sells to the construction and mining equipment, material
handling, machine tools and energy and natural resources market segments. The
Company believes that the diversification of its sales among the various market
segments of the industrial bearings market reduces its exposure to downturns in
any individual market segment.
AEROSPACE
Bearings are used in numerous applications in all manner of airplanes,
helicopters and aircraft engines. The aerospace market segment utilizes
spherical plain bearings, rod ends, journal bearings and thin section ball
bearings. Bearings are regularly replaced on aircraft in conjunction with
routine maintenance procedures and include such items as high precision ball and
roller bearings and metal-to-metal and self-lubricating plain bearings.
Commercial aerospace customers generally require precision products, often of
special materials, made to unique designs and specifications.
The Company's penetration of the commercial aerospace market segment
expanded through the acquisitions of TDC and Heim. Sales to the aerospace market
segment accounted for 33% of the Company's fiscal 1997 net sales. Of this total,
70% reflected sales to OEMs and the remaining 30% were to distributors.
Management estimates that over 75% of commercial aerospace net sales are
actually used as replacement parts since a portion of OEM sales also are
ultimately intended for replacement market use. Sales of products for use in the
aftermarket helped the Company's sales over the past five years despite the
depressed levels of new aircraft construction. The Company supplies bearings for
commercial aircraft, commercial aircraft engines and for private aircraft
manufacturers as well as to various military contractors for airplanes,
helicopters and missile systems.
Essential to servicing the aerospace market is the ability to obtain product
approvals. See "Risk Factors--Dependence on Key Customers; Government
Regulation; OEM Approvals; Defense Industry Consolidation." The Company has in
excess of 20,000 product approvals, which enable it to provide products used in
virtually all domestic aircraft platforms presently in production or operation.
Product approvals are typically issued by FAA designated OEMs who are Production
Approval Holders ("PAHs") of FAA approved aircraft. These PAHs provide quality
control oversight and generally limit the number of suppliers directly servicing
the commercial aerospace aftermarket. Recent regulatory changes enacted by the
FAA provide for an independent process (the PMA process), which enables
suppliers who currently sell their products to the PAH, to sell products to the
aftermarket. The Company has submitted over 5,800 PMA applications and has
received over 600 approvals to date.
GOVERNMENT
The Company manufactures high precision ball and roller bearings, commercial
ball bearings and metal to metal and self-lubricating plain bearings for all
branches of the United States military and for sales to certain foreign military
forces. In addition to products that meet military specifications, these
customers often require precision products made of specialized materials to
custom designs and specifications. The Company manufactures an extensive line of
standard products that conform to many domestic
35
military application requirements, as well as customized products designed for
unique applications. Product approval for use on military equipment is often a
lengthy process ranging from six months to three years, and represents a
significant barrier to new entrants.
Government sales accounted for 6% of the Company's fiscal 1997 net sales,
consisting primarily of replacement bearings on programs for which the Company
is the sole source supplier. Despite cutbacks in the overall defense budget
during the 1990s, appropriations for maintenance and repairs for product
platforms serviced by the Company have remained stable. Military programs for
which the Company supplies component products include airplanes, helicopters,
turbine engines and armored vehicles.
PRODUCTS
The Company's product offerings can be divided into four broad categories:
plain bearings, roller bearings, ball bearings and linear precision products,
each of which includes both standard and highly specialized and customized
products. Within the four major categories that encompass the Company's product
offerings, its major bearing products include heavy duty needle roller bearings,
cam follower bearings, metal-to-metal and self-lubricating rod ends and
spherical bearings, high precision ball and roller bearings and semi-precision
unground ball bearings. Bearings are employed to fulfill several functions
including reduction of friction, transfer of motion and carriage of loads.
The Company seeks to provide a broad array of new products designed to meet
the evolving needs of its customers. The Company focuses on market niches in
which it believes it can be a low cost producer. The Company often manufactures
custom-engineered bearings from designs or application descriptions provided by
its customers. Custom-engineered bearings are frequently designed and specially
treated to withstand high loads, corrosion and other extreme environments. The
Company's products feature a broad variety of enhancements that have resulted in
longer product life and increased load support at reduced costs.
The Company has entered into agreements with other bearing manufacturers
which provide those manufacturers with products which round out their offerings
and ultimately increase the Company's market share of these products. The
Company will continue to actively pursue the establishment of new agreements and
the expansion of existing "private branding" agreements.
PLAIN BEARINGS
Plain bearings accounted for approximately 50.5% of the Company's fiscal
1997 net sales. In general, plain bearings are produced with either
self-lubricating or metal-to-metal designs and consist of several sub-classes,
including rod end bearings, spherical plain bearings and journal bearings.
Unlike ball bearings, which are used in high speed rotational applications,
plain bearings are primarily used to rectify inevitable misalignments in various
mechanical components. Such misalignments are either due to machining
inaccuracies or result when components change position relative to each other.
Spherical plain bearings, are designed for heavy equipment applications.
Spherical plain bearings and rod end bearings are used in the aerospace market
segment in the same applications as airframe control ball bearings. Heim and TDC
also produce teflon fabric lined sleeves for the aerospace market segment.
ROLLER BEARINGS
Roller bearings are anti-friction bearings that use rollers instead of
balls. The Company manufactures three basic types of roller bearings: heavy duty
needle roller bearings and inner rings, cam followers and mast guides and
aircraft roller bearings. The sale of roller bearings accounted for 29.0% of the
Company's fiscal 1997 net sales. The Company offers several heavy duty needle
roller bearing designs that are used in various industrial applications and in
certain U.S. military aircraft platforms. Cam followers and mast
36
guides have widespread use in heavy industrial machinery applications. The
Company is a leading producer of roller bearings for use in helicopters.
The Company offers several heavy duty needle roller bearing designs that are
used in various industrial applications and in certain U.S. military aircraft
platforms. The Company is the sole source supplier of rotor head bearings for
certain military helicopter platforms. Given the long product lives of these
programs and the increased emphasis which is being placed on repair and
maintenance versus the purchase of new airframes, the Company believes that,
with the number of airframes currently in operation, this market segment will be
stable for the foreseeable future.
BALL BEARINGS
The Company manufactures four basic types of ball bearings: high precision
aerospace, airframe control, thin section and commercial ball bearings. Ball
bearings accounted for 17.3% of the Company's fiscal 1997 net sales. High
precision aerospace bearings are primarily sold to customers in government or
the defense industry that require more technically sophisticated bearing
products providing higher degrees of fault tolerance given the criticality of
the applications in which they are used. Airframe control ball bearings are
precision ball bearings that are plated to resist corrosion and are qualified
under a military specification. Thin section ball bearings are specialized
bearings which use extremely thin cross sections and give specialized machinery
manufacturers many advantages. The Company is also involved in two niche market
segments: unground ball bearings and specialty inch and metric ball bearings.
LINEAR PRECISION PRODUCTS
LPP produces precision ground ball bearing screws that offer repeatable
accuracy in machine tools, transfer lines, robotic handling and semiconductor
equipment. Linear precision products contributed approximately $3.2 million to
the Company's fiscal 1997 net sales during the five months since LPP was
acquired. LPP's products are primarily used in the machine tool industry where
the Company believes significant opportunities to cross-sell the Company's other
products exists. LPP also serves many new, replacement and repair markets
through an agreement with Warner Electric, a division of Dana Corporation.
NEW PRODUCTS
The Company aggressively develops and acquires new products and determines
new applications for existing products. Some of the Company's recent new product
introductions in the industrial market segment include: the RBC
Roller-Registered Trademark-, introduced in November 1988 and expected to
improve bearing life by more than 400% over a needle bearing cam follower and
can be used in maintenance free applications; the RBC self-lubricated, fibriloid
lined spherical plain bearing, designed to meet an increasing demand for
products that are not lubricated and totally maintenance free; the NBC heavy
duty needle roller bearing series, introduced in 1995, of which the Company is
already shipping over $400,000 annually to commercial customers; a commercial
thin section ball bearing, which the Company developed by capitalizing on ITB's
expertise in the aerospace industry and adapted for industrial use; and the
Spherco self-lubricated fiberglide rod end, a maintenance-free rod end with
reduced radial play.
In the aerospace and defense markets, the Company's new products include the
ITB swashplate thin section ball bearings, and Heim ball bearing rod ends. The
Company is also concurrently working with oeing to develop weight saving
products. The Company has submitted samples and test data to the Department of
the Navy for military approval, which is required for the sale of the Company's
aircraft cam follower product line to the aerospace industry.
37
BEARING REFURBISHMENT PROGRAM
ITB is developing a bearing refurbishment center which commenced operations
in April 1997. Management estimates this to be a $100 million market which
historically has not been well served. The Company believes that, as an OEM
manufacturer of bearing components, it is well positioned to service this
industry. With new bearing lead times for some products that will be served by
this facility in excess of 430 days, the Company believes bearing refurbishment
will continue to be a growing market segment. As material costs are minimal and
most primary machining and grinding operations are not required to operate in
this market, the opportunity exists for higher margins.
MANUFACTURING AND OPERATIONS
The Company's production processes are designed to reduce costs and improve
overall profitability. Using its operating strategy, the Company endeavors to
design its manufacturing process so that machine and labor utilization are
optimized and total costs are reduced. Cost savings are generated through
effective management of monthly product line profit and loss. On a monthly
basis, gross margins of every product line within each product group are
reviewed. The Company monitors the progress of its efficiency efforts on an
ongoing basis, both monthly and quarterly, and reacts quickly to resolve
problems or exploit unanticipated opportunities.
Custom products are sold at a premium to direct manufacturing costs based on
factors such as lot size and availability. Management believes it has a thorough
understanding of the products and customers in the markets it serves, allowing
the Company to utilize aggressive and competitive pricing practices.
CAPACITY
The Company's plants currently run on a single shift and a light second
shift at selected locations to meet the demands of its customers. Management
believes that current capacity levels, with annual capital expenditures equal to
approximately 5% of sales in turning and grinding equipment in the future, will
permit the Company to effectively meet demand levels through at least 2002.
Management also believes that as it continues to invest in bearing
professionals, the ability to increase capacity and move to full second shifts,
if required, could be accomplished without compromising product quality or
involving significant additional capital expenditure.
INVENTORY MANAGEMENT
The Company's increasing emphasis on the distributor/aftermarket has
required it to maintain greater inventories of a broader range of products than
the OEM market historically demanded. As a result, the Company has implemented
an inventory management program designed to balance customer delivery
requirements with economically optimal inventory levels. In this program, each
product is categorized based on characteristics including order frequency,
number of customers and sales volume. Using this classification system,
management's primary goal is to maintain a sufficient supply of standard items
while minimizing warehousing costs. In addition, production cost savings are
achieved by optimizing plant scheduling around inventory levels and customer
delivery requirements. This leads to more efficient utilization of manufacturing
facilities and minimized plant production changes while maintaining sufficient
inventories to service customer needs.
INTEGRATION OF ACQUISITIONS
The Company has demonstrated an ability to quickly institute programs which
improve the performance of acquired companies. The process involves applying the
Company's operating strategy, rationalizing the product offerings and
appropriately capitalizing the acquisition.
38
MARKETING
The Company's marketing strategy is aimed at increasing sales within its
three current primary market sectors (industrial, aerospace and government) and
targeting specific profitable niche products. To effect this strategy, the
Company seeks to expand into geographic areas not previously served by it and
continues to exploit new markets and industries for existing and new products.
The Company employs a technically proficient sales force and also utilizes
marketing managers, product managers, customer service representatives and
product application engineers in its selling efforts.
Despite the difficulties inherent in the development of a quality,
technically astute, sales force in the bearing industry, the Company has been
able to accelerate the growth of its sales force through the hiring of sales
personnel with prior bearing industry experience, complemented by an in-house
training program, which was implemented in 1995 and which has graduated 8
professionals. The Company will continue to hire and develop expert sales
professionals and strategically locate them to implement its expansion strategy.
Today, the Company employs 25 strategically located sales professionals and more
than 60 people nationwide in its sales and marketing effort.
The Company has placed an emphasis on increasing sales to distributors
serving the spare parts aftermarket in the Company's key industry markets. Sales
to this market tend to be less cyclical as they arise out of end users' needs
for replacement bearings on existing equipment. See "--Customers and Markets."
Management estimates that sales to the replacement market exceeded 60% of the
Company's fiscal 1997 net sales. Management intends to continue to focus on
building distributor sales volume.
With regard to its OEM customers, the Company has and continues to focus on
establishing and maintaining relationships with OEMs that produce products with
strong aftermarket demand characteristics for the Company's products. The
Company's OEM relationships also provide it with extensive cross-selling
opportunities, as many OEM products utilize several of the types of bearings
manufactured by the Company.
COMPETITION
Competition in the bearing industry is based on a number of factors,
including price, product line offering, technical service and timeliness of
supply. The Company believes that it is well positioned to compete in each of
the markets in which it operates with regard to each of these factors.
For large run bearing products, price is a very important factor. Larger
manufacturers generally are relative low cost producers in the more standard
bearing product lines and are thus able to attain extensive market shares.
However, with niche product lines, when the production runs are smaller, larger
manufacturers are often unable to achieve the economies of scale needed to
maintain their low-cost producer status. As a result, while the Company competes
with the larger bearing manufacturers in some of the more standard bearing
product markets, its primary competition in several product categories includes
smaller niche companies including Kaydon Corporation, New Hampshire Ball
Bearings and McGill Manufacturing Company, Inc. Competitors to the Company's
ballscrews are 20th Century and Thompson, both privately held companies.
Bearings manufacturers operating in the more specialized market compete by
maintaining a broad product line and adequate inventories to service the
aftermarket. This enables such manufacturers to exploit the trend of OEMs
towards sourcing a broader range of products from a small number of suppliers.
Additionally, in certain industries and groups, purchasers require product
approval on an industry or company specific level for their component parts. See
"--Customers and Markets."
Other factors in the more specialized bearing market include strong
distribution channels, quality product, strong technical product service,
customer support and long-term customer relationships.
39
BACKLOG
As of June 28, 1997, the Company had a backlog, including orders to LPP and
Nice, of $66.6 million ($62.2 million excluding LPP and Nice) as compared to a
backlog of $48.2 million as of June 26, 1996. The Company has historically
maintained a strong backlog of orders. The Company sells many of its products
pursuant to contractual agreements, single source relationships or long-term
purchase orders, each of which may permit early termination by the customer.
However, due to the nature of many of the products supplied by the Company and
the lack of availability of alternative suppliers to meet the demands of such
customers' orders in a timely manner, the Company believes that it is not
practical or prudent for most customers, including many of the Company's largest
customers, to shift their bearing business to other suppliers.
EMPLOYEES
The Company had 970 employees at June 28, 1997.
Currently, collective bargaining agreements with the UAW cover substantially
all the hourly employees at the Company's West Trenton, New Jersey and
Fairfield, Connecticut plants, and a collective bargaining agreement with the
USWA covers substantially all the hourly employees at the Company's Kulpsville,
Pennsylvania plant. The West Trenton agreement expires on May 31, 1999, the
Fairfield Agreement expires on January 31, 1999 and the Kulpsville agreement
expires on October 23, 1999. All other hourly employees are not unionized. See
"Risk Factors--Labor Relations."
The Company cannot predict whether any of its employees who currently are
not represented by unions will elect to be so represented in the future. The
Company considers its relations with its employees to be satisfactory and has
not experienced a significant work stoppage in over twelve years.
SUPPLIERS AND RAW MATERIALS
The Company obtains raw materials, component parts and supplies from a
variety of sources and generally from more than one supplier. The Company's
principal raw material is steel. The Company's suppliers and sources of raw
materials are based in the United States and the Company believes that its
sources are adequate for its needs for the foreseeable future, that there exist
alternative suppliers for its raw materials and that in most cases readily
available alternative materials can be used for most of its raw materials. The
Company does not believe that the loss of any one supplier would have a material
adverse effect on the financial condition or results of operations of the
Company.
INTELLECTUAL PROPERTY
The Company's policy is to file patent applications to protect its
technology, inventions and improvements that are important to the development of
its business, and to seek trademark protection with respect to its product
titles that have achieved brand name recognition. The Company also relies upon
trade secrets, know-how and continuing technological innovation to develop and
maintain its competitive position. The Company holds six United States patents
(including those covering the RBC Roller-TM- cam follower and Quadlube-TM-
spherical plain bearing) and has three additional United States patent
applications pending. The Company has registered twelve trademarks in the United
States. There can be no assurance that such rights will not be infringed upon,
that additional patents will be issued as a result of the Company's
applications, that the Company's trade secrets will not otherwise become known
to or independently developed by competitors, that the Company would have
adequate remedies for any such infringement or use or that claims allowed under
such patents or any existing patents will not be challenged or invalidated or
would be of adequate scope to protect the Company's technology. The Company does
not believe that any individual item of intellectual property is material to its
business.
40
FACILITIES
The Company is headquartered in 13,728 square feet of owned office space
located at the Heim division in Fairfield, Connecticut which it owns, and
conducts manufacturing in approximately 80,000 square feet at such facility
where it manufactures plain bearing product, both teflon lined and metal to
metal, and commercial ball bearings. The Company also owns: (i) a facility in
Hartsville, South Carolina, consisting of approximately 104,000 square feet of
manufacturing space, occupied by the RBC division, at which facility the Company
manufacturers the smaller end of all of the RBC division's product lines, and
performs the initial machining operations for a large percentage of the product
manufactured in the West Trenton, New Jersey facility; (ii) a facility in
Kulpsville, Pennsylvania, consisting of approximately 130,000 square feet of
manufacturing space, occupied by Nice, at which facility the Company
manufactures commercial ground and unground ball bearings; (iii) a facility in
Santa Ana, California, consisting of approximately 80,000 square feet of
manufacturing space, occupied by TDC, at which facility the Company manufactures
teflon lined plain bearings; and (iv) a facility in Rancho Dominguez,
California, consisting of approximately 69,100 square feet of manufacturing
space, occupied by the ITB division, at which facility the Company manufactures
high precision ball and roller bearings for the aerospace industry, thin section
ball bearings and large diameter cam followers. Additionally the Company leases:
(i) 55,000 square feet of manufacturing space in West Trenton, New Jersey,
occupied by the RBC division, at which facility the Company manufactures heavy
duty needle roller bearings for the aerospace industry as well as the RBC
division's larger diameter heavy duty needle roller bearings and single fracture
spherical plain bearings; (ii) 40,000 square feet of manufacturing space in
Walterboro, South Carolina occupied by LPP, at which facility the Company
manufactures ball screws, ball spline and ball screw actuator product lines and
(iii) 8,000 square feet of space in Waterbury, Connecticut.
The lease for the West Trenton, New Jersey facility expires on July 31, 2000
and the lease for the Waterbury, Connecticut facility expires on March 31, 2001.
The lease for the Walterboro, South Carolina facility expired on July 31, 1997,
and the Company is currently renting such space on a month to month basis while
it explores alternative opportunities for such facility.
At the Company's facility in Waterbury, Connecticut, its Engineered
Components Division ("ECD"), has recently come on line as a Computer Numerically
Controlled Turning center. The mission of ECD is to be a manufacturer of turned
rings for the other operating units of the Company. The operation currently has
6 employees and approximately $1 million in equipment.
ENVIRONMENTAL MATTERS
The operations of the Company are subject to numerous Environmental Laws,
including those regulating air emissions and discharges to water, and the
storage, handling and disposal of solid wastes, hazardous wastes and hazardous
substances. The Company believes that it is in substantial compliance with all
applicable Environmental Laws. Capital expenditures and operating costs
associated with the Company's compliance with Environmental Laws may increase in
the future, however, if Environmental Laws become more stringent or are enforced
more rigorously, or if the Company's operations were to change.
In March 1996, the Company entered into a stipulated settlement agreement
with the New Jersey Attorney General settling its liability for an unpermitted
release of pollutants in July 1994 from its West Trenton, New Jersey facility
resulting in a fish kill in a tributary to the Delaware River. Under the terms
of the agreement, the Company paid a $150,000 civil penalty to the State of New
Jersey and made a $50,000 donation to a local conservation group. The Company
does not believe that any further liability will result from this event.
In connection with the ownership and operation of its properties, the
Company may be liable under Environmental Laws, including CERCLA and state
analogs to CERCLA, and certain state property
41
transfer laws, for the cost of investigation, removal or remediation of
contamination at facilities owned or operated by the Company, or at other
facilities at which the Company has disposed of hazardous substances. In
connection with such contamination, the Company may also be liable for natural
resource damages, government penalties and claims by third parties for personal
injury and property damage. State agencies are currently overseeing
investigation and remediation activities at the Company's facilities in
Fairfield, Connecticut, West Trenton, New Jersey, Santa Ana, California, and
Rancho Dominguez, California.
At the Company's two facilities located in California and its facility in
New Jersey, the previous owners of the assets purchased by the Company
indemnified the Company for liabilities arising from environmental conditions
that existed prior to the date of the Company's purchase of such assets, subject
to certain thresholds, limitations and caps, and are undertaking cleanup in
fulfillment of those indemnification obligations. Similarly, the previous owner
of the Kulpsville, Pennsylvania facility has conducted limited remediation at
that facility in fulfillment of its indemnification obligation. Finally, at its
Hartsville, South Carolina facility, the Company is aware of what it believes to
be residual contamination resulting from operations prior to its acquisition of
the facility; should a regulatory agency require investigation or cleanup in the
future, costs associated with those activities would be covered by the indemnity
from the prior facility owner, subject to the negotiated limits discussed above.
There can be no assurance, however, that the expenditures ultimately required
for resolution of liabilities associated with these environmental conditions
will not exceed the limits of any of the applicable indemnification obligations.
The previous owner of the Fairfield, Connecticut facility retained
responsibility for most cleanup obligations, along with ownership of the real
property until early 1996, when the Company acquired the real estate and assumed
responsibility for completing remediation at the facility. The Company has
received regulatory approval of a remediation plan.
In some states, property transfers may trigger investigation and cleanup
obligations (for example, under the New Jersey Industrial Site Recovery Act
("ISRA") or the Connecticut Transfer Act (the "CTA")). The Recapitalization
triggered ISRA at the West Trenton facility, obligating the Company to evaluate
all possible past releases of hazardous substances at that facility, and clean
up any resulting contamination. ISRA provides for an abbreviated review of
facilities that have been previously remediated. In this case, the owner of the
real property at the West Trenton facility investigated and remediated
groundwater contamination at the facility under ISRA (and its predecessor
statute) beginning in 1987 with the Company's acquisition of the facility.
Although the Company believes that the real property owner has addressed
contamination resulting from past practices, there can be no assurance that the
current ISRA investigation will not reveal previously unknown contamination at
the facility, giving rise to additional remediation costs, which may or may not
be a liability for which the Company is indemnified. The Recapitalization also
required a filing under the CTA, which the Company believes will not result in
any further investigation or remediation obligations.
Moreover, future events, such as new releases of hazardous substances, new
information concerning past releases of hazardous substances, changes in
existing Environmental Laws or their interpretation and more rigorous
enforcement by regulatory authorities, may give rise to additional expenditures,
compliance requirements or liabilities that could be material to the business
and the results of the operations of the Company. See "Risk Factors--Potential
Exposure to Environmental Liabilities."
PRODUCTS LIABILITY AND INSURANCE
Although the Company has not suffered any material losses to date by reason
of judgments or settlements in product liability litigation, the Company may be
exposed to product liability claims in the future relating to the performance of
a product or the performance of an end product in which the Company's product
was a component part. The Company currently maintains insurance coverage for
products liability claims. There can be no assurance that product liability
claims will not be brought against
42
the Company in the future, either by injured customers of an end product
manufacturer who used a Company product as a component or by a direct purchaser
from the Company. In addition no assurance can be given that coverage under
insurance policies will be adequate to cover future products liability claims
against the Company. Moreover, liability insurance is expensive, difficult to
maintain and may be unobtainable in the future on acceptable terms. The amount
and scope of any insurance coverage may be inadequate if a products liability
claim is successfully asserted against the Company.
LEGAL PROCEEDINGS
The Company is involved in three actions with the Emerson Power Transmission
Corporation ("Emerson") all arising out of the purchase of assets and a
requirements contract between the Company and Emerson pursuant to which the
Company supplied its Spherco line of bearings to Emerson.
In September 1995, Emerson commenced an action in the Porter Superior Court,
located in Valparaiso, Indiana, alleging breach of contract by the Company for
failure to timely deliver certain bearings ordered by Emerson under a
requirements contract. An injunction was issued compelling the Company to comply
with the terms of the requirements contract, which injunction expired by its
terms in February 1996. In the same action, Emerson also sued for damages,
resulting from the Company's failure to timely deliver the bearings. The Company
commenced an action against Emerson in the federal district court sitting in
Connecticut in December 1995, claiming ownership rights in the part numbers
relating to the Spherco line of bearings that were the subject of the
requirements contract. The court denied the Company's motion for preliminary
injunction in February 1996. The Company also filed an action against Emerson in
Connecticut state court in November 1995 alleging bad faith on the part of
Emerson in inflating its demand under the requirements contract and seeking to
recover sums due under the contract arising from a price increase for the
bearings which was not honored by Emerson. In addition, in the Connecticut state
court suit, Emerson counter-sued the Company, claiming damages on the same
theory as in the Indiana suit. The damages claims have not yet been concluded,
and settlement discussions have commenced.
Additionally, there are various claims and legal proceedings against the
Company relating to its operations in the normal course of business, none of
which the Company believes is material. The Company currently maintains
insurance coverage for product liability claims. There can be no assurance that
indemnification from its customers and coverage under insurance policies will be
adequate to cover any future product liability claims against the Company. With
respect to certain environmental claims against the Company, see
"--Environmental Matters."
43
MANAGEMENT
The following table sets forth certain information concerning the directors
and executive officers of Holdings and the Company. Each director is elected for
a one year term or until such person's successor is duly elected and qualified.
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
Dr. Michael J. Hartnett.............................. 52 Chairman, President and Chief Executive Officer of
Holdings and RBC Chairman and President of ITB,
President of Nice and LPP, Director of RBC, ITB, Nice
and LPP
Anthony S. Cavalieri................................. 50 Vice President and Chief Financial Officer of
Holdings and RBC, Chief Financial Officer of ITB,
Nice and LPP
Michael S. Gostomski................................. 46 Executive Vice President, Mergers and Acquisitions,
of Holdings, RBC, ITB, Nice and LPP, Secretary of
Nice and LPP
Frederick L. Morlok.................................. 56 Vice President, Marketing and Sales of Holdings and
RBC
Richard J. Edwards................................... 41 Vice President of Holdings and RBC, General Manager
of RBC Division
Edward J. Trainer.................................... 55 Secretary of Holdings, RBC and ITB
Kurt B. Larsen....................................... 33 Director of Holdings
William E. Myers, Jr................................. 37 Director of Holdings
Mitchell I. Quain.................................... 45 Director of Holdings
Stephen A. Kaplan.................................... 38 Director of Holdings, Director of RBC
DR. MICHAEL J. HARTNETT has been president and Chief Executive Officer of
the Company since April 1992 and Chairman since June 1993. Prior to that, Dr.
Hartnett served as Vice President and General Manager of ITB from 1990,
following eighteen years at Torrington. While at Torrington, Dr. Hartnett held
the position of Vice President and General Manager of the Aerospace Business
Unit and was, prior to that, Vice President of the Research and Development
Division. Dr. Hartnett holds an undergraduate degree from University of New
Haven, a Masters degree from Worcester Polytechnic Institute, and a Ph.D. in
Applied Mechanics from the University of Connecticut. Dr. Hartnett has also
developed numerous patents, authored more then two dozen technical papers and is
well known for his contributions to the field of Tribology (the study of
friction). Dr. Hartnett currently serves as a director of Aftermarket Technology
Company, a publicly-held company in the business of re-manufacturing
aftermarket components for automobiles.
ANTHONY S. CAVALIERI joined the Company in July 1996. From August 1990 to
November 1995 he was Vice President and Chief Financial Officer of Duro-Test
Corporation, a medium sized lighting products manufacturer, and from December
1995 through June 1996 provided management and financial consulting services to
various entities. Prior to that he was a controller at the Mennen Company and
before that on the audit staff of Price Waterhouse, LLP. Mr. Cavalieri holds a
B.S. in Accounting from St. John's University and an M.B.A. from Fordham
University. He is also a certified public accountant as well as a certified
management accountant, certified internal auditor and certified in production
and inventory management.
44
MICHAEL S. GOSTOMSKI joined the Company in September 1993 as its Senior Vice
President. In July of 1996 he was named Executive Vice President, Mergers and
Acquisitions. From January 1991 through August 1993, he served as President and
Chief Executive Officer for Transnational Industries, a publicly held
manufacturer of components for commercial and military aircraft. Mr. Gostomski
holds a B.S. in Accounting and an M.B.A. in Finance from the University of
Connecticut. He is also a certified public accountant. Mr. Gostomski currently
serves as director of Transnational Industries and of Seatak, a publicly held
manufacturer of small tools for the electronics industry.
FREDERICK L. MORLOK joined the Company in 1987 as Vice President,
Marketing and Sales. Prior to that he spent twenty-four years at Torrington
where he served in various sales and marketing positions including District
Sales Manager, Product Manager of Machined Race Products and Business
Manager, Strategic Technology Unit. He holds a B.S. in Management
Engineering, Mechanical Engineering Option and an M.B.A. from Rensselaer
Polytechnic Institute.
RICHARD J. EDWARDS joined the Company as Manufacturing Manager in the
Hartsville, South Carolina facility in 1990 and was named Vice President and
General Manager of the RBC division in 1996. Prior to joining the Company he
spent six years with Torrington as Material Manager and Plant Superintendent in
their Tyger River plant.
EDWARD J. TRAINER has been employed by the Company since 1967. He served
from 1987 to January 1995 as Vice President of Human Resources and has served as
Director of International Sales since January 1995. Mr. Trainer was named
Secretary of the Company in 1993.
KURT B. LARSEN joined the Company in March 1992 and served as Vice President
and Secretary until January 1997. He served as a Director of the Company from
March 1992 to January 1997 and from June 1997 to the present. From February 1990
to January 1997, he served as a principal of Aurora, a leveraged buy-out firm,
where he oversaw and executed investments in several companies. He also serves
as Chairman of Enrich International, Inc., a privately-held company which
manufactures and distributes nutritional supplements, and has been a principal
investor and partner in Hunter Capital, an investment bank, since February 1997.
WILLIAM E. MYERS, JR. served as a Director of the Company from March 1992
to May 1997 and from June 1997 to the present. Since November 1989 he has
been the Chief Executive Officer of W.E. Myers & Company, a merchant bank
which specializes in creating companies through the leveraged buy-out
process. He is also currently a Director of Aftermarket Technologies
Corporation.
MITCHELL I. QUAIN joined the Company as a Director in June 1997. Since
May 1997 he has served as an Executive Vice President and member of the Board
of Directors of Furman Selz, LLC. From June 1975 to May 1997 he served as a
Managing Director of Schroeder Wertheim & Company. He also serves on the
Board of Directors of a number of publicly-held companies, including Allied
Products Corporation, a diversified manufacturing company, DeCrane Aircraft
Holdings, Inc., an aircraft supply company, Mechanical Dynamics, Inc., a
software company, and Strategic Distribution, Inc., a company in the business
of industrial distribution.
STEPHEN A. KAPLAN joined the Company as a Director in June 1997. He is
also a principal of Oaktree Capital Management, LLC ("Oaktree"), the general
partner of OCM Principal Opportunities Fund, L.P. (the "Oaktree Fund"), one of
the purchasers of the Discount Debentures. Prior to joining Oaktree in June
1995, he was a managing director of Trust Company of the West ("TCW"). Prior
to joining TCW in 1993, he was a partner in the law firm of Gibson, Dunn &
Crutcher. He serves as a director of a number of publicly-held companies,
including Decorative Home Accents, Inc., a manufacturer of decorative home
accessories, KinderCare Learning Centers, Inc., which provides child care and
pre-school educational services, Acorn Products, Inc., a manufacturer of lawn
and garden tools, and Chief Auto Parts, Inc., an auto parts and accessories
retail chain.
The Board of Directors of the Company currently consists of Dr. Hartnett and
Mr. Kaplan. Dr. Hartnett is the sole director of ITB, Nice and LPP. Pursuant to
the Stockholders Agreement (as defined herein), has the right to designate one
45
member of the board of directors of Holdings and the Company. Mr. Kaplan is
the designee of the Oaktree Fund. See "Certain Relationships and Related
Transactions."
Members of the Boards currently do not receive any compensation for their
service as directors but are reimbursed by the Company for any expenses incurred
in attending meetings of the Boards or otherwise performing their duties for the
Company and Holdings.
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid by the
Company in fiscal years 1995, 1996 and 1997 to Dr. Hartnett, its Chairman,
President and Chief Executive Officer, and each other executive officer whose
salary and bonus in fiscal 1997 exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------ -------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION WARRANTS
- ------------------------------ ----- -------- -------- --------------- -------------
Dr. Michael J. Hartnett, 1997 $305,000(a)(b)(c) $287,167(d) $ 39,466(g) --
Chairman, President and 1996 305,000(a)(b) 110,000(e) 11,962(h) --
Chief Executive Officer..... 1995 305,000(a)(b) 200,000(f) 16,326(i) --
Michael S. Gostomski, 1997 $159,500(b) $150,000(d) $ 6,840(j) --
Executive Vice President, 1996 159,500(b) 86,000(e) 14,327(k) --
Mergers and Acquisitions.... 1995 148,625(b) 60,000(f) 15,167(l) --
Frederick L. Morlok, Vice 1997 $165,000(b)(c) $ 50,000(d) $ 14,102(m)
President Marketing and 1996 159,167(b) 75,000(e) 12,709(n) 250(s)
Sales....................... 1995 151,667(b) 40,000(f) 9,937(o) --
Richard J. Edwards, Vice 1997 $120,333(b)(c) 30,000(d) $124,031(p) --
President and General 1996 111,750(b) 51,625(e) 1,696(q) 250(s)
Manager, RBC Division....... 1995 105,833(b) 45,188(f) 2,241(r) 500(t)
- ------------------------
(a) Includes $30,000 of compensation deferred by Dr. Hartnett.
(b) Includes amounts deferred by the executive pursuant to the Company's 401(k)
Plan (as defined herein).
(c) Includes amounts deferred by the executive pursuant to the Company's SERP
(as defined herein).
(d) Bonus earned in fiscal 1996 and paid in fiscal 1997. Bonus for fiscal 1997
will be determined in fiscal 1998.
(e) Bonus earned in fiscal 1995 and paid in fiscal 1996. Bonus for fiscal 1996
is reflected in fiscal 1997.
(f) Bonus earned in fiscal 1994 and paid in fiscal 1995 Bonus for fiscal 1995 is
reflected in fiscal 1996.
46
(g) Consists of (i) $5,313 contributed by the Company to Dr. Hartnett's 401(k)
Plan account, (ii) $28,104 contributed by the Company to Dr. Hartnett's SERP
account and (iii) $6,049 paid by the Company to lease a car for Dr.
Hartnett's use.
(h) Consists of (i) $4,104 contributed by the Company to Dr. Hartnett's 401(k)
Plan account and (ii) $7,858 paid by the Company to lease a car for Dr.
Hartnett's use.
(i) Consists of (i) $7,760 contributed by the Company to Dr. Hartnett's 401(k)
Plan account and (ii) $8,566 paid by the Company to lease a car for Dr.
Hartnett's use.
(j) Consists of (i) $3,627 contributed by the Company to Mr. Gostomski's 401(k)
Plan account and (ii) $3,213 paid by the Company to lease a car for Mr.
Gostomski's use.
(k) Consists of (i) $4,278 contributed by the Company to Mr. Gostomski's 401(k)
Plan account and (ii) $10,049 paid by the Company to lease a car for Mr.
Gostomski's use.
(l) Consists of (i) $4,733 contributed by the Company to Mr. Gostomski's 401(k)
Plan account and (ii) $10,434 paid by the Company to lease a car for Mr.
Gostomski's use.
(m) Consists of (i) $2,813 contributed by the Company to Mr. Morlok's 401(k)
Plan account, (ii) $2,987 contributed by the Company to Mr. Morlok's SERP
account and (iii) $8,302 paid by the Company to lease a car for Mr. Morlok's
use.
(n) Consists of (i) $4,021 contributed by the Company to Mr. Morlok's 401(k)
Plan account and (ii) $8,688 paid by the Company to lease a car for Mr.
Morlok's use.
(o) Consists of (i) $4,465 contributed by the Company to Mr. Morlok's 401(k)
Plan account and (ii) $5,472 paid by the Company to lease a car for Mr.
Morlok's use.
(p) Consists of (i) $119,700 realized upon the exercise of 350 Common Stock
Purchase Warrants at $100 per share, which shares were immediately purchased
by Holdings for $442 per share, (ii) $2,255 contributed by the Company to
Mr. Edwards' 401(k) Plan account and (iii) $2,076 contributed by the Company
to Mr. Edwards' SERP account.
(q) Contributed by the Company to Mr. Edwards' 401(k) Plan account.
(r) Contributed by the Company to Mr. Edwards' 401(k) Plan account.
(s) Represents Common Stock Purchase Warrants to purchase Class A Common Stock
at an exercise price of $100 per share granted on March 30, 1996.
(t) Represents Common Stock Purchase Warrants to purchase Class A Common Stock
at an exercise price of $100 per share granted on March 10, 1995.
No stock options were granted to the Named Executive Officers during fiscal
1997.
47
The following table sets forth information concerning outstanding options to
purchase Common Stock held by the Named Executive Officers as of March 29, 1997:
WARRANT EXERCISES DURING FISCAL 1997
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES WARRANTS AT WARRANTS AT
ACQUIRED MARCH 29, 1997 MARCH 29, 1997
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(A) UNEXERCISABLE UNEXERCISABLE(A)
- -------------------------------------------- ------------- ---------------- ------------------- -----------------
Dr. Michael J. Hartnett..................... 0 $ 0 9,977/0(b) $ 4,364,424/0
Michael S. Gostomski........................ 0 0 350/0(c) 144,900/0
Frederick L. Morlok......................... 0 0 2,125/0(d) 879,750/0
Richard J. Edwards.......................... 350 119,000 1,015/85 420,210/35,190
- ------------------------
(a) Based upon a per share price of $514.00.
(b) In connection with the Recapitalization, (i) Holdings purchased 1,250 of
such Common Stock Purchase Warrants for approximately $437 per share of
Common Stock underlying such warrants ($514 per share less the approximately
$77 exercise price of such Common Stock Purchase Warrants) and issued to Dr.
Hartnett warrants to purchase 1,250 shares of Class B Common Stock with an
exercise price of $514 per share, and (ii) Dr. Hartnett purchased 90 Common
Stock Purchase Warrants from Mr. Myers and 10 Common Stock Purchase Warrants
from Ann B. Ruple for $414 per share of Common Stock underlying such
warrants.
(c) In connection with the Recapitalization, Mr. Gostomski sold all of such
Common Stock Purchase Warrants to an affiliate of the Initial Purchaser for
$414 per share underlying such warrants ($514 per share less the $100
exercise price of such Common Stock Purchase Warrants)
(d) In connection with the Recapitalization, Mr. Morlok sold all of such Common
Stock Purchase Warrants to the Oaktree Fund and affiliates of the Initial
Purchaser for $414 per share underlying such warrants ($514 per share less
the $100 exercise price of such Common Stock Purchase Warrants)
EMPLOYMENT AGREEMENT
Concurrently with the closing of the Recapitalization, Dr. Hartnett
entered into a five-year employment agreement (the "Employment Agreement")
with the Company. The Employment Agreement provides for Dr. Hartnett to serve
as the President, Chief Executive Officer and Chairman of the Board of
Directors of the Company and requires that Dr. Hartnett devote his full
business time and attention to the affairs of the Company. The Employment
Agreement contains covenants regarding the treatment and disclosure of
confidential information and a covenant prohibiting Dr. Hartnett from
competing with the Company during the term of the Employment Agreement and
for two years after its expiration. The Employment Agreement provides for a
salary of $31,250 per month with annual increases linked to the increase
in the All-Items Consumer Price Index for All Urban Consumers subject to a
minimum increase, plus a bonus linked to the achievement by the Company of
milestones set forth in its Operating Plan (subject to limited discretion of
the Board of Directors of the Company). The Employment Agreement is
terminable (i) upon the death or Total Disability of Dr. Hartnett (ii) by the
Company for Cause, (iii) by the Company upon 60 days prior notice and (iv) by
Dr. Hartnett for Good Reason (as all such terms are defined in the
48
Employment Agreement) or upon 120 days prior notice. If the Employment Agreement
is terminated due to death or disability, by the Company without Cause or by Dr.
Hartnett for Good Reason, Dr. Hartnett shall be entitled to receive his base
salary through the end of the original term of the Employment Agreement plus a
pro rata portion of his bonus in the year in which the termination occurred.
OPTION PLAN
The Company intends to adopt an employee stock option plan pursuant to which
the Company will grant options to purchase up to 10% of the Common Stock
outstanding after the Recapitalization.
401(K) PLAN
The Company maintains the Roller Bearing Company of America 401(k)
Retirement Plan (the "401(k) Plan"), a plan established pursuant to Section
401(k) of the Internal Revenue Code, for the benefit of its non-union employees.
All non-union employees who have completed six months of service with the
Company are entitled to participate. Subject to various limits, employees are
entitled to defer up to 15% of their annual salary on a pre-tax basis and up to
an additional 10% of their annual salary on an after tax basis. The Company
matches 50% of an employee's pre-tax contribution up to 10% of annual salary.
The Company may also make discretionary contributions that are allocated among
eligible accounts pro rata based upon salary. Employees vest in the Company's
contributions ratably over three years.
SUPPLEMENTAL RETIREMENT PLAN
Effective September 1, 1996 the Company adopted a non-qualified supplemental
retirement plan ("SERP") for a select group of highly compensated and management
employees designated by the Board of Directors of the Company. The SERP allows
eligible employees to elect to defer until termination of their employment the
receipt of up to 25% of their current salary. The Company makes contributions
equal to the lesser of 50% of the deferrals or 3.5% of the employee's annual
salary, which vest in full after three years of service following the effective
date of the SERP. Accounts are paid, either in a lump sum or installments, upon
retirement, death or termination of employment. Accounts are generally payable
from the general assets of the Company although it is intended that the Company
set aside in a "rabbi trust" invested in annuity contracts amounts necessary to
pay benefits. Employees' rights to receive payments are subject to the rights of
the creditors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1997, the compensation committees of the Board of Directors of
Holdings (the "Board") consisted of designees of Aurora. All such directors have
resigned from the Board. Holdings anticipates the appointment of a new
compensation committee shortly.
49
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of June 28, 1997, all shares of Common
Stock of Holdings beneficially owned by (i) each director of Holdings, (ii)
each Named Executive Officer of the Company, (iii) each person known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock of Holdings at such date and (iv) all directors and executive officers
of Holdings and the Company as a group (16 persons). As of June 28, 1997
there were 5,228 shares of Class A Common Stock and 3,949 shares of Class B
Common Stock outstanding. Additionally, as of such date, there were
outstanding warrants to purchase up to an additional 14,402 shares of Class A
Common Stock and 10,077 shares of Class B Common Stock (of which warrants to
purchase 375 and 10 shares, respectively, were not exercisable within six
months of such date). As of June 28, 1997, there were 100 shares of common
stock, par value $.01 per share, of the Company outstanding, all of which
were owned by Holdings. Such shares have been pledged to the trustee under
the Discount Indenture for the benefit of the holders of the Discount
Debentures, as security for Holdings obligations arising thereunder. As of
June 28, 1997, there were 100 shares, par value $.01 per share, of ITB, and
10 shares, par value $.01 per share, of each of Nice and LPP outstanding, all
of which were owned by the Company. All of such shares have been pledged to
the lenders under the Senior Credit Facility, as security for the Company's
obligations thereunder.
STOCKHOLDER(A) NUMBER OF SHARES(A) PERCENTAGE OF CLASS
- ---------------------------------------------------------- ------------------- -------------------
Dr. Michael J. Hartnett................................... 14,016(b) 72.8%(c)
Michael S. Gostomski...................................... 1 *
Frederick L. Morlok....................................... 525 5.7%
Christopher J. Sommers.................................... 919(d) 10.0%
Richard J. Edwards........................................ 1,015(e)(f) 10.0%
William E. Myers
Two North Lake Avenue
Pasadena, California 91101.............................. 2,275(e) 19.9%
Kurt Larsen
P.O. Box 692547
Park City, Utah 84068................................... 0 0.0%
Stephen Kaplan
550 South Hope Street
Los Angeles, California 90071........................... 8,191(g)(h) 51.3%
Mitchell Quain
230 Park Avenue
New York, New York 10020................................ 310(i) 3.3%
Oaktree Capital Management, LLC
550 South Hope Street
Los Angeles, California 90071........................... 8,191(h)(j) 51.3%
OCM Principal Opportunities Fund, L.P.
550 South Hope Street
Los Angeles, California 90071........................... 8,191(h) 51.3%
Northstar Investment Management Corp
Two Pickwick Plaza
Greenwich, Connecticut 06830............................ 1,262(k) 12.1%
Merban Equity(l)
c/o Credit Suisse First Boston
Bleichistrasse 8 P.O. Box 4263
CH-6304 Zug, Switzerland................................ 1,400(m) 14.3%
Mark Kennelley(l)
c/o Credit Suisse First Boston
11 Madison Avenue
New York, New York 10010................................ 490 5.3%
All members of management as a group
(16 persons)............................................ 28,680(n) 92.9%
(FOOTNOTES ON FOLLOWING PAGE)
50
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------
* Less than 1%
(a) Except where otherwise indicated, (i) shares of Common Stock are of Class A
Common Stock (ii) Common Stock Purchase Warrants are to purchase shares of
Class A Common Stock and (iii) the address for each stockholder is c/o the
Company at 60 Round Hill Road, P.O. Box 430, Fairfield, Connecticut 06430.
(b) Consists of 3,948.4 shares of Class B Common Stock and Common Stock Purchase
Warrants to purchase up to 10,067.4 shares of Class B Common Stock. Excludes
Common Stock Purchase Warrants to purchase up to 10 shares of Class B Common
Stock not exercisable within six months of the date hereof.
(c) Through the ownership of Class B Common Stock Dr. Hartnett has the power to
control a majority of the voting power of all voting securities of Holdings
even if he were to own less than 50% of the outstanding Common Stock. See
"Certain Relationships and Related Transactions."
(d) Such shares are held of record by The Sommers Family Trust. Mr. Sommers
beneficially owns such shares.
(e) Consists of Common Stock Purchase Warrants to purchase Class A Common Stock.
(f) Excludes Common Stock Purchase Warrants to purchase 85 shares of Class A
Common Stock that are not exercisable within six months of the date thereof.
(g) Consists of shares of Common Stock and Discount Warrants owned by the
Oaktree Fund. To the extent that Mr. Kaplan, as a principal of Oaktree,
participates in the process to vote or to dispose of any such shares or
warrants, he may be deemed under such circumstances for the purpose of
Section 13 of the Exchange Act to be the beneficial owner of such shares
of Common Stock and Discount Warrants. Mr. Kaplan disclaims beneficial
ownership of such shares of Common Stock and Discount Warrants.
(h) Includes Discount Warrants to purchase up to 6,791 shares of Class A Common
Stock.
(i) Includes Common Stock Purchase Warrants to purchase up to 250 shares of
Class A Common Stock. Excludes Common Stock Purchase Warrants to purchase up
to 90 shares of Class A Common Stock not exercisable within six months of
the date hereof.
(j) Consists of shares of Common Stock and Discount Warrants owned by the
Oaktree Fund of which the stockholder is the general partner.
(k) Consists of Discount Warrants to purchase Class A Common Stock.
(l) Affiliate of the Initial Purchaser.
(m) Includes Common Stock Purchase Warrants to purchase 647 shares of Class A
Common Stock.
(n) Includes (i)(1) 1,633.4 shares of Class A Common Stock, (2) 3,948.4 shares
of Class B Common Stock, (3) Common Stock Purchase Warrants to purchase up
to 4,840 shares of Class A Common Stock, and (4) Common Stock Purchase
Warrants to purchase up to 10,067.4 shares of Class B Common Stock held by
members of management and (ii) 1,400 shares of Common Stock and 6,791
Discount Warrants held by the Oaktree Fund. Excludes Common Stock Purchase
Warrants to purchase up to 375 shares of Class A Common Stock and up to 10
shares of Class B Common Stock not exercisable within six months of the
date hereof.
51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a summary of certain agreements and arrangements, as well
as other transactions between the Company and related parties which have taken
place during the Company's most recently completed three fiscal years. See
"Prospectus Summary--Recent Developments."
THE RECAPITALIZATION
In connection with the Recapitalization, (i) Holdings paid to Dr.
Hartnett a fee of $1 million out of the proceeds from the sale of the
Discount Debentures, (ii) Holdings advanced a loan in the amount of $500,000
to Dr. Hartnett, the proceeds of which Dr. Hartnett used to purchase shares
of Common Stock and Common Stock Purchase Warrants from other stockholders
and warrantholders of Holdings, which loan is recourse only to the securities
being purchased with the proceeds thereof, (iii) Holdings purchased 1,250
Common Stock Purchase Warrants from Dr. Hartnett for approximately $437 per
share underlying such Common Stock Purchase Warrants and issued 1,250 new
Common Stock Purchase Warrants to Dr. Hartnett with an exercise price of $514
per share, (iv) Holdings redeemed shares of Common Stock and purchased Common
Stock Purchase Warrants held by several of its stockholders and
warrantholders and redeemed all outstanding shares of Preferred Stock
(including shares of Common Stock and Preferred Stock and Common Stock
Purchase Warrants owned by members of management and affiliates of Holdings),
(v) Holdings assigned its right to purchase certain shares of Common Stock
and Common Stock Purchase Warrants to certain parties, including certain
members of management of Holdings, certain affiliates of the Initial
Purchaser and the Oaktree Fund, (vi) Holdings sold the Discount Debentures
and the Discount Warrants to the Oaktree Fund and Northstar Investment
Management Corp. ("Northstar"), (vii) Holdings paid a fee of $1.6 million to
the Initial Purchaser, in connection with the sale of the Discount
Debentures, (viii) the Company paid a fee to the Initial Purchaser of $3.85
million to the Initial Purchaser in connection with the sale of the
Outstanding Notes, (ix) the Company entered into the Senior Credit Facilities
with, among others, an affiliate of the Initial Purchaser and paid (1)
certain fees to such lenders and (2) a fee of $1.5 million to the Initial
Purchaser in connection therewith, and (x) agreed to indemnify the Initial
Purchaser and certain affiliates of the Initial Purchaser in connection with
certain matters relating to the Recapitalization. As of June 28, 1997, the
entire principal balance of the loan to Dr. Hartnett referred to above, which
does not bear interest, remained outstanding.
In addition, in connection with the Recapitalization and the other
transactions consummated in connection therewith, the Company paid Ernst & Young
LLP a financial advisory and consulting fee, a portion of which was for the
benefit of Holdings.
HARTNETT CONTROL PROVISION
Through ownership of Class B Common Stock and the provisions of the
Certificate of Incorporation of Holdings granting such Class B Common Stock 10
votes per share, whether or not Dr. Hartnett owns a majority of the outstanding
capital stock of Holdings, he will have, subject to certain limitations, the
power to control a majority of the voting rights of all capital stock of
Holdings. Such right will be suspended for such periods during which Dr.
Hartnett ceases to serve in the management of the Company, or any successor
thereto, or owns less than 50% of the outstanding Common Stock on a fully
diluted basis that he owned immediately following the Recapitalization.
EMPLOYMENT AGREEMENT
Effective upon the closing of the Recapitalization, Dr. Hartnett entered
into a five-year Employment Agreement with the Company containing a covenant
restricting competition with the Company. See "Management--Employment
Agreement."
52
HARTNETT BONUS
In connection with the acquisition of Nice by the Company, the Company
paid a bonus to Dr. Hartnett in the amount of $136,000. Such bonus was paid
in the first quarter of fiscal 1998.
MYERS' FEE
W.E. Myers & Co., an entity owned and controlled by Mr. Myers, a Director
of Holdings, received a $100,000 fee in 1997 in connection with the
acquisition of LPP by the Company. An additional $100,000 fee may become
payable if LPP meets certain financial targets.
STOCKHOLDER AGREEMENTS
Concurrently with the closing of the Recapitalization, Holdings entered
into a stockholders' agreement (the "Stockholders Agreement") with Dr.
Hartnett, the Oaktree Fund, Northstar and certain affiliates of the Initial
Purchaser. The Stockholders Agreement provides for (i) restrictions on
transfer of all securities of Holdings held by the parties to the
Stockholders Agreement, (ii) rights of first refusal in favor of the parties
to the Stockholders Agreement prior to any transfer by a party (other than
transfers to certain affiliates of the parties), (iii) tag-along rights in
favor of the other parties to the Stockholders Agreement upon certain
transfers of securities by Dr. Hartnett, (iv) certain rights in favor of Dr.
Hartnett to compel the other parties to the Stockholders Agreement to sell
securities held by such parties upon certain sales of securities by Dr.
Hartnett, (v) certain preemptive rights in favor of the Oaktree Fund,
Northstar and Dr. Hartnett, (vi) piggyback registration rights in favor of
all of the parties to the Stockholders Agreement, (vii) demand registration
rights in favor of the Oaktree Fund and Northstar, with customary covenants
regarding such registration and (viii) a grant to the Oaktree Fund of the
right to designate one member of the board of directors of each of Holdings
and the Company. Many of the rights and privileges contained in the
Stockholders Agreement terminate or become limited following an initial
public offering of securities of Holdings.
Holdings intends to enter into one or more additional stockholders'
agreements with its other stockholders and warrantholders providing for (i) the
right to repurchase the stock or warrants held by such parties upon the death or
termination of employment of any stockholder or warrantholder who is employed by
Holdings or its subsidiaries, (ii) the right to tag-along on certain sales of
securities by other stockholders of Holdings and (iii) certain rights in favor
of Dr. Hartnett to compel such stockholders and warrantholders to sell their
securities of Holdings upon certain sales of securities by Dr. Hartnett. The
exact terms of these agreements are currently being finalized.
Prior to the recapitalization, Holdings was a party to various arrangements
with its stockholders and warrantholders, all of which have been terminated.
CONSULTING AGREEMENT
The Company and TRIBOS Management Company, Inc. ("Tribos"), an affiliate of
Aurora, were parties to a consulting agreement (the "Consulting Agreement"),
whereby Tribos provided certain consulting services to the Company in exchange
for monthly payments of approximately $36,000. The Consulting Agreement also
provided for annual adjustments to the fee, reimbursement of Tribos' expenses by
the Company and the payment of additional fees in connection with the
acquisition of Nice. The total fees paid in fiscal 1997 pursuant to the
consulting agreement were $429,000. The Consulting Agreement was terminated in
connection with the Recapitalization.
PURCHASE OF SHARES FROM MR. EDWARDS
In July 1996 Mr. Edwards exercised Common Stock Purchase Warrants for 350
shares of Class A Common Stock, at an exercise price of $100 per share.
Immediately following such exercise, Holdings repurchased such shares for a
purchase price of $442 per share.
53
THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Exchange Offer is designed to provide to holders of Outstanding Notes an
opportunity to acquire Exchange Notes which, unlike the Outstanding Notes, will
be freely transferable at all times (provided that the holder is not an
affiliate of the Company).
The Outstanding Notes were originally issued and sold on June 23, 1997, in
the principal amount of $110 million in a transaction exempt from the
registration requirements of the Securities Act. The Outstanding Notes may not
be reoffered, resold or transferred unless done so pursuant to a registration
statement filed pursuant to the Securities Act or unless an exemption from the
registration requirements of the Securities Act is available.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain no-action letters addressed to other parties in other transactions.
However, the Company has not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Based upon
these interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to this Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
a holder thereof other than (i) a broker-dealer who purchased such Outstanding
Notes directly from the Company to resell pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act or (ii)
a person that is an "affiliate" (as defined in Rule 405 under the Securities
Act) of the Company without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Holders of Outstanding
Notes accepting the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may not rely on the position of the staff of
the Commission as set forth in these no-action letters and would have to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction. A secondary resale
transaction in the United States by a holder who is using the Exchange Offer to
participate in the distribution of Exchange Notes must be covered by a
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act.
The Exchange Notes will be freely transferable by the Holders thereof,
subject to the limitations described in the immediately preceding paragraphs.
The Exchange Notes otherwise will be identical in all respects (including
interest rate, maturity, security, guaranty and restrictive covenants) to the
Outstanding Notes for which they may be exchanged pursuant to this Exchange
Offer. HOLDERS WHO DO NOT EXCHANGE THEIR OUTSTANDING NOTES PURSUANT TO THIS
EXCHANGE OFFER WILL CONTINUE TO HOLD OUTSTANDING NOTES WHICH ARE SUBJECT TO
RESTRICTIONS ON TRANSFER.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Promptly after the Registration Statement of which this Prospectus
constitutes a part has been declared effective, the Company will offer the
Exchange Notes in exchange for surrender of the Outstanding Notes. The Company
will keep the Exchange Offer open for not less than 20 business days (or longer
if required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the holders
54
of the Outstanding Notes. For each $1,000 principal amount of Outstanding Notes
validly tendered to the Company pursuant to the Exchange offer and not withdrawn
by the holder thereof, the holder of such Outstanding Notes will receive $1,000
principal amount of Exchange Notes. Interest on each Exchange Note will accrue
from the last interest payment date on which interest was paid on the
Outstanding Note surrendered in exchange therefor or, if no interest has been
paid on such Outstanding Note, from the date of the original issue of the
Outstanding Notes. The Exchange Notes evidence the same debt as the Outstanding
Notes and are issued under and entitled to the same benefits under the Indenture
as the Outstanding Notes. In addition, the Exchange Notes and the Outstanding
Notes are treated as one series of securities under the Indenture.
In the event that (a) neither the Registration Statement of which this
Prospectus constitutes a part nor a Shelf Registration (as defined in the
Registration Rights Agreement) with respect to the Outstanding Notes is filed on
or prior to the 45th day after the date of original issue of the Outstanding
Notes, (b) neither of such registration statements is declared effective by the
Commission on or prior to the 150th day after the Closing Date (the
"Effectiveness Target Date"), (c) the Registration Statement becomes effective,
and the Company fails to consummate the Exchange Offer within 45 days of the
earlier of the effectiveness of the Registration Statement or the Effectiveness
Target Date, or (d) the Shelf Registration with respect to the Outstanding Notes
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Outstanding Notes during the period specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the interest rate payable on
the Outstanding Notes shall increase by 0.5% from and including the date such
Registration Default occurs to but excluding the date upon which such
registration Default is cured.
As of June 28, 1997, $110,000,000 aggregate principal amount of Outstanding
Notes were outstanding. This Prospectus and the Letter of Transmittal are being
sent to all registered holders of Outstanding Notes.
Tendering holders of Outstanding Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Outstanding Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain transfer taxes which may be imposed, in connection with the
Exchange offer. See "Transfer Taxes" below.
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
PERIOD FOR TENDERING OUTSTANDING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Outstanding Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on ; PROVIDED, HOWEVER, that the Company's obligation to
accept Outstanding Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions set forth under "-- Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of exchange of any Outstanding Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Outstanding Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Outstanding Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable after
the expiration or termination of the Exchange Offer.
55
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Outstanding Notes
as promptly as practicable, such notice in the case of any extension to be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Except as set forth below, a holder of Outstanding Notes who wishes to
tender Outstanding Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to United States
Trust Company of New York (the Exchange Agent) at the address set forth below
under "--Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Outstanding Notes must be received by the Exchange
Agent, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Outstanding Notes into the Exchange Agent's account at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent on or prior to the Expiration Date, or (iii) the holder of
Outstanding Notes must comply with the guaranteed delivery procedures described
below.
Each exchanging holder of Outstanding Notes will be required to represent in
the Letter of Transmittal that such holder is acquiring the Exchange Notes in
the ordinary course of business, is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes and is not an affiliate of the
Company or the Subsidiary Guarantors.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER OF
OUTSTANDING NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Outstanding
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be made by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Outstanding Notes are registered in
the name of a person other than a signer of the Letter of Transmittal, the
Outstanding Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
56
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Outstanding Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Outstanding Notes not properly tendered or to not
accept any particular Outstanding Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Outstanding Notes either before or after the
Expiration Date. The interpretation of the terms and conditions of the Exchange
Offer as to any particular Outstanding Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Outstanding
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Outstanding Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Outstanding Notes, such Outstanding Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Outstanding Notes.
If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Outstanding Notes
or a timely Book-Entry Confirmation of such Outstanding Notes in the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Outstanding Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or Outstanding Notes are submitted
for a greater principal amount than the holder thereof desires to exchange, such
unaccepted or non-exchanged Outstanding Notes will be returned without expense
to the tendering holder thereof (or, in the case of Outstanding Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Outstanding Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Outstanding Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or a copy thereof),
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at
57
the address set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Tenders of Outstanding Notes will be accepted only in principal amounts of
$1,000 and integral multiples thereof.
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all Outstanding Notes validly tendered and not withdrawn
promptly prior to 5:00 P.M. on the Expiration Date. The Company will deliver
Exchange Notes in exchange for Outstanding Notes promptly following acceptance
of the Outstanding Notes.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Outstanding Notes when, as and if the Company has
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders of Outstanding Notes for the
purposes of receiving the Exchange Notes. Under no circumstances will interest
be paid by the Company or the Exchange Agent by reason of any delay in making
such payment or delivery.
The Company's acceptance for exchange of Outstanding Notes tendered pursuant
to the Exchange Offer will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions of the
Exchange Offer.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Outstanding Notes will be returned, at the
Company's expense, to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Outstanding Notes desires to tender such
Outstanding Notes and the Outstanding Notes are not immediately available, or
time will not permit such holder's Outstanding Notes or other required documents
to reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Outstanding Notes, the certificate number(s) of such Outstanding Notes
(except in the case of book-entry tenders) and the principal amount of
Outstanding Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three NYSE trading days after the Expiration Date, the
Letter of Transmittal (or a copy thereof) together with the certificates for all
physically tendered Outstanding Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) such properly completed and executed Letter of
Transmittal (or a copy thereof) together with the certificates for all
physically tendered Outstanding Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "--Exchange
Agent." Any such notice of withdrawal must
58
(i) specify the name of the person having tendered the Outstanding Notes to be
withdrawn, (ii) identify the Outstanding Notes to be withdrawn (including the
certificate numbers and principal amount of such Outstanding Notes (except in
the case of book-entry tenders)), (iii) be signed by the holder of Outstanding
Notes in the same manner as the original signature on the Letter of Transmittal
by which such Outstanding Notes are tendered or be accompanied by sufficient
documents of transfer and (iv) specify the name in which such Outstanding Notes
are registered, if different from that of the withdrawing holder. If
certificates for Outstanding Notes have been delivered or otherwise identified
to the Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the certificate numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder of Outstanding Notes is
an Eligible Institution. If Outstanding Notes have been tendered for book-entry
transfer as described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Outstanding Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Outstanding Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Outstanding Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures described
above, such Outstanding Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Outstanding Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Outstanding Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Outstanding Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Outstanding Notes and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Outstanding Notes for exchange or the
exchange of the Exchange Notes for such Outstanding Notes, any of the following
events shall occur:
(a) such acceptance or issuance would violate applicable law or any
applicable interpretation of the staff of the Commission;
(b) there shall be instituted or pending any action or proceeding by or
before any court or governmental agency with respect to the Exchange
Offer which, in the Company's sole judgment might impair the ability of
the Company to proceed with the Exchange Offer; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order
59
shall be threatened or in effect with respect to the Registration Statement of
which this Prospectus constitutes a part or the qualification of the Indenture
under the Trust Indenture Act of 1939.
EXCHANGE AGENT
The United States Trust Company of New York has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at the address set forth below.
Questions and requests for assistance, requests for additional copies of the
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
UNITED STATES TRUST COMPANY OF NEW YORK
BY FACSIMILE: BY MAIL:
(212) 780-0592 United States Trust Company of New York
Attention: Customer Service P.O. Box 843 Cooper Station
Confirm by Telephone to: (800) 548-6565 New York, New York 10276
Attention: Corporate Trust Services
BY HAND BEFORE 4:30 P.M.: BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M.:
United States Trust Company of New York United States Trust Company of New York
111 Broadway 770 Broadway, 13th Floor
New York, New York 10006 New York, New York 10003
Attention: Lower Level Corporate Trust Window
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FAX TRANSMISSION OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The Company will pay certain other expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if a
holder of Outstanding Notes instructs the Company to register Exchange Notes in
the name of, or requests that Outstanding Notes not tendered or not accepted in
the Exchange Offer be returned to, a person other than the registered tendering
holder, or if a transfer tax is imposed for any reason other than the exchange
of Outstanding Notes pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder of the Outstanding
Notes or any other person) will be the responsibility of the registered
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Outstanding Notes as set forth in the legend
thereon as a consequence of the issuance of the Outstanding Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws.
The Company does not currently anticipate that it will register Outstanding
Notes under the Securities Act. To the extent that Outstanding Notes are
tendered in connection with the Exchange Offer, any trading market for
Outstanding Notes not tendered in connection with the Exchange Offer could be
adversely affected. The tender of Outstanding Notes pursuant to the Exchange
Offer may have an adverse
60
effect upon, and increase the volatility of, the market prices of the
Outstanding Notes due to a reduction in liquidity.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in the Company's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be expensed over the term of
the Exchange Notes.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
In connection with the Recapitalization, the Company entered into the Senior
Credit Facilities, consisting of $16 million in Term Loans and the $54 million
Revolving Credit Facility, under which approximately $10.9 million of letters of
credit was issued at the closing of the Recapitalization (the "Closing Date").
The Senior Credit Facilities mature on the fifth anniversary of the Closing
Date, and bear interest, at the Company's option, at either (i) LIBOR plus 2.5%
or (ii) the Alternate Base Rate plus 1.5%. The Alternate Base Rate is defined as
the highest of (x) Credit Suisse First Boston's prime rate, (y) the federal
funds effective rate plus 0.5% and (z) the three-month CD Rate plus 1%. In
addition, letters of credit will be available under the Revolving Credit
Facility in an aggregate amount not to exceed $16 million. Outstanding letters
of credit will require the Company to pay a participation fee equal to 2.5% per
annum on the outstanding amount of letters of credit and a fronting fee equal to
0.25% per annum on the outstanding amount of letters of credit.
The Company's obligations under the Senior Credit Facilities are
unconditionally guaranteed by each of the Subsidiary Guarantors. In addition,
the Senior Credit Facilities are secured by substantially all the assets of the
Company and the Subsidiary Guarantors.
The credit agreement relating to the Senior Credit Facilities (the "Credit
Agreement") contains certain covenants that, among other things, restrict the
ability of the Company, the Subsidiary Guarantors and Holdings to: declare
dividends on, repurchase or redeem their capital stock; prepay, redeem or
repurchase subordinated or senior debt; create liens; engage in sale-leaseback
transactions; extend loans; make investments; incur indebtedness; engage in
mergers, acquisitions or asset sales; engage in transactions with affiliates;
change the nature of their businesses; amend debt and other material agreements;
and make capital expenditures. In addition, the Credit Agreement requires the
maintenance of certain financial covenants, including maximum ratios of total
debt to EBITDA (as defined in the Credit Agreement), minimum ratios of EBITDA to
interest expense and minimum ratios of EBITDA to fixed charges.
The Company is required to make mandatory prepayments of loans under the
Senior Credit Facilities in amounts equal to (i) 50% of Excess Cash Flow (as
defined in the Credit Agreement), (ii) 100% of the net cash proceeds from
certain asset sales by the Company or its subsidiaries, (iii) 100% of the net
cash proceeds from certain issuances of indebtedness by the Company, its
subsidiaries or Holdings and (iv) under certain circumstances, 50% of the net
cash proceeds from issuances of equity securities by the Company, its
subsidiaries or Holdings.
Events of default under the Credit Agreement include, subject to cure
periods in certain circumstances, failure to pay principal or interest owed
under such agreement when due, violation of covenants set forth therein, any
representation or warranty being materially incorrect when made, cross default
and cross acceleration to other indebtedness, bankruptcy, material judgments,
actual or asserted invalidity of the guarantees or the security documents and a
Change in Control (as defined in the Credit Agreement).
DISCOUNT DEBENTURES
In connection with the Recapitalization, Holdings sold the Discount
Debentures to the Oaktree Fund and Northstar for an aggregate purchase price
of $40 million. The Discount Debentures will not accrue interest until June
15, 2002 except as described below. Thereafter, the Discount Debentures will
accrue interest at a rate of 13% per annum, payable semiannually commencing
December 15, 2002. The Discount Debentures mature on June 15, 2009 and are
subject to redemption at the option of Holdings at any time, except that
prior to June 15, 2002 any such redemption can only be made from the proceeds
of certain public equity offerings.
62
The Discount Indenture requires Holdings to make a redemption payment in
2002 in the amount of $34 million with respect to the Discount Debentures so
that the Discount Debentures will not constitute "high yield discount
obligations" for federal income tax purposes. If the Discount Debentures were
high yield discount obligations, Holdings would be denied a deduction for a
small portion of the interest accruals on the Discount Debentures, and would be
entitled to deduct the remaining interest accruals (including accreted original
issue discount ("OID")) on the Discount Debentures, and would be entitled to
deduct the remaining interest and OID accruals only when actually paid. As a
result of the mandatory redemption the Discount Debentures will not constitute
high yield discount obligations, and Holdings will not be subject to such
limitations on the deductibility of such interest, and will be able to deduct
interest and OID on the Discount Debentures on an accrual basis.
In addition, in conjunction with the purchase of the Discount Debentures,
the Oaktree Fund and Northstar were issued warrants to acquire an aggregate
of 6,731 shares of Common Stock (representing approximately 20% of the
post-Recapitalization Common Stock outstanding on a fully diluted basis) for
a nominal exercise price. In addition, in conjunction with the
Recapitalization, the Oaktree Fund, acquired 1,400 shares of Common Stock and
1,322 Common Stock Purchase Warrants (representing in the aggregate
approximately 8% of the post-Recapitalization Common Stock outstanding on a
fully diluted basis). In addition, Holdings appointed a representative of the
Oaktree Fund to the board of directors of Holdings and the Company.
The Discount Debentures are senior obligations of Holdings and secured by
all the capital stock of RBC. The Discount Indenture contains certain covenants
and events of default similar to the covenants and events of default contained
in the Indenture. In addition, upon a Change of Control (as defined in the
Discount Indenture) or certain reductions in the ownership of Holdings by Dr.
Hartnett, each holder of Discount Debentures may require Holdings to repurchase
such Discount Debentures.
If an Event of Default (as defined in the Discount Indenture) occurs and is
continuing, including upon a failure to pay cash interest when due or to
repurchase the Discount Debentures upon a Change of Control (as defined in the
Discount Indenture) or otherwise, subject to the terms of the Discount
Indenture, the holders of the Discount Debentures will be able to accelerate the
maturity of the Discount Debentures and thereafter enforce their security
interest in the capital stock of RBC. Upon any such enforcement, the holders of
the Discount Debentures (or anyone that might purchase such capital stock in any
enforcement proceeding or public auction or in any resale by such holders) would
become shareholders of RBC and, as a group, would control (through their
ownership of the common stock of RBC) RBC and would be able to elect all the
directors of RBC.
Holdings is a holding company, and the capital stock of RBC is the only
material asset of Holdings. In the absence of any additional financings by
Holdings, Holdings will be dependent on dividends and other distributions from
RBC to provide the cash needed to meet its debt service obligations.
For the benefit of the holders of the Discount Debentures, Holdings has
agreed to file a shelf registration statement with the SEC covering the resale
of the Discount Debentures. In the event that Holdings fails to comply with
certain of its obligations with respect to such registration statement, cash
interest will be payable with respect to the Discount Debentures in an amount
equal to 0.5% of the accrued value of the Discount Debentures at such time.
63
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes are to be issued under the Indenture, dated as of June
15, 1997 between the Company and United States Trust Company of New York, as
Trustee (the "Trustee") pursuant to which the Outstanding Notes were issued on
June 23, 1997.
The following is a summary of certain provisions of the Indenture and the
Exchange Notes, a copy of which Indenture and the form of Exchange Note is
excluded as an exhibit to the Registration Statement of which this Prospectus
constitutes a part and is available upon request to the Company at the address
set forth under "Available Information." The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Except as
otherwise indicated below, the following summary applies to both the Outstanding
Notes and the Exchange Notes offered hereby. The terms of the Exchange Notes
will be identical in all respects to those of the Outstanding Notes, except for
the freely tradeable character of the Exchange Notes (provided the Holder
thereof is not an affiliate of the Company) and the absence of certain
registration rights granted to holders of the Outstanding Notes. See "The
Exchange Offer--Purpose and Effects." The Exchange Notes will be issued solely
in exchange for an equal principal amount of Outstanding Notes pursuant to the
Exchange Offer made hereby.
The Notes are and will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $110 million aggregate principal amount, and will mature on June 15,
2007. The Exchange Notes will bear interest at the rate per annum shown on the
cover page hereof from the date of issuance thereof ( , 1997 unless the
Exchange Offer is extended) or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the June 1 or December 1 immediately preceding the interest
payment date on June 15 and December 15 of each year, commencing .
Interest on the Outstanding Notes which are exchanged for Exchange Notes
pursuant to the Exchange Offer will cease to accrue on the day preceding the
date of issuance of the Exchange Notes, and such accrued interest will be paid
on , the first interest payment date following the consummation of the
Exchange Offer, to holders of record of the Notes as of . The Company
will pay interest on overdue principal at 1% per annum in excess of such rate,
and it will pay interest on overdue installments of interest at such higher rate
to the extent lawful. Interest will be computed based on a 360-day year of
twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to June 15, 2002. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest
64
payment date), if redeemed during the 12-month period commencing on June 15 of
the years set forth below:
REDEMPTION
PERIOD PRICE
- ----------------------------------------------------------------------------------------------------- -----------
2002................................................................................................. 104.8125%
2003................................................................................................. 103.2083
2004................................................................................................. 101.6041
2005 and thereafter.................................................................................. 100.0000
In addition, at any time and from time to time prior to June 15, 2000, the
Company may redeem in the aggregate up to $36.0 million principal amount of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market (provided that a portion of the net cash proceeds
thereof equal to the amount required to redeem any such Notes is contributed to
the equity capital of the Company), at a redemption price (expressed as a
percentage of principal amount) of 109.625% plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that at least $74.0 million aggregate principal amount of the
Notes must remain outstanding after each such redemption.
Notice of redemption will be mailed at least 30 days but not more than 60
days before any redemption date to each holder of Notes to be redeemed at its
registered address. Notes in denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000. If money sufficient to pay the
redemption price of and accrued interest (if any) on all Notes (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date, on and after such date interest ceases
to accrue on such Notes (or such portions thereof) called for redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note.
SUBSIDIARY GUARANTEES
The obligations of the Company pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by each of the Subsidiary Guarantors. However, each Subsidiary Guarantee
will be limited in amount to an amount not to exceed the maximum amount that can
be guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. If a Subsidiary
Guarantee were to be rendered voidable, it could be subordinated by a court to
all other indebtedness (including guarantees and other contingent liabilities)
of the applicable Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guarantee
could be reduced to zero. See "Risk Factors--Ranking of the Exchange Notes and
Subsidiary Guarantees" and "--Fraudulent Transfer Considerations."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into or transfer all or substantially all its assets to any other
Person to the extent described below under "-- Certain Covenants--Merger and
Consolidation;" PROVIDED, HOWEVER, that if such other Person is not the Company
or another Subsidiary Guarantor, such Subsidiary Guarantor's obligations under
its Subsidiary
65
Guarantee must be expressly assumed by such other Person. However, upon the sale
or other disposition (including by way of consolidation or merger) of a
Subsidiary Guarantor or the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor (in each case other than to an Affiliate of the
Company) permitted by the Indenture, such Subsidiary Guarantor will be released
and relieved from all its obligations under its Subsidiary Guarantee.
RANKING
The indebtedness evidenced by the Notes and the Subsidiary Guarantees will
be senior subordinated, unsecured obligations of the Company and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium (if
any) and interest on the Notes and each Subsidiary Guarantee is subordinate in
right of payment, as set forth in the Indenture, to the prior payment in full of
all Senior Indebtedness of the Company or such Subsidiary Guarantor, as the case
may be, whether outstanding on the Issue Date or thereafter incurred, including
the obligations of the Company and the Subsidiary Guarantors under the Senior
Credit Facilities.
As of June 28, 1997, the Company's Senior Indebtedness was approximately
$26.9 million, and the Company had the ability to borrow up to an additional
$43.1 million under the Revolving Credit Facility. Although the Indenture
contains limitations on the amount of additional Indebtedness that the Company
may incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitation on Indebtedness."
A substantial portion of the operations of the Company are conducted through
its subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even though such obligations will not constitute
Senior Indebtedness. The Notes and each Subsidiary Guarantee, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of the Company (other than the Subsidiary
Guarantors). At the time of issuance of the Outstanding Notes, all the operating
subsidiaries of the Company were Subsidiary Guarantors. The Indenture limits the
incurrence of Indebtedness and preferred stock of certain of the Company's
subsidiaries, including the Subsidiary Guarantors. However, the Indenture does
not impose any limitation on the incurrence by such subsidiaries of liabilities
that are not considered Indebtedness or Preferred Stock under the Indenture. See
"--Certain Covenants--Limitation on Indebtedness."
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes or the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company or the relevant Subsidiary Guarantor,
as the case may be. The Company and each Subsidiary Guarantor has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinated or junior to Secured
Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Obligations with respect to its
Senior Indebtedness are not paid when due or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been cured
or waived and any such acceleration has been rescinded or such Senior
66
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Senior Indebtedness
with respect to which either of the events set forth in clause (i) or (ii) of
the immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions described in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period; PROVIDED, HOWEVER, that if any Blockage Notice within such 360-day
period is given by or on behalf of any holders of Designated Senior Indebtedness
(other than the Bank Indebtedness), the Representative of the Bank Indebtedness
may give another Blockage Notice within such period; PROVIDED FURTHER, HOWEVER,
that in no event may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any
360-consecutive-day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full in cash of such Senior Indebtedness
before the Noteholders are entitled to receive any payment, and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness. If a distribution is made to
Noteholders that, due to the subordination provisions, should not have been made
to them, such Noteholders are required to hold it in trust for the holders of
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Senior Indebtedness
or the Representative of such holders of the acceleration.
The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to a Subsidiary Guarantee will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the Notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Subsidiary Guarantor who are
holders of Senior Indebtedness may recover more, ratably, than the Noteholders,
and creditors of the Company or a Subsidiary Guarantor who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Noteholders.
67
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes sold will be issued in the form of a Global Exchange
Note. The Global Exchange Note will be deposited with, or on behalf of, the
Depository and registered in the name of the Depository or its nominee. Except
as set forth below, the Global Exchange Note may be transferred, in whole and
not in part, only to the Depository or another nominee of the Depository.
Investors may hold their beneficial interests in the Global Exchange Note
directly through the Depository if they have an account with the Depository or
indirectly through organizations which have accounts with the Depository.
Notes that are issued as described below under "Certificated Notes" will be
issued in definitive form. Upon the transfer of a Note in definitive form, such
Note will, unless the Global Exchange Note has previously been exchanged for
Notes in definitive form, be exchanged for an interest in the Global Exchange
Note representing the principal amount of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchaser), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Exchange Note, the Depository will credit,
on its book-entry registration and transfer system, the principal amount of the
Notes represented by such Global Exchange Note to the accounts of participants.
Ownership of beneficial interests in the Global Exchange Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Exchange Note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interest) and such
participants (with respect to the owners of beneficial interests in the Global
Exchange Note other than participants). The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in the Global Exchange Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Exchange Note, the Depository or such nominee, as the case
may be, will be considered the sole legal owner and holder of the related
Exchange Notes for all purposes of such Exchange Notes and the Indenture. Except
as set forth below, owners of beneficial interests in the Global Exchange Note
will not be entitled to have the Exchange Notes represented by the Global
Exchange Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated Exchange Notes in definitive form and
will not be considered to be the owners or holders of any Exchange Notes under
the Global Exchange Note. The Company understands that under existing industry
practice, in the event an owner of a beneficial interest in the Global Exchange
Note desires to take any action that the Depository, as the holder of the Global
Exchange Note, is entitled to take, the Depository would authorize the
participants to take such action,
68
and that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Exchange Notes represented by the
Global Exchange Note registered in the name of and held by the Depository or its
nominee will be made to the Depository or its nominee, as the case may be, as
the registered owner and holder of the Global Exchange Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Exchange Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Note as shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Exchange Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Exchange Note for any Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Exchange Note owning
through such participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Exchange Note may not be
transferred except as a whole by the Depository to a nominee of such Depository
or by a nominee of such Depository to such Depository or another nominee of such
Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among participants
of the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance by
the Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Exchange Notes represented by the Global Exchange Note are exchangeable
for certificated Exchange Notes in definitive form of like tenor as such
Exchange Notes in denominations of U.S. $1,000 and integral multiples thereof if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for the Global Exchange Note or if at any time the
Depository ceases to be a clearing agency registered under the Exchange Act and
a successor depository is not appointed by the Company within 90 days, (ii) the
Company in its discretion at any time determines not to have all of the Exchange
Notes represented by the Global Exchange Note or (iii) an Event of Default has
occurred and is continuing. Any Exchange Note that is exchangeable pursuant to
the preceding sentence is exchangeable for certificated Exchange Notes issuable
in authorized denominations and registered in such names as the Depository shall
direct. Subject to the foregoing, the Global Exchange Note is not exchangeable,
except for a Global Exchange Note of the same aggregate denomination to be
registered in the name of the Depository or its nominee.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
69
REGISTRATION RIGHTS
The holders of Exchange Notes will not be entitled to any registration
rights with respect to the Exchange Notes. Pursuant to the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part, the Company is required
to have declared effective by the SEC no later than December 22, 1997 a
registration statement with respect to the Exchange Offer (or, if not
practicable, a "shelf" registration statement for an offering on a continuous
basis of Outstanding Notes). The Registration Statement, of which this
Prospectus constitutes a part, constitutes the registration statement for the
Exchange Offer. In the event the Registration Statement (or a shelf registration
statement) is not timely declared effective as aforementioned, additional
interest will accrue on the Outstanding Notes at the rate of 0.50% per annum
from and including December 22, 1997 but excluding the date upon which such
default shall have been cured.
Assuming consummation of the Exchange Offer made hereby, all of the
Company's registration obligations with respect to the Outstanding Notes under
the Registration Rights Agreement will have been fulfilled.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Noteholder will have the right to require that the Company
repurchase such Noteholder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i)(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that for purposes of this clause (i) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Parent and (B) the Permitted Holders beneficially own
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate less than 30% of the total voting power of the
Voting Stock of the Parent and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors (for the purposes of this clause (i), such other person shall be
deemed to beneficially own any Voting Stock of a specified Person held by
another Person (the "parent entity"), if such other person is the beneficial
owner (as defined at the beginning of this clause (i)), directly or indirectly,
of more than 35% of the voting power of the Voting Stock of such parent entity
and the Permitted Holders beneficially own (as defined in this clause), directly
or indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent entity and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity); (ii) during any
period of two consecutive years following the first date on which the Parent
becomes subject to the proxy rules under the Exchange Act, individuals who at
the beginning of such period constituted the Board of Directors of the Parent
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Parent was approved by
a vote of 66-2/3% of the directors of the Parent then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Parent then in office; (iii) the
merger or consolidation of the Parent or the Company with or into another Person
or the merger of another Person with or into the Parent or the Company, or the
sale of all or substantially all the assets of the Company to another Person
(other than, in each such case, a Person that is controlled by the Permitted
Holders), and, in the case of any such merger or consolidation, the securities
of the Parent or the Company that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the Voting
Stock of the Parent or the Company are changed into or exchanged
70
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation; or (iv) the Parent
ceases to own, directly or indirectly, all the Capital Stock of the Company
other than as a result of the merger or consolidation of the Parent with the
Company.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Noteholder with a copy to the Trustee stating: (1) that a Change
of Control has occurred and that such Noteholder has the right to require the
Company to purchase such Noteholder's Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the repurchase date (which, except as otherwise required by law, shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (3) the instructions determined by the Company, consistent with the
covenant described hereunder, that a Noteholder must follow in order to have its
Notes purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control repurchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "--Certain Covenants--Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture does not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
The Senior Credit Facilities will prohibit the Company from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to the Company would constitute a default thereunder. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Senior Credit Facilities. In such circumstances, the subordination
provisions in the Indenture would likely restrict payment to the holders of
Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of Notes of their right to require the Company to
repurchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders of Notes following the occurrence of a Change of Control may be limited
by the
71
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relative to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including the following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
except that the Company may Incur Indebtedness if, on the date of such
Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2.0 to 1.0 if such Indebtedness is Incurred prior to June 15, 2000 or
2.25 to 1.0 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company or any Restricted Subsidiary Incurred
pursuant to the Revolving Credit Facilities; PROVIDED, HOWEVER, that,
immediately after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness incurred under this clause (1) and then
outstanding does not exceed the greater of (A) $54.0 million less the sum of
all principal payments actually made from time to time after the Issue Date
with respect to such Indebtedness pursuant to clause (a)(ii)(A) under the
covenant described under "--Limitations on Sales of Assets and Subsidiary
Stock" and (B) the sum of 50% of the book value of the consolidated
inventory of the Company and its Restricted Subsidiaries and 85% of the book
value of the consolidated accounts receivables of the Company and its
Restricted Subsidiaries;
(2) Indebtedness of the Company or any Restricted Subsidiary Incurred
pursuant to the Term Loan Facilities; PROVIDED, HOWEVER, that after giving
effect to any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (2) and then outstanding does not
exceed $16.0 million less the aggregate sum of all principal payments
actually made from time to time after the Issue Date with respect to such
Indebtedness (other than principal payments made from any permitted
Refinancings thereof);
(3) Indebtedness of the Company or any Restricted Subsidiary owed to and
held by the Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that
any subsequent issuance or transfer of any Capital Stock which results in
any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Company or
another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(4) the Outstanding Notes and the Exchange Notes;
(5) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3) or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4) or (5) or this clause
(6);
(7) (i) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred pursuant to the
Indenture, (ii) surety bonds Incurred in the ordinary course of business and
(iii) self-insurance arrangements;
72
(8) Indebtedness consisting of the Subsidiary Guarantees and the
Guarantees of Indebtedness Incurred pursuant to paragraph (a) or pursuant to
clause (1), (2), (4), (5) and (6) above and (9) below; and
(9) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (8)
above or paragraph (a)), does not exceed $10.0 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness of the Company or such Subsidiary Guarantor, as applicable, unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any
Secured Indebtedness that is not Senior Indebtedness of the Company or such
Subsidiary Guarantor unless contemporaneously therewith effective provision is
made to secure the Notes equally and ratably with such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of: (A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are originally
issued to the end of the most recent fiscal quarter for which financial
statements are available (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
received by the Company from the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date (other than an issuance or
sale to a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees); (C) the amount by which
Indebtedness of the Company or its Restricted Subsidiaries is reduced on the
Company's consolidated balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness
of the Company or any Restricted Subsidiary for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the fair
value of any other property, distributed by the Company upon such conversion or
exchange); and (D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED,
HOWEVER, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments
73
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of the
foregoing paragraph (a) shall not prohibit: (i) any Restricted Payment made out
of the proceeds of the substantially concurrent sale of, or any acquisition of
any Capital Stock of the Company made by exchange for, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of
their employees); PROVIDED, HOWEVER, that (A) such Restricted Payment shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above; (ii) any purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company which is permitted
to be Incurred pursuant to the covenant described under "--Limitation on
Indebtedness;" PROVIDED, HOWEVER, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments; (iii) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the
time of payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); PROVIDED FURTHER, however, that such dividend
shall be included in the calculation of the amount of Restricted Payments; (iv)
dividends to the Parent to be used for the repurchase or other acquisition of
shares of, or options or warrants to purchase shares of, common stock of the
Parent from employees, former employees, directors or former directors of the
Parent or any of its Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements), plans (or amendments thereto) or
other arrangements approved by the board of directors of the Parent under which
such individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of
such dividends shall not exceed $500,000 in any calendar year; PROVIDED FURTHER,
HOWEVER, that such dividends shall be excluded in the calculation of the amount
of Restricted Payments; (v) any payment by the Company to the Parent pursuant to
the Tax Sharing Agreement; PROVIDED, HOWEVER, that the amount of any such
payment shall not exceed the amount of taxes that the Company would have been
liable for on a stand-alone basis; PROVIDED FURTHER, HOWEVER, that such payment
shall be excluded in the calculation of the amount of Restricted Payments; (vi)
dividends to the Parent to the extent required to pay non-deferrable scheduled
cash interest when due on the Discount Debentures and any additional cash
interest (at a rate not to exceed 1 of 1% per annum) payable with respect to the
Discount Debentures as a result of Parent's failure to comply with its
obligations to register the Discount Debentures; PROVIDED, HOWEVER, that (A) no
Default shall have occurred and be continuing (or would result therefrom), (B)
the Parent shall immediately apply any such dividend to make such cash interest
payment and (C) except in the case of such additional interest, immediately
after giving effect to any such dividend, the Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "--Limitation on Indebtedness;" PROVIDED FURTHER, HOWEVER, that
such dividends shall be included in the calculation of the amount of Restricted
Payments; (vii) dividends to the Parent to the extent necessary to pay for
general corporate and overhead expenses incurred by the Parent; PROVIDED,
HOWEVER, that such dividends shall not exceed $500,000 in any calendar year;
PROVIDED FURTHER, HOWEVER, that such dividends shall be excluded in the
calculation of the amount of Restricted Payments; (viii) a dividend to the
Parent on the Issue Date of $57.7 million; PROVIDED, HOWEVER, that such dividend
shall be excluded in the calculation of the amount of Restricted Payments; and
(ix) a dividend or distribution by the Company to the Parent on December 15,
2002 to be used to fund the mandatory redemption on such date of Discount
Debentures pursuant to the terms thereof; PROVIDED, HOWEVER, that (a) the amount
of such dividend or distribution may not exceed the lesser of (1) $34 million
and (2) the amount which when added to other available funds of the Parent on
such date are sufficient to satisfy the Parent's obligation to make such
mandatory redemption, (b) Parent applies such dividend to make such redemption
on December 15, 2002, (c) on the date of payment of such dividend and after
giving effect thereto, the Consolidated Debt Ratio
74
does not exceed 3.0 to 1.0 and (d) that at the time of payment of such dividend,
no other Default shall have occurred and be continuing (or result therefrom);
PROVIDED FURTHER, HOWEVER, that such dividend shall be included in the
calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) make any loans or advances to the Company or (c) transfer any
of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date, including the Credit Agreement; (ii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant or this clause (iii) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this covenant or
this clause (iii); PROVIDED, HOWEVER, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the Noteholders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such predecessor agreements; (iv) any such encumbrance or
restriction consisting of customary non assignment provisions in leases
governing leasehold interests solely to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (v) in the case of
clause (c) above, restrictions contained in security agreements, mortgages or
leases securing Indebtedness of a Restricted Subsidiary solely to the extent
such restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (vi) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (vii)
any restriction imposed by applicable law.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) at the Company's option to
either (A) prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness
(other than any Disqualified Stock) of a Wholly Owned Subsidiary (in each case
other than Indebtedness owed to the Company or an Affiliate of the Company) or
(B) acquire Additional Assets, in each case, within one year from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase
of such Indebtedness, the Company or such Restricted Subsidiary shall
permanently retire such Indebtedness and shall cause the related loan commitment
(if any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. To the extent of the balance of such Net Available
Cash after application in accordance with clauses (A) and (B), the Company shall
make an offer to the holders of the Notes (and to holders of other Senior
Subordinated Indebtedness designated by the Company) to purchase Notes (and such
other Senior Subordinated Indebtedness) pursuant to and subject to the
conditions contained in the Indenture. Notwithstanding the foregoing provisions
of this paragraph, the Company and
75
the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which are not applied in
accordance with this paragraph exceeds $10 million. Pending application of Net
Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary (other than Indebtedness Incurred in connection with or in
anticipation of such Asset Disposition) and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition, (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a), the
Company will be required to purchase Notes tendered pursuant to an offer by the
Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase
price of 100% of their principal amount (without premium) plus accrued but
unpaid interest (or, in respect of such other Senior Subordinated Indebtedness,
such lesser price, if any, as may be provided for by the terms of such Senior
Subordinated Indebtedness) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. The
Company shall not be required to make such an offer to purchase Notes (and other
Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available
Cash available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property, employee compensation arrangements or the rendering of
any service) or enter into any agreement, loan, advance or guarantee with any
Affiliate (other than a Joint Venture Affiliate) of the Company (an "Affiliate
Transaction") unless the terms thereof (1) are no less favorable to the Company
or such Restricted Subsidiary than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction (or series of related Affiliate
Transactions) involves an amount in excess of $2 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and (3) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves an
amount in excess of $10 million, have been determined by a nationally recognized
investment banking firm to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise, pursuant to, or the
funding of, employment arrangements, director fees, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $700,000
in the aggregate outstanding at any one
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time, (v) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate Transaction between the Company and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries and (vii) any Tax Sharing
Agreement; PROVIDED, HOWEVER, that the aggregate amount payable by the Company
pursuant thereto shall not exceed the amount of taxes that the Company would
have been liable for on a stand-alone basis.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary,
(ii) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any Capital
Stock of such Restricted Subsidiary or (iii) if, immediately after giving effect
to such issuance, sale or other disposition, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect thereto would have been permitted to be made under
the covenant described under "--Limitation on Restricted Payments" if made on
the date of such issuance, sale or other disposition.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "--Limitation on Indebtedness;" (iv) immediately after giving
effect to such transaction, the Successor Company shall have Consolidated Net
Worth in an amount that is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture; PROVIDED, HOWEVER, that clauses
(iii) and (iv) shall not apply to a merger or consolidation involving only the
Company and one or more Wholly Owned Subsidiaries. The Successor Company shall
be the successor to the Company and shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture, but
the predecessor Company in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(i) the resulting, surviving or transferee Person (if not such Subsidiary) shall
be a Person organized and existing under the laws of the jurisdiction under
which such Subsidiary was organized or under the laws of the United States of
America, or any State thereof or the District of Columbia, and such Person shall
expressly assume, by executing a Guaranty Agreement, all the obligations of such
Subsidiary, if any, under its Subsidiary Guarantee; (ii) immediately after
giving effect to such transaction or transactions on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as having been
issued by such Person at the time of such transaction), no Default shall have
occurred and be continuing; and (iii) the Company delivers to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation,
77
merger or transfer and such Guaranty Agreement, if any, complies with the
Indenture. The provisions of clauses (i) and (ii) above shall not apply to any
one or more transactions which constitute an Asset Disposition if the Company
has complied with the applicable provisions of the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock" above.
FUTURE GUARANTORS. In the event that, after the Issue Date, any Restricted
Subsidiary Incurs any Indebtedness pursuant to clause (1), (2) or (8) of
paragraph (b) of the covenant described under "-- Certain Covenants--Limitation
on Indebtedness" above, the Company shall cause such Restricted Subsidiary to
Guarantee the Notes pursuant to a Subsidiary Guarantee on the terms and
conditions set forth in the Indenture and shall cause all Indebtedness of such
Restricted Subsidiary owing to the Company or any other Subsidiary of the
Company and not previously discharged to be converted into Capital Stock of such
Restricted Subsidiary (other than Disqualified Stock).
SEC REPORTS. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest or any Additional Amounts on the Notes when due, continued
for 30 days, (ii) a default in the payment of principal of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under "--Certain Covenants--Merger and Consolidation" above, (iv)
the failure by the Company to comply for 30 days after notice with any of its
obligations in the covenants described above under "--Change of Control" (other
than a failure to purchase Notes) or under "--Certain Covenants" under
"--Limitation on Indebtedness," "--Limitation on Restricted Payments,"
"--Limitation on Restrictions on Distributions from Restricted Subsidiaries,"
"--Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase Notes), "--Limitation on Affiliate Transactions," "--Limitation on the
Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Future
Guarantors" or "--SEC Reports," (v) the failure by the Company to comply for 60
days after notice with its other agreements contained in the Indenture, (vi)
Indebtedness of the Company or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $5 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or
decree for the payment of money in excess of $5 million is entered against the
Company or a Significant Subsidiary, remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within 10 days
after notice (the "judgment default provision") or (ix) any Subsidiary Guarantee
ceases to be in full force and effect (other than in accordance with the terms
of such Subsidiary Guarantee) or any Subsidiary Guarantor denies or disaffirms
its obligations under its Subsidiary Guarantee, as the case may be. However, a
default under clauses (iv), (v) and (viii) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately; PROVIDED, HOWEVER, that if upon such declaration there are
any amounts outstanding under the Credit Agreement and the amounts thereunder
have not been accelerated, such principal and interest shall
78
be due and payable upon the earlier of the time such amounts are accelerated or
five Business Days after receipt by the Company and the Representative under the
Credit Agreement of such declaration. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences. Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected thereby, no amendment may (i) reduce the principal
amount at maturity of Notes whose holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the amount payable upon the redemption of any Note or change the time at which
any Note may be redeemed as described under "--Optional Redemption" above, (v)
make any Note payable in money other than that stated in the Note, (vi) impair
the right of any holder of Notes to receive payment of principal of and interest
on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes,
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions or (viii) make any change to the
subordination provisions of the Indenture that would adversely affect the
Noteholders. In addition, without the consent of holders of at
79
least 75% of the outstanding Notes, no amendment may release a Subsidiary
Guarantor from its Subsidiary Guarantee or make any change in any Subsidiary
Guarantee that would adversely affect the Noteholders.
Without the consent of any holder of Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act. However, no amendment may be
made to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or their Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv) of
the first paragraph and all the limitations contained in the second paragraph
under "--Certain Covenants--Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) of the first
paragraph or with the limitations contained in the second paragraph under
"--Certain Covenants--Merger and Consolidation" above. If the Company exercises
its legal defeasance option or its covenant defeasance option,
80
each Subsidiary Guarantor will be released from all of its obligations with
respect to its Subsidiary Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (x) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (y) for purposes of the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments" and (z)
disposition of assets with a fair market value of less than $250,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Banks" has the meaning specified in the Credit Agreement.
"Bank Indebtedness" means all Obligations pursuant to the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters prior to the date of such determination for
which financial statements are available to (ii) Consolidated Interest Expense
for such four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of
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such period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (2) if the
Company or any Restricted Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of such period or if
any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged
(in each case other than Indebtedness Incurred under any revolving credit
facility unless such Indebtedness has been permanently repaid and has not been
replaced) on the date of the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned during
such period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness, (3) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest of
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Debt Ratio" as of any date of determination means, the ratio
of (i) consolidated Indebtedness of the Company as of the end of the most recent
fiscal quarter for which financial statements are available to (ii) the
aggregate amount of the EBITDA of the Company for the four most recent fiscal
quarters for which financial statements are available, in each case with such
pro forma adjustments to consolidated Indebtedness and EBITDA as are appropriate
and consistent with the pro forma provisions set forth in the definition of
Consolidated Coverage Ratio.
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"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication, (i)
interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (A) subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person with respect to such period to the Company
or a Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary with
respect to such period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain or loss realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company prior to the taking of any action for the purpose
of which the determination is being made for which financial statements are
available, as (i) the par or stated value of all outstanding Capital Stock of
the Company plus (ii) paid-in capital or capital
84
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
"Credit Agreement" means the Credit Agreement dated June 23, 1997, entered
into by and among the Company, certain of its Subsidiaries, the lenders referred
to therein and Credit Suisse First Boston, as Administrative Agent, together
with the related documents thereto (including without limitation the term loans
and revolving loans thereunder, any guarantees and security documents), as
amended, extended, renewed, restated, supplemented or otherwise modified (in
whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time, and any agreement (and
related document) governing Indebtedness incurred to refund or refinance, in
whole or in part, the borrowings and commitments then outstanding or permitted
to be outstanding under such Credit Agreement or a successor Credit Agreement,
whether by the same or any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Discount Debentures" means the 13% Senior Discount Debentures Due 2009 of
Parent issued on the Issue Date in an aggregate principal amount at maturity of
$74.88 million and any other Indebtedness of Parent that Refinances such
Debentures; PROVIDED, HOWEVER, that such other Indebtedness does not require the
payment of cash interest or the repayment of principal (or the repurchase of
such Indebtedness) in an amount in excess of the amounts thereof provided for in
such Debentures being Refinanced or at a time prior to the time such amounts
would have been payable as provided for in such Debentures being Refinanced.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which 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 (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (d) all other non-cash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and non-cash charges of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
85
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 such
Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. An accounting
term not otherwise defined in the Indenture will have the meaning assigned to it
in accordance with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of another Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the Notes on the terms provided for in the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
86
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the letter
of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or assets
or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all Indebtedness and the maximum liability,
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations which constitute Indebtedness at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
87
"Issue Date" means the date on which the Outstanding Notes were originally
issued.
"Joint Venture Affiliate" shall mean a Person that is partially owned,
directly or indirectly, by the Company and no interest in which is owned,
directly or indirectly (other than through such Person's ownership of common
stock of the Company), by any Person that is an Affiliate of the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local income, franchise, sales and other
applicable taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of their ownership interest in the
Subsidiary or Joint Venture engaging in such Asset Disposition and (iv) the
deduction of appropriate amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, reimbursements and other amounts
payable pursuant to the documentation governing such Indebtedness.
"Parent" means Roller Bearing Holding Company, Inc., a Delaware corporation,
and any successor corporation.
"Permitted Holders" means each Person owning, on the Issue Date after giving
effect to the recapitalization of the Parent occurring on such date, shares of
Common Stock of the Parent or warrants to purchase such common stock and each
Person controlled by any Permitted Holder (and, in the case of individuals, the
estate and heirs of any Permitted Holder).
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
88
(v) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (viii) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock."
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Parent pursuant to an effective registration statement under
the Securities Act with gross proceeds to the Parent of not less than $25
million, resulting in the listing of the Parent's common stock on a nationally
recognized stock exchange or the inclusion of such stock on The Nasdaq National
Market System.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Parent has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accredit value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
89
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable to the Company or a Restricted Subsidiary and
other than pro rata dividends or other distributions made by a Subsidiary that
is not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)), (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Company that is
not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person; PROVIDED, HOWEVER, that "Restricted Payments" will not include any
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Credit Facilities" means the revolving credit facility contained
in the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any such revolving credit facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" of any Person means all (i) Bank Indebtedness of or
guaranteed by such Person, whether outstanding on the Issue Date or thereafter
Incurred (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) and (ii) Indebtedness of such Person
whether outstanding on the Issue Date or thereafter Incurred, including interest
thereon (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), in respect of (A) Indebtedness for
money borrowed, (B) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable and (C) Hedging Obligations, unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the obligations under the Notes; PROVIDED, HOWEVER, that Senior
Indebtedness shall not include (1) any obligation of such Person to any
subsidiary of such Person, (2) any liability for Federal, state, local or other
taxes owed or owing by such Person, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness of such Person (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior by its terms to any other Indebtedness
or other obligation of such Person or (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of the Indenture (but as to
any such Indebtedness under the Credit Agreement, no such violation shall be
deemed to exist if the Representative of the Lenders thereunder shall have
received an officers' certificate of the Company to the effect that the issuance
of such Indebtedness does not violate such covenant and setting forth in
reasonable detail the reasons therefor). If
90
any Bank Indebtedness is disallowed, avoided or subordinated pursuant to the
provisions of Section 548 of the U.S. Bankruptcy Code or any applicable state
fraudulent conveyance law, such Bank Indebtedness will still constitute Senior
Indebtedness.
"Senior Subordinated Indebtedness" means (i) with respect to the Company,
the Notes and any other Indebtedness of the Company that specifically provides
that such Indebtedness is to rank PARI PASSU with the Notes in right of payment
and is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness of the Company
and (ii) with respect to a Subsidiary Guarantor, its respective Subsidiary
Guarantee of the Notes and any other indebtedness of such Person that
specifically provides that such Indebtedness rank PARI PASSU with such Guarantee
in respect of payment and is not subordinated by its terms in respect of payment
to any Indebtedness or other obligation of such Person which is not Senior
Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to, in the case of
the Company, the Notes or, in the case of such Subsidiary Guarantor, its
Subsidiary Guarantee, pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) 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 (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means any subsidiary of the Company that Guarantees
the Company's obligations with respect to the Notes, which initially shall be
Industrial Tectonics Bearings Corporation, RBC Linear Precision Products, Inc.
and RBC Nice Bearings, Inc.
"Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Tax Sharing Agreement" means any tax sharing agreement between the Company
and Holdings or any other Person with which the Company is required to, or is
permitted to, file a consolidated tax return or with which the Company is or
could be part of a consolidated group for tax purposes.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-
91
market fund sponsored by a registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group and (v) investments in securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Facilities" means the term loan facilities contained in the
Credit Agreement and any other facility or financing arrangement that Refinances
in whole or in part any such term loan facility.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers, trustees or other governing board
thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
92
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences of the Exchange Offer to a holder of Outstanding Notes that
purchased the Outstanding Notes pursuant to their original issue and that holds
the Outstanding Notes and will hold the Exchange Notes as capital assets. It
does not address beneficial owners that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or currencies, holders
that hold the Outstanding Notes or Exchange Notes as a hedge against currency
risks or as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a "conversion transaction")
comprised of a Note and one or more investments, or holders that have a
"functional currency" other than the U.S. dollar. This summary is based upon the
U.S. federal tax laws and regulations as now in effect and as currently
interpreted and does not take into account possible changes in such tax laws or
such interpretations, any of which may be applied retroactively. It does not
include any description of the tax laws of any state, local or foreign
government that may be applicable to the Exchange Offer, the Outstanding Notes,
the Exchange Notes or the holders thereof.
The exchange of Exchange Notes for the Outstanding Notes pursuant to the
Exchange Offer should not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Outstanding Notes. As a result, there should be no
federal income tax consequences to holders of the Outstanding Notes exchanging
the Outstanding Notes for the Exchange Notes pursuant to the Exchange Offer, and
therefore: (i) no gain or loss should be realized by a holder upon receipt of an
Exchange Note, (ii) the holding period of the Exchange Note should include the
holding period of the Outstanding Note exchanged therefor, and (iii) the
adjusted tax basis of the Exchange Note should be the same as the adjusted basis
of the Outstanding Note exchanged therefor immediately before the exchange.
THIS SUMMARY DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A HOLDER'S DECISION TO EXCHANGE
OUTSTANDING NOTES FOR EXCHANGE NOTES. EACH HOLDER SHOULD CONSULT WITH ITS OWN
TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS OR OTHER
TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE
OUTSTANDING NOTES FOR EXCHANGE NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of 180 days after the Expiration Date, it will make this Prospectus, as amended
or supplemented, available to any broker-dealer that requests such documents in
the Letter of Transmittal, for use in connection with any such resale. In
addition, until (90 days after the date of this Prospectus), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to 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 Exchange 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 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 such
broker-dealer or
93
the purchasers of any such Exchange Notes. Any broker-dealer that resells
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commission 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 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the Holders of the Securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Notes
will be passed upon for the Company by McDermott, Will & Emery, New York, New
York. McDermott, Will & Emery represented management of the Company in
connection with the Recapitalization.
EXPERTS
The consolidated financial statements of Roller Bearing Company of
America, Inc. at March 29, 1997 and March 30, 1996, and for each of the three
years in the period ended March 29, 1997, appearing in this Prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
INDEPENDENT AUDITORS
Management of the Company has determined that the Company's independent
auditors for the fiscal year commencing March 30, 1997 shall be Arthur
Andersen LLP. The reports prepared by Ernst & Young LLP for fiscal years 1996
and 1997 contained no adverse opinion or disclaimer of opinion, nor were
either of such reports qualified as to uncertainty, audit scope or accounting
principles. During fiscal years 1996 and 1997, there were no disagreements
between the Company and Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure,which if not resolved to the satisfaction of Ernst & Young LLP,
would have caused Ernst & Young LLP to make a reference to the subject matter
of such disagreement in connection with its reports. Arthur Andersen LLP
provided advice to management of the Company in connection with the
Recapitalization.
94
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed jointly with the SEC a
Registration Statement on Form S-4 under the Securities Act, with respect to the
Exchange Notes offered by this Prospectus. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the schedules and exhibits thereto,
to which reference hereby is made. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. Any interested party may inspect the Registration Statement
and its exhibits, without charge, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional office at 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10007. Any interested party may obtain copies of all
or any portion of the Registration Statement and its exhibits at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC
20549.
The Company, on a consolidated basis with the Subsidiary Guarantors, intends
to distribute to holders of the Exchange Notes and Outstanding Notes annual
reports containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
95
INDEX TO FINANCIAL STATEMENTS
CONTENTS
Report of Independent Auditors........................................................ F-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................................... F-2
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholder's Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Roller Bearing Company of America, Inc.
We have audited the accompanying consolidated balance sheets of Roller
Bearing Company of America, Inc. (a wholly-owned subsidiary of Roller Bearing
Holding Company, Inc.) as of March 29, 1997 and March 30, 1996, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended March 29, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Roller Bearing
Company of America, Inc. at March 29, 1997 and March 30, 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 29, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the financial statements, during 1997 the Company
changed its inventory valuation and production cost capitalization policies.
Ernst & Young LLP
White Plains, New York
May 9, 1997, except for Note 15,
as to which the date is May 20, 1997
F-1
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 29, MARCH 30,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash..................................................................................... $ 859 $ 366
Accounts receivable, less allowances of $236 in 1997 and $175 in 1996.................... 19,766 16,243
Inventories:
Raw materials.......................................................................... 1,711 1,830
Work-in-process........................................................................ 17,170 16,576
Finished goods......................................................................... 17,971 13,898
----------- -----------
36,852 32,304
Prepaid expenses and other............................................................... 764 670
Refundable income taxes.................................................................. 510
----------- -----------
Total current assets....................................................................... 58,241 5,093
Restricted marketable securities........................................................... 3,901 4,164
Property, plant, and equipment:
Land..................................................................................... 7,537 4,806
Building and improvements................................................................ 7,287 4,057
Machinery and equipment.................................................................. 43,885 34,344
----------- -----------
58,709 43,207
Accumulated depreciation................................................................. (18,611) (14,671)
----------- -----------
40,098 28,536
Deferred income taxes...................................................................... 953 1,887
Excess of cost over net assets acquired, net of accumulated amortization of $2,843 in 1997
and $2,265 in 1996....................................................................... 19,911 20,489
Deferred financing costs, net of accumulated amortization of $337 in 1997 and $122 in
1996..................................................................................... 1,383 1,598
Other assets............................................................................... 26 128
----------- -----------
$ 124,513 $ 106,895
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
MARCH 29, MARCH 30,
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable......................................................................... $ 9,644 $ 5,874
Accrued expenses and other current liabilities........................................... 5,781 4,051
Current portion of long-term debt........................................................ 2,500 1,500
Obligations under capital leases, current portion........................................ 1,325 1,112
Current income taxes payable............................................................. 1,355
----------- -----------
Total current liabilities.................................................................. 20,605 12,537
Obligations under capital leases........................................................... 3,141 3,816
Long-term debt:
Revolving credit agreement............................................................... 24,627 16,391
Term notes payable....................................................................... 24,988 27,488
Industrial development revenue bonds..................................................... 10,700 10,700
----------- -----------
60,315 54,579
Other noncurrent liabilities............................................................... 3,080 3,231
----------- -----------
Total liabilities.......................................................................... 87,141 74,163
Stockholder's equity:
Common stock--par value $.01; authorized 1,000 shares, issued and outstanding shares: 100
shares in 1997 and 1996................................................................ -- --
Additional paid-in capital............................................................... 35,831 35,831
Retained earnings (deficit).............................................................. 1,541 (3,099)
----------- -----------
Total stockholder's equity................................................................. 37,372 32,732
----------- -----------
Total liabilities and stockholder's equity................................................. $ 124,513 $ 106,895
----------- -----------
----------- -----------
F-2
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED
-------------------------------------
MARCH 29, MARCH 30, APRIL 1,
1997 1996 1995
(52 WEEKS) (52 WEEKS) (52 WEEKS)
----------- ----------- -----------
Net sales..................................................................... $ 93,427 $ 82,233 $ 73,904
Cost of sales................................................................. 64,215 60,054 57,204
----------- ----------- -----------
Gross margin.................................................................. 29,212 22,179 16,700
Operating expenses:
Selling, general and administrative....................................... 14,537 11,104 8,987
Other expense, net of other income........................................ 1,473 1,388 1,057
----------- ----------- -----------
Income from operations........................................................ 13,202 9,687 6,656
Interest expense, net......................................................... 5,338 6,165 6,445
----------- ----------- -----------
Income before taxes and extraordinary charge.............................. 7,864 3,522 211
Provision for income taxes.................................................... 3,224 1,700 110
----------- ----------- -----------
Income before extraordinary charge............................................ 4,640 1,822 101
Extraordinary charge.......................................................... -- 995 --
----------- ----------- -----------
Net income.................................................................... $ 4,640 $ 827 $ 101
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes.
F-3
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
ADDITIONAL RETAINED MINIMUM
COMMON PAID-IN EARNINGS PENSION
STOCK CAPITAL (DEFICIT) LIABILITY TOTAL
------- ---------- --------- --------- -------
Balance at April 2, 1994.......................... $ $23,682 $(2,979) $ (271) $20,432
Dividends paid to Parent...................... (48) (48)
Capital contribution from Parent.............. 149 149
Minimum pension liability adjustment.......... (94) (94)
Net income.................................... 101 101
-
---------- --------- --------- -------
Balance at April 1, 1995.......................... 23,831 (2,926) (365) 20,540
Capital contribution from Parent.............. 12,000 12,000
Dividends paid to Parent...................... (1,000) (1,000)
Minimum pension liability adjustment.......... 365 365
Net income.................................... 827 827
-
---------- --------- --------- -------
Balance at March 30, 1996......................... 35,831 (3,099) 32,732
Net income.................................... 4,640 4,640
-
---------- --------- --------- -------
Balance at March 29, 1997......................... $ $35,831 $ 1,541 $ $37,372
-
-
---------- --------- --------- -------
---------- --------- --------- -------
See accompanying notes.
F-4
ROLLER BEARING COMPANY OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED
-------------------------------------
MARCH 29, MARCH 30, APRIL 1,
1997 1996 1995
----------- ----------- -----------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
CASH FLOW FROM OPERATING ACTIVITIES
Net income.................................................................... $ 4,640 $ 827 $ 101
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of plant and equipment......................................... 5,348 4,954 4,127
Amortization................................................................ 793 997 1,172
Extraordinary charge........................................................ -- 995 --
Deferred income taxes....................................................... 934 2,104 (567)
Changes in operating assets and liabilities:
Accounts receivable....................................................... (1,219) (1,532) (1,372)
Inventories............................................................... (1,118) (3,064) (851)
Prepaid expenses and other current assets................................. 416 167 933
Other non current assets.................................................. 102 315 (786)
Accounts payable.......................................................... 3,014 (507) (801)
Accrued expenses and other current liabilities............................ 148 (2,249) 827
Other non current liabilities............................................. (358) (831) (4,258)
Other..................................................................... -- (741) 482
----------- ----------- -----------
Net cash provided by (used in) operating activities........................... 12,700 1,435 (993)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of restricted marketable securities.................................. (254) (176) (5,085)
Sale of restricted marketable securities...................................... 517 384 713
Acquisition of subsidiaries................................................... (12,121) -- --
Purchases of property, plant, and equipment, net.............................. (5,819) (4,857) (2,902)
----------- ----------- -----------
Net cash used in investing activities......................................... (17,677) (4,649) (7,274)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in revolving credit agreement......................... 8,236 (4,225) 1,362
Proceeds from long-term debt.................................................. -- 29,300 --
Payments of long-term debt.................................................... (1,500) (29,812) (2,500)
Proceeds from industrial development revenue bonds............................ -- -- 10,700
Principal payments on obligations under capital leases........................ (1,266) (1,271) (1,274)
Payment of deferred financing fees............................................ -- (1,412) (308)
Dividends paid to Parent...................................................... -- (1,000) --
Capital contribution from Parent.............................................. -- 12,000 149
----------- ----------- -----------
Net cash provided by financing activities..................................... 5,470 3,580 8,129
----------- ----------- -----------
Net increase (decrease) in cash............................................... 493 366 (138)
Cash, at beginning of year.................................................... 366 -- 138
----------- ----------- -----------
Cash, at end of year.......................................................... $ 859 $ 366 $ --
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest.................................................................... $ 5,378 $ 6,277 $ 6,208
----------- ----------- -----------
----------- ----------- -----------
Income taxes................................................................ $ 425 $ 576 $ (460)
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes.
F-5
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BUSINESS
Roller Bearing Company of America, Inc., ("RBC" or the "Company") is a
wholly owned subsidiary of Roller Bearing Holding Company, Inc. ("Holdings").
Holdings was formed by affiliates of Aurora Capital Partners L.P. ("Aurora") and
certain members of management of RBC. On March 31, 1992, Holdings acquired all
of the outstanding shares of RBC pursuant to an Agreement and Plan of
Reorganization. The acquisition was accounted for under the purchase method of
accounting. The excess of the purchase price ($20,100) over the fair market
value of the tangible net assets acquired by Holdings has been pushed down and
recorded as Excess of cost over net assets acquired by the Company.
The Company manufactures roller bearing components and assembled parts and
designs and manufactures high-precision roller and ball bearings. The Company
sells to a wide variety of original equipment manufacturers and distributors who
are primarily domestic but widely dispersed geographically.
On October 26, 1992, the Company purchased substantially all of the assets
and assumed certain liabilities of the Transport Dynamics Corporation ("TDC"),
which manufactures plain bearings used in various aerospace and industrial
applications. The acquisition was accounted for by the purchase method of
accounting and, accordingly, the excess of the purchase price ($1,300) over the
fair market value of the tangible net assets acquired has been recorded as
"Excess of cost over net assets acquired."
In May 1993, the Company purchased substantially all of the assets and
assumed certain liabilities of the Heim Corporation ("Heim"), which manufactures
plain and ball bearings. The acquisition was accounted for by the purchase
method of accounting. The excess of the purchase price ($1,200) over the fair
market value of tangible net assets acquired has been recorded as "Excess of
cost over net assets acquired."
2. ACQUISITION OF WHOLLY OWNED SUBSIDIARIES
In October 1996, Linear Precision Products ("LPP"), a wholly owned
subsidiary of the Company, purchased substantially all of the assets and assumed
certain liabilities of a corporation that manufactures precision and ball
bearings. The acquisition was accounted for under the purchase method of
accounting. The purchase price (approximately $5,500) has been allocated to the
assets acquired and liabilities assumed based upon their respective estimated
fair values.
In February 1997, RBC Nice Bearings, Inc. ("Nice"), a wholly owned
subsidiary of the Company, purchased substantially all of the assets and assumed
certain liabilities of a corporation that manufacturers ground or semi-ground
specialty and ball bearings. The acquisition was accounted for under the
purchase method of accounting. The purchase price (approximately $7,500) has
been allocated to the assets acquired and liabilities assumed based upon their
respective estimated fair values.
F-6
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. ACQUISITION OF WHOLLY OWNED SUBSIDIARIES (CONTINUED)
The combined purchased net assets of LLP and Nice were allocated as follows:
ALLOCATION OF PURCHASE PRICE
Accounts receivable, net........................................... $ 2,219
Inventory.......................................................... 3,430
Property, plant and equipment...................................... 10,287
Accounts payable and other......................................... (4,610)
Net other.......................................................... 1,712
---------
$ 13,038
---------
---------
Pro forma consolidated results of operations based upon unaudited statements
of LLP and Nice for the fiscal year ended March 29, 1997 as if the acquisitions
took place at the beginning of the period were as follows:
MARCH 26, 1997
--------------
(UNAUDITED)
Net Sales..................................................................... $ 111,287
Net Income.................................................................... $ 6,155
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The consolidated financial statements include the accounts of RBC, and its
wholly owned subsidiaries, Industrial Tectonics Bearings Corporation ("ITB"),
LPP, and Nice, as well as its TDC and Heim divisions. All material intercompany
balances and transactions have been eliminated in consolidation.
The Company has a fiscal year consisting of 52 or 53 weeks, ending on the
Saturday closest to March 31.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
CHANGE IN ACCOUNTING METHODS
At the beginning of the fiscal year ended March 29, 1997, the Company
changed its method of accounting for certain inventories from the last-in,
first-out ("LIFO") method to the first in, first-out ("FIFO") method. In the
last several years, the Company has experienced productivity and technological
improvements resulting in a deflationary impact on certain product costs.
Management expects similar productivity improvements to continue for the
foreseeable future and consequently believes that the FIFO method is the
preferable method because it will produce a better matching of revenues and
expenses.
In addition, inventory costs did not differ significantly under the LIFO
method when compared to the FIFO method for the periods presented in the
financial statements.
F-7
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective March 31, 1996, the Company changed its method of accounting for
pre-production and certification costs pursuant to a recent announcement by the
Securities and Exchange Commission and a recent exposure draft issued by the
Accounting Standards Exchange Committee. Previously such costs, including direct
material, labor, supplies and tooling, were capitalized and amortized over their
expected period of benefit. Pursuant to the exposure draft, such costs are
expensed as incurred.
The Company has retroactively restated its financial statements for these
changes in accordance with the provisions of Accounting Principles Board Opinion
No. 20 "Accounting Changes" that allow retroactive restatement of financial
statements in connection with an initial public distribution. These restatements
resulted in a decrease to net income of $88 (net of tax effect of $83) in fiscal
1996 and $1,183 (net of tax effect of $1,318) in fiscal 1995. The effect on
retained earnings as of April 2, 1994 was $1,782.
INVENTORIES
Inventories are stated at the lower of cost or market, using the FIFO
method.
PROPERTY, PLANT, AND EQUIPMENT AND DEPRECIATION
Property, plant, and equipment is recorded at cost. Depreciation of plant
and equipment, including equipment under capital leases, is provided for by the
straight-line method over the estimated useful lives (3 to 31 years) of the
respective assets or the lease term, if shorter. Amortization of assets under
capital leases is reported with depreciation. The cost of equipment under
capital leases is equal to the lower of the net present value of the minimum
lease payments or the fair market value of the leased equipment at the inception
of the lease.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Revenue is recognized upon shipment of products. The Company sells to a
large number of original equipment manufacturers and distributors who service
the aftermarket. The Company's credit risk associated with accounts receivable
is minimized due to its customer base and wide geographic dispersion.
The Company performs ongoing credit evaluations of its customers financial
condition, and bad debt losses have historically been within the Company's
expectations.
INTANGIBLE ASSETS
The excess of purchase price over the fair market value of tangible net
assets acquired is being amortized by the straight-line method over a 40-year
period. The Company periodically reviews the carrying value of the excess of
cost over net assets acquired to determine whether such amounts are recoverable
based on undiscounted future cash flows or whether a reduction is necessary.
There have been no such reductions through March 29, 1997.
Deferred financing costs and related expenses are amortized by the
straight-line method over the lives of the related credit agreements (7 to 23
years).
INCOME TAXES
The Company is included in the consolidated tax return of Holdings and
calculates its provision for income taxes on a separate entity basis.
F-8
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes are recognized during the year in which transactions enter into
the determination of financial statement income, with deferred taxes being
provided for temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts for tax purposes. The differences
relate primarily to the timing of deductions for depreciation, goodwill
amortization relating to the acquisition of operating divisions, basis
differences arising from acquisition accounting, pension and retirement
benefits, and various accrued and prepaid expenses. Deferred tax assets and
liabilities are recorded at the rates expected to be in effect when the
temporary differences reverse.
EXTRAORDINARY CHARGE
The extraordinary charge in fiscal 1996 resulted from the write-off of
unamortized deferred financing costs in connection with the Company's early
extinguishment of debt. The extraordinary charge was $1,687 and is reflected net
of the related income tax benefit of $692.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENTS
Effective March 31, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company
periodically assesses the net realizable value of its long-lived assets and
evaluates such assets for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. For assets to
be held, impairment is determined to exist if estimated undiscounted future cash
flows are less than the carrying amount. For assets to be disposed of,
impairment is determined to exist if the estimated net realizable value is less
than the carrying amount.
STOCK BASED COMPENSATION
Management participates in Holdings stock compensation plan. During 1997,
the Company adopted the disclosure provision for SFAS No. 123, "Accounting for
Stock Based Compensation." SFAS No. 123 establishes a fair value method of
accounting and reporting standards for stock based compensation plans. However,
as permitted by SFAS No. 123, the Company has elected to continue to apply the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. Under APB No. 25,
because the exercise prices of the Company's employee stock options were not
less than the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Pro forma information related to stock
option grants in 1997, 1996 and 1995 has not been presented since the impact of
the fair value of the stock option grants was not material to the results of
operations.
F-9
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. RESTRICTED MARKETABLE SECURITIES
Restricted marketable securities which are classified as available for sale
consist of short-term investments of $3,901, and $1,752 and fixed maturities of
$0 and $2,412 at March 29, 1997 and March 30, 1996, respectively, which were
purchased with proceeds from industrial development revenue bonds issued by the
Company during fiscal 1995. The use of these investments is restricted primarily
for capital expenditure requirements in accordance with the applicable loan
agreement and, accordingly, are classified as long-term. These investments
consist of highly liquid investments with insignificant interest rate risk and
original maturities of three months or less, and are carried at market value,
which approximates cost. Fixed maturities consist of U.S.
Treasury Notes and are stated at amortized cost, which approximates market.
Realized gains and losses on restricted marketable securities were not material,
and interest income amounted to $254, $176 and $138 in fiscal 1997, 1996 and
1995, respectively.
At March 29, 1997, all restricted marketable securities are due in one year
or less.
5. LONG-TERM DEBT
In September 1995, the Company replaced its existing credit facility with an
$80 million credit facility (the "Credit Facility") comprised of a $40,000
revolving credit facility (the "Existing Revolving Credit Facility"), two term
loan facilities (the "Term Loans") aggregating $29,300, and a $10,700 enhanced
letter of credit guaranteeing the repayment of industrial development revenue
bonds. The funding occurred contemporaneously with Holdings issuance of $12,000
of preferred stock (see Note 14). Refinancing costs of $1,412 were incurred as a
result of the transaction. These costs have been deferred and are being
amortized over the life of the new debt agreements. The unamortized deferred
financing costs of $1,687 related to the prior debt agreements were written off
as a result of the refinancing transaction and are reflected as an extraordinary
charge in 1996 operating results, net of $692 income tax benefit.
The Credit Facility is secured by substantially all of the Company's assets.
Under the terms of the Credit Facility, the Company is required to comply with
various operational and financial covenants, including minimum EBITDA, minimum
fixed charge coverage, total interest coverage and maximum leverage ratio.
In addition, the Credit Facility places limitations on the Company's capital
expenditures in any fiscal year, restricts its ability to pay dividends,
requires the Company to obtain the lenders consent to certain acquisitions and
contains mandatory prepayment provisions which include prepayments from the sale
of the Company's stock and 50% of excess cash flow, as defined.
The Existing Revolving Credit Facility, which matures September 30, 2000,
provides for maximum borrowings of up to $40,000, subject to certain collateral
maintenance requirements. Amounts available under the Existing Revolving Credit
Facility are based upon a formula related to the Company's eligible accounts
receivable and inventories. Unused borrowings available under the formula at
March 29, 1997 are $10,979. Interest rates are based on the prime rate, plus the
applicable margin, or, at the Company's discretion, the LIBOR rate, plus the
applicable margin. Interest on outstanding balances under the Existing Revolving
Credit Facility is payable monthly in arrears except LIBOR-based elections,
which are payable quarterly in arrears. The applicable interest rate margin is
determined on the first day of each
F-10
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
fiscal quarter based on the Company's leverage ratio, as defined. The rates in
effect at March 29, 1997 ranged from 8.0% to 8.22% based on LIBOR.
A commitment fee of 0.5% per annum payable monthly in arrears is required on
the unused portion of the Existing Revolving Credit Facility. At March 29, 1997,
borrowings outstanding under the Existing Revolving Credit Facility were
$24,627.
The Term Loans consist of Term Loan A in original principal amount of
$16,000, payable in 20 quarterly installments, and Term Loan B in original
principal amount of $13,300, payable in 28 quarterly installments. The Term
Loans bear interest at variable rates based upon prime or LIBOR, at the
Company's election. Interest based on prime is payable monthly; interest based
on LIBOR is payable quarterly. The rates in effect at March 29, 1997 for Term
Loan A and Term Loan B ranged from 8.04% to 8.54% based on LIBOR.
During fiscal 1995, the Company entered into a loan agreement with the South
Carolina Jobs Economic Development Authority which provides for borrowings up to
$10,700 under two industrial development revenue bonds (the "Bonds" or "IRBs").
The proceeds from the Bonds are restricted for working capital requirements and
capital expenditure purposes. As of March 29, 1997, $7,367 of the proceeds has
been expended, and the remaining $3,901 (including accumulated interest of $568)
is invested by the trustee in marketable securities.
The Bonds are secured by an irrevocable direct-pay letter of credit issued
by one of the Company's lenders. The letter of credit is equal to the aggregate
principal amounts of the Bonds plus not less than thirty-five days' interest
thereon, calculated at 15% per annum ($10,854). The provisions of the agreement
require the Company to pay a fee of 2.5% per annum on the outstanding amount of
the letter of credit. The Company's obligation to its lender is secured pursuant
to the provisions of the Credit Facility.
F-11
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
The term notes payable under the Credit Facility and the Bonds consist of
the following:
MARCH 29, MARCH 30,
1997 1996
----------- -----------
CREDIT FACILITY
Term Loan A, payable in quarterly installments of $250, commencing January 1, 1996,
increasing annually thereafter to $1,500 from January 1, 2000 with final payment due
October 1, 2000; bears interest at variable rates, payable monthly and quarterly for
prime and LIBOR-based elections, respectively............................................ $ 14,500 $ 15,750
Term Loan B, payable in quarterly installments of $62.5 from January 1, 1996 to October 1,
2000 and $1,506.25 from January 1, 2001 with final payment due September 30, 2002; bears
interest at variable rates, payable monthly and quarterly for prime and LIBOR-based
elections, respectively.................................................................. 12,988 13,238
INDUSTRIAL DEVELOPMENT REVENUE BONDS
Series 1994 A due in annual installments of $180 beginning September 1, 2006, graduating to
$815 on September 1, 2014 with final payment due on September 1, 2017; bears interest at
a variable rate, payable monthly......................................................... 7,700 7,700
Series 1994 B due in annual installments of $240 beginning September 1, 1998 graduating to
$420 on September 1, 2002 with final payment of $360 due on September 1, 2006; bears
interest at a variable rate, payable monthly............................................. 3,000 3,000
----------- -----------
38,188 39,688
Less current portion....................................................................... 2,500 1,500
----------- -----------
$ 35,688 $ 38,188
----------- -----------
----------- -----------
Maturities of long-term debt during each of the following five fiscal years
and thereafter are as follows:
1998............................................................... $ 2,500
1999............................................................... 3,740
2000............................................................... 4,990
2001............................................................... 6,434
2002............................................................... 6,265
Thereafter......................................................... 14,259
---------
Total.............................................................. $ 38,188
---------
---------
F-12
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. OBLIGATIONS UNDER CAPITAL LEASES
Machinery and equipment additions under capital leases amounted to $804 in
fiscal 1997, $2,085 in fiscal 1996 and $1,286 in fiscal 1995. The average
imputed rate of interest on these leases is 8.7%, 8.7% and 10.1% in fiscal year
1997, 1996, and 1995, respectively. The aggregate present value of future
minimum lease payments under these leases at March 29, 1997 are as follows:
1998................................................................ $ 1,325
1999................................................................ 1,494
2000................................................................ 676
2001................................................................ 279
2002................................................................ 235
Thereafter.......................................................... 457
---------
Total............................................................... 4,466
Less current portion................................................ 1,325
---------
Obligations under capital leases, net of current portion............ $ 3,141
---------
---------
7. PENSION PLANS
The Company has noncontributory defined benefit pension plans covering union
employees in its Heim division Fairfield, Connecticut plant and its RBC division
West Trenton, New Jersey plant. The Company annually contributes to the plans an
amount that is actuarially determined to provide the plans with sufficient
assets to meet future benefit payment requirements. Plan assets are comprised
primarily of U.S. government securities, corporate bonds, and stocks. The plans
provide benefits of stated amounts based on an employees years of service.
F-13
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. PENSION PLANS (CONTINUED)
The funded status of the union plans is as follows:
HEIM WEST TRENTON
------------------------ ------------------------
MARCH 29, MARCH 30, MARCH 29, MARCH 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligation.......................................... $ 5,127 $ 5,069 $ 4,404 $ 4,380
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Accumulated benefit obligation..................................... $ 5,128 $ 5,070 $ 4,434 $ 4,380
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit obligation....................................... $ 5,128 $ 5,070 $ 4,434 $ 4,380
Plan assets at fair value.......................................... 5,000 4,776 4,738 4,337
----------- ----------- ----------- -----------
Projected benefit obligation in excess of plan assets.............. (128) (294) 304 (43)
Unrecognized net gain.............................................. (530) (243) (360) (166)
Unrecognized prior service cost.................................... 270 301 76 87
----------- ----------- ----------- -----------
Accrued pension liability.......................................... $ (388) $ (236) $ 20 $ (122)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Benefits under the union plans are not a function of employees salaries,
thus, the accumulated benefit obligation equals the projected benefit
obligation.
The plan's pension expense for the fiscal years ended is as follows:
MARCH 29, MARCH 30, APRIL 1,
1997 1996 1995
----------- ----------- -----------
Service cost................................................. $ 291 $ 264 $ 240
Interest cost................................................ 680 663 655
Actual return on plan assets................................. (757) (612) (594)
Net amortization and deferrals............................... 41 11 11
----- ----- -----
Total pension expense........................................ $ 255 $ 326 $ 312
----- ----- -----
----- ----- -----
The assumptions used in determining the funded status information were as
follows:
1997 1996 1995
----- ----- -----
Discount rate............................................................ 7.5% 7.5% 8.0%
Expected long-term rate of return on plan assets......................... 8.5% 8.5% 8.0%
The Company recognized a minimum pension liability of $0 and $58 at March
29, 1997 and March 30, 1996, respectively, for the Heim and West Trenton union
pension plans, which represents the excess of the accumulated benefit
obligations over plan assets. A corresponding amount is recognized as an
intangible asset to the extent of previously unrecognized prior service cost ($0
and $58, at March 29, 1997 and March 30, 1996, respectively).
F-14
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. PENSION PLANS (CONTINUED)
During 1997, the Company decided to terminate the West Trenton Union Pension
Plan effective May 31, 1997. The distribution of the plan assets is expected to
take place during fiscal 1998, pending Internal Revenue Service approval. In
1997, the Company recorded a $500 charge in connection with the termination.
In addition, the Company has a salary reduction plan under Section 401(k)
of the Internal Revenue Code for all of its employees not covered by a
collective bargaining agreement. The plan is funded by participants through
employee contributions and by Company contributions equal to a percentage of
eligible employee's compensation. Employer contributions under this plan
amounted to $386, $394 and $385 in fiscal 1997, 1996 and 1995, respectively.
Effective September 1, 1996 the Company adopted a non-qualified supplemental
retirement plan ("SERP") for a select group of highly compensated and management
employees designated by the Board of Directors of the Company. The SERP allows
eligible employees to elect to defer until termination of their employment the
receipt of up to 25% of their current salary. The Company makes contributions
equal to the lesser of 50% of the deferrals or 3.5% of the employees annual
salary, which vest in full after three years of service following the effective
date of the SERP. Expenses in connection with the SERP were not material during
1997.
8. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company offers certain postretirement health care and life insurance
benefits to employees covered by collective bargaining contracts who retire
after attaining specific age and service requirements. The Company adopted SFAS
No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions in
fiscal 1996 but had previously recorded the contractual liability due to
purchase accounting and as part of its decision to restructure certain
operations; thus, the adoption of SFAS No. 106 had an immaterial effect on the
Company's financial statements. SFAS No. 106 requires that the projected future
cost of providing postretirement benefits be recognized as an expense as
employees render service instead of when benefits are paid.
Heim and West Trenton sponsor contributory defined benefit health care plans
that provide postretirement medical benefits to union employees who have worked
10 years and attained age 55 and 60,
F-15
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
respectively, while in service with the Company. The plans are unfunded and
costs are paid as incurred. Postretirement benefit obligations are included in
Other noncurrent liabilities.
HEIM WEST TRENTON
------------------------ ------------------------
MARCH 29, MARCH 30, MARCH 29, MARCH 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 482 $ 758 $ 389 $ 933
Eligible active participants................................... 239 241 61 68
Other active participants...................................... 87 136 159 254
Unrecognized net actuarial (loss)/gain............................. 389 9 564 (44)
Unrecognized prior service cost.................................... 710 818 -- --
----------- ----------- ----------- -----------
Accrued postretirement benefit obligation.......................... $ 1,907 $ 1,962 $ 1,173 $ 1,211
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The net periodic postretirement benefit cost for the fiscal years ended is
as follows:
MARCH 29, MARCH 30, APRIL 1,
1997 1996 1995
------------- ----------- -----------
Service cost................................................. $ 15 $ 28 $ 34
Interest cost................................................ 127 229 243
Prior service cost amortization.............................. (108) (18) --
--- ----- -----
$ 34 $ 239 $ 277
--- ----- -----
--- ----- -----
The Company has contractually capped its liability for certain groups of
future retirees. As a result, there is no health care trend associated with
these groups. For certain grandfathered retirees, the assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
is 5% for fiscal year 1997 for the Heim and West Trenton plans. The effect of a
1% annual increase in the assumed cost trend rate would increase the accumulated
postretirement benefit obligation by approximately 2.4% for the Heim and West
Trenton plans; the annual service and interest cost components in the aggregate
would not be materially affected. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%, 7.5% and 8.0% for fiscal
1997, 1996 and 1995, respectively, for the Heim and West Trenton plans.
F-16
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. INCOME TAXES
The Company's effective income tax rate is reconciled to the U.S. Federal
statutory tax rate as follows:
FISCAL YEARS ENDED
-----------------------------------------------------
MARCH 29, 1997 MARCH 30, 1996 APRIL 1, 1995
----------------- ----------------- ---------------
Federal statutory tax rate..................... 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit...................................... 5.0% 6.9% 7.0%
Amortization of goodwill and other............. 2.0% 7.4% 11.7%
--- --- ---
41.0% 48.3% 52.7%
--- --- ---
--- --- ---
The income tax provision (benefit) consists of:
FISCAL YEARS ENDED
-------------------------------------
MARCH 29, MARCH 30, APRIL 1,
1997 1996 1995
----------- ----------- -----------
Current:
Federal.................................................. $ 1,351 $ (404) $ 590
State.................................................... 939 -- 87
----------- ----------- -----
2,290 (404) 677
----------- ----------- -----
Deferred..................................................... 934 2,104 (567)
----------- ----------- -----
Total.................................................... $ 3,224 $ 1,700 $ 110
----------- ----------- -----
----------- ----------- -----
The net deferred tax asset consists of the following:
MARCH 29, MARCH 30,
1997 1996
----------- -----------
Net operating loss carryforward........................................ $ -- $ 2,744
Alternative minimum tax carryforward................................... 3,138 1,979
Postretirement benefits................................................ 1,347 1,301
Employee compensation accruals......................................... 980 995
Property, plant and equipment.......................................... (3,030) (3,066)
Amortizable excess purchase price...................................... (362) (362)
Other, net............................................................. (1,120) (1,704)
----------- -----------
Net deferred tax asset................................................. $ 953 $ 1,887
----------- -----------
----------- -----------
10. STOCKHOLDER'S EQUITY
The Company has 100 shares of Common Stock par value $.01 per share
outstanding which is owned by Holdings. The additional paid-in capital of the
Company has been derived from the purchase by Holdings of the Company described
in Note 1.
F-17
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCKHOLDER'S EQUITY (CONTINUED)
All issuances and redemptions of equity by Holdings are shown on the
financial statements of the Company as dividends paid and capital contributions
from Holdings, since all amounts are contributed to the Company when proceeds
are received or dividended from the Company when amounts are dispersed.
11. COMMITMENTS AND CONTINGENCIES
The Company leases factory facilities under non-cancelable operating leases,
which expire on various dates through October 2000 with rental expense
aggregating $500, $916 and $1,128 in fiscal 1997, 1996 and 1995, respectively.
The Company purchased one of these facilities in March 1996 for approximately
$2,500. In May 1996, the Company purchased another of the formerly leased
factory facilities for $2,100.
The Company also has non-cancelable operating leases for transportation,
computer and office equipment, which expire at various dates through March 2002.
Rental expense for 1997, 1996 and 1995 aggregated $652, $711 and $346,
respectively. The aggregate future minimum lease payments under leases are as
follows:
1998................................................................................. $ 829
1999................................................................................. 750
2000................................................................................. 548
2001................................................................................. 282
2002................................................................................. 11
---------
$ 2,420
---------
---------
The Company enters into government contracts and subcontracts that are
subject to audit by the government. In the opinion of the Company's management,
the results of such audits, if any, are not expected to have a material impact
on the financial statements of the Company.
The Company has a consulting agreement with an affiliate of Aurora which
terminates upon the date on which Aurora ceases to own more than 5% of Holdings
outstanding Class A common stock. The agreement provides for payments by the
Company in exchange for advisory and consulting services.
There are various claims and legal proceedings against the Company relating
to its operations in the normal course of business, none of which the Company
believes is material. The Company currently maintains insurance coverage for
product liability claims. The Company is subject to various federal, state and
local environmental laws, ordinances and regulations. The Company believes it is
currently in substantial compliance with all applicable requirements of
environmental laws. State agencies are currently overseeing investigation and/or
remediation activities at various Company facilities. In addition, the previous
owners of certain facilities are undertaking cleanup, and limited remediation,
in each case in fulfillment of certain indemnification obligations.
F-18
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. OTHER EXPENSE, NET OF OTHER INCOME
Other expense, net of other income is comprised of the following:
FISCAL 1997 FISCAL 1996 FISCAL 1995
----------- ----------- -----------
Amortization of goodwill and certain intangible assets...................... $ 578 $ 670 $ 798
Management consulting fees.................................................. 429 400 400
Royalty income.............................................................. (83) (192) (48)
Other (income)/expense...................................................... 49 85 (93)
Pension termination......................................................... 500 -- --
Environmental remediation................................................... -- 425 --
----------- ----------- -----------
$ 1,473 $ 1,388 $ 1,057
----------- ----------- -----------
----------- ----------- -----------
13. DOWNSIZING OF OPERATIONS RESERVE
The Company recorded a restructuring reserve during 1994 for costs
associated with the decision to restructure and downsize its operations. As a
result of this decision, the Company recorded a charge to operations of
approximately $7,500 related to employee severance costs; estimated loss on
machinery and equipment disposal; inventory and other cost; and health care and
life insurance benefits related to certain retired employees. During 1995, due
to changes in the business, the restructuring took a different form resulting in
a reallocation of the $7,500 as follows: employee severance and health care and
life insurance benefits of $2,000; inventory obsolescence related to the
restructuring of $3,500; and facility-related costs of $2,000. As of March 30,
1996, the reserve was fully utilized for its intended purposes.
F-19
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCKHOLDERS' EQUITY OF ROLLER BEARING HOLDING COMPANY, INC.
The stockholders' equity of Holdings is as follows:
MARCH 29, MARCH 30,
1997 1996
----------- -----------
Series A, nonvoting, 8% cumulative, redeemable exchangeable preferred stock-- $0.01 par
value, authorized 250,000 shares; issued and outstanding shares: 127,533 in fiscal 1997
and 1996 with a redemption value aggregating $18,665 in 1997............................. $ 1 $ 1
Series B, nonvoting, 8% cumulative, redeemable exchangeable preferred stock-- $0.01 par
value, authorized 200,000 shares; issued and outstanding shares: 109,818 in fiscal 1997
and 1996 with a redemption value aggregating $12,353 in 1997............................. 1 1
Series C, nonvoting, 8% cumulative, convertible redeemable exchangeable preferred stock;
$0.01 par value; authorized 20,000 shares; issued and outstanding shares: 10,182 in 1997
and 1996 with a redemption value aggregating $1,145 in 1997.............................. -- --
Class A, voting common stock--$0.01 par value; authorized 300,000 shares, issued and
outstanding shares: 113,772 in 1996 and 1995............................................. 1 1
Class B, nonvoting common stock--$0.01 par value; authorized 100,000 shares, none issued... -- --
Additional paid-in capital................................................................. 34,714 34,679
Retained earnings (deficit)................................................................ 2,690 (1,950)
Treasury Stock of 350 shares, at cost...................................................... (35) --
----------- -----------
Total stockholders' equity................................................................. $ 37,372 $ 32,732
----------- -----------
----------- -----------
PREFERRED STOCK
On September 22, 1995, Holdings completed a private placement of $12,000 of
its preferred stock. In September 1995, Holdings restated its certificate of
incorporation to authorize 600,000 shares, $0.01 par value, $100 stated value
per share, of preferred stock and to designate the following series (pursuant to
the completion of the proposed transaction as described in Note 15, the
following series will be redeemed):
SERIES A REDEEMABLE EXCHANGEABLE CUMULATIVE (SERIES A PREFERRED STOCK)
The Series A Preferred Stock carries cumulative dividends, at an annual rate
of 8% per share from date of issuance, payable annually at the discretion of
Holdings and an additional dividend of 8% per annum in arrears on unpaid
dividends. The Series A Preferred Stock is redeemable, in whole or in part, at
the option of Holdings at $100 per share plus any accrued but unpaid dividends.
The Series A Preferred Stock plus cumulative unpaid dividends is exchangeable
into a debt instrument of Holdings due March 31, 2004 at the sole option of
Holdings. However, if the terms of the debentures are less favorable than the
preferred stock, approval by holders of 66-2/3% of the preferred stock is
required. Undeclared dividends were $1,020 (1997) and $1,020 (1996) and
cumulative dividends of $5,912 were undeclared as of March 29, 1997. Cumulative
undeclared dividends include dividends on dividend arrearages of $815, $488 and
$243 for each of the years ended March 29, 1997, March 30, 1996 and April 1,
1995, respectively.
F-20
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCKHOLDERS' EQUITY OF ROLLER BEARING HOLDING COMPANY, INC. (CONTINUED)
The Series A Preferred Stock is mandatorily redeemable if dividends are
undeclared and unpaid for 12 consecutive years, upon change in ownership of
Holdings, or sale of substantially all of the assets of Holdings. During 1995,
Holdings repurchased 237 shares of preferred stock and accrued dividends for $24
and sold 813 shares of preferred stock held in treasury to two employees of
Holdings for $86.
On March 31, 1992, stockholders of the predecessor company received 20,000
shares of the Series A Preferred Stock which are held in an escrow account to
collateralize an environmental indemnification pursuant to the purchase
agreement. These shares contain restrictive transfer rights and revert to
Holdings in the event of payments made by RBC for indemnified environmental
claims. All remaining shares held in the escrow account at March 31, 2004 will
be released to the stockholders.
SERIES B REDEEMABLE EXCHANGEABLE CUMULATIVE (SERIES B PREFERRED STOCK)
The Series B Preferred Stock was issued on September 22, 1995. The holder of
this preferred stock becomes entitled to receive a dividend on the last business
day of March of each year. The Series B Preferred Stock carries cumulative
dividends at an annual rate of 8% per share from date of issuance, payable
annually at the discretion of Holdings plus an additional dividend at 8% per
annum on unpaid dividends. Undeclared dividends were $879 (1997) and $456 (1996)
and cumulative dividends of $1,371 were undeclared as of March 29, 1997.
Cumulative undeclared dividends include dividends on dividend arrearages of $36
for the year ended March 29, 1997.
The Series B Preferred Stock is redeemable, in whole or in part, at the
option of Holdings at $100 per share plus accrued but unpaid dividend amounts.
The Series B Preferred Stock is mandatorily redeemable in full if dividends are
unpaid for 12 consecutive years, upon change in ownership of Holdings, sale of
substantially all the assets of Holdings, or upon the effective registration of
Holdings common stock. In lieu of redeeming the Series B Preferred Stock upon an
effective registration of Holdings common stock, up to 80% of the outstanding
Series B Preferred Stock is exchangeable, at the sole option of Holdings, into a
debt instrument due on the tenth anniversary of the date of exchange. However,
if the terms of the debentures are less favorable than the preferred stock,
approval by holders of 66-2/3% of the preferred stock is required. If Holdings
calls the preferred stock for exchange on or before September 22, 2005, the
percentage of the outstanding Series B Preferred Stock that will be exchangeable
will not be 80% but a lesser amount as determined by a formula.
SERIES C CONVERTIBLE REDEEMABLE EXCHANGEABLE CUMULATIVE (SERIES C PREFERRED
STOCK)
The Series C Preferred Stock was issued on September 22, 1995. The holder of
this preferred stock becomes entitled to receive a dividend on the last business
day of March of each year. The Series C Preferred Stock carries cumulative
dividends at an annual rate of 8% per share from the date of issuance, payable
annually at the discretion of Holdings plus an additional 8% per annum on unpaid
dividends. Undeclared dividends were $82 (1997) and $42 (1996) and cumulative
dividends of $127 were undeclared as of March 29, 1997. Cumulative undeclared
dividends include dividends on dividend arrearages of $3 for the year ended
March 29, 1997.
The Series C Preferred Stock carries the same optional and mandatory
redemption features and optional exchange feature as the Series B Preferred
Stock, except that the 80% of the outstanding Series C Preferred Stock is not
exchangeable into a debt instrument until after September 22, 2005.
F-21
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCKHOLDERS' EQUITY OF ROLLER BEARING HOLDING COMPANY, INC. (CONTINUED)
The Series C Preferred Stock is convertible, in whole or in part, at the
holders election at any time prior to the close of business on September 22,
2005, into fully paid and nonassessable shares of Holdings Class A common stock
at a conversion rate of one share of Class A common stock for each $100 of
stated value of Series C Preferred Stock. The conversion rate is subject to
adjustment in the event of an affiliate issuance of shares of common stock,
options, warrants, or other rights to acquire shares of common stock;
subdivision or combination of the outstanding shares of common stock; or if
Holdings consummates a reorganization or recapitalization of its common stock.
Upon the conversion of the shares of Series C Preferred Stock into Class A
common stock, the holder shall be issued shares of Series B Preferred Stock
having an aggregate stated value equal to the aggregate amount of accrued and
unpaid dividends on the Series C Preferred Stock to the date of conversion.
Holdings has reserved 30,000 shares of its Class A common stock for issuance
upon the conversion of the Series C Preferred Stock.
WARRANTS
Holdings has issued warrants to purchase shares of Class A common stock.
Warrants issued to the Company's management become vested and are exercisable in
one-third annual increments commencing on the date of award. All other warrants
are vested immediately. All warrants expire ten years from the date of issuance.
Activity in fiscal 1997, 1996 and 1995 is as follows:
NUMBER
OF CLASS A
COMMON
SHARES
-----------
Outstanding, April 2, 1994.................................................................. 17,152.4
Awarded fiscal 1995......................................................................... 2,000.0
-----------
Outstanding, April 1, 1995.................................................................. 19,152.4
Awarded fiscal 1996......................................................................... 500.0
-----------
Outstanding, March 30, 1996................................................................. 19,652.4
Awarded fiscal 1997......................................................................... 150.0
Redeemed fiscal 1997........................................................................ (350.0)
-----------
Outstanding, March 29, 1997................................................................. 19,452.4
-----------
-----------
At March 30, 1996, of the outstanding warrants to purchase shares of Class A
common stock, 14,852.4 were held by management of the Company. The exercise
price per share is $100 on all outstanding warrants except 9,977.4 shares which
have an exercise price of $76.57 per share.
In March 1992, Holdings lender received warrants to purchase 6,249 shares of
Holdings Class B common stock at an exercise price of $100 per share.
Subsequently, 1,524.1 of these warrants which are exercisable and expire on
March 31, 2002 were sold. Holdings redeemed the remaining 4,724.9 warrants for
$1,000 in September 1995 in conjunction with its refinancing transaction (see
Note 5).
F-22
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SUBSEQUENT EVENT
A. THE PROPOSED OFFERING
On May 20, 1997, pursuant to a Redemption and Warrant Purchase Agreement
(the Recapitalization Agreement), RBC Equity Partners, L.P. and, PRBC Investment
Partners, L.P. (collectively, the Initial Selling Group and, together with all
non-management stockholders and warrantholders (in the case of Stanley
Sanderson, only as to a portion of his interest) and certain members of
management of Holdings (as to a portion of such individuals interests), the
Selling Group), Holdings and Dr. Hartnett, as purchaser representative, agreed
to consummate a recapitalization of Holdings (the Recapitalization). As a result
of the Recapitalization, outstanding shares of Holdings common stock and
preferred stock, (respectively, the Common Stock and the Preferred Stock) held
by members of the Selling Group will be purchased by Holdings. Following the
Recapitalization, members of management of the Company (who currently own
approximately 5% of the outstanding Common Stock (approximately 14% on a fully
diluted basis)), certain other current stockholders and warrantholders of
Holdings, certain affiliates of Credit Suisse First Boston Corporation (the
Initial Purchaser), OCM Principal Opportunities Fund, L.P. (or an affiliate
thereof) (Oaktree), another investor (together with Oaktree, the Discount
Purchasers) and Mitchell Quain will own all of the outstanding capital stock of
Holdings, and Dr. Hartnett will own approximately 51% (approximately 42% on a
fully diluted basis) of the outstanding capital stock of Holdings. In addition,
through the operation of provisions in the certificate of incorporation of
Holdings, whether or not Dr. Hartnett owns a majority of the outstanding capital
stock of Holdings, he will have, subject to certain limitations, the power to
control a majority of the voting rights of all capital stock of Holdings.
Effective upon consummation of the above transactions, Dr. Hartnett will enter
into an employment agreement with the Company containing covenants restricting
competition with the Company.
The Recapitalization Agreement provides for the redemption by Holdings of
shares of Common Stock held by members of the Selling Group for consideration of
$514 per share (the Common Consideration), and of shares of Series A Preferred
Stock of Holdings for consideration equal to the stated value of such stock
($100 per share) plus any accrued but unpaid dividends to the date of
redemption. Additionally, Holdings will purchase from members of the Selling
Group, warrants to purchase Common Stock (the Common Stock Purchase Warrants)
held by such member in exchange for $414 per share underlying such Common Stock
Purchase Warrants (the Common Consideration less the exercise price per share of
the Common Stock Purchase Warrants).
The Recapitalization Agreement contains representations and warranties of
all members of the Selling Group, including as to their ownership of the Common
Stock, Preferred Stock and Common Stock Purchase Warrants held by such members,
their authority to enter into the transaction and that no conflicts or
litigation exist with respect to their consummation of such transactions, and of
Holdings, as to authorization, conflicts, consents and regarding the proposed
financing for the Recapitalization.
The Recapitalization Agreement provides for covenants of the parties as to
conduct of the business of the Company, taking action to promote and not to
hinder the consummation of the Recapitalization, distribution of certain
information to members of the Selling Group, meetings of the Board of Directors
and stockholders of Holdings, granting certain members of management the right
to act on behalf of Holdings regarding payment of certain expenses relating to
the Recapitalization and certain indemnification matters.
F-23
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SUBSEQUENT EVENT (CONTINUED)
The closing of the Recapitalization is conditioned on, among other things,
the representations of the parties being true on the closing date, the covenants
of the parties having been performed by such date, the provision of certain
releases, the obtaining by Holdings of all necessary appraisals and valuations
of the Company requested by the parties or otherwise required in connection with
the Recapitalization and the successful consummation of the financings necessary
to complete the Recapitalization and the satisfaction of all conditions
precedent thereto.
The Company has reached agreement in principle that GE Private Placement
Partners I, Limited Partnership (GELP), the holder of all of the outstanding
Series B Preferred Stock and Series C Preferred Stock of Holdings (respectively,
the Series B Preferred Stock and the Series C Preferred Stock) whereby GELP will
agree to join the Recapitalization Agreement and Holdings will redeem all of the
Series C Preferred Stock held by GELP for $514 per share (after payment of all
accrued dividends thereon) and all of the Series B Preferred Stock held by GELP
for the stated value of such stock ($100 per share) plus all accrued and unpaid
dividends thereon through the date of the closing of the Recapitalization.
In connection with the Recapitalization, through an assignment of Holdings
rights under Recapitalization Agreement, (i) Dr. Hartnett will purchase from
Indosuez Roller Bearing Partners (IRBP) 2,376 shares of Common Stock for $514
per share, (ii) certain affiliates of the Initial Purchaser will purchase 350
Common Stock Purchase Warrants and 253 shares of Common Stock from Mr.
Gostomski, an officer of the Company, 803 Common Stock Purchase Warrants and 500
shares of Common Stock from Mr. Morlok, an officer of the Company, 150 Common
Stock Purchase Warrants from IRBP, 535 Common Stock Purchase Warrants from Mr.
Myers and 250 Common Stock Purchase Warrants from Stanley Sanderson, in each
case, for $414 per share of Common Stock underlying the Common Stock Purchase
Warrants and $514 per share of Common Stock, (iii) Oaktree will purchase 1,322
Common Stock Purchase Warrants and 1,400 shares of Common Stock from Mr. Morlok
for $414 per share of Common Stock underlying the Common Stock Purchase Warrants
and $514 per share of Common Stock, (iv) Mr. Larsen will purchase 10 Common
Stock Purchase Warrants from Ann Ruple and 90 Common Stock Purchase Warrants
from William Myers for $414 per share of Common Stock underlying the Common
Stock Purchase Warrants, (v) Mr. Quain will purchase 60 shares of Common Stock
from Mr. Morlok and 140 Common Stock Purchase Warrants from Ms. Ruple for $514
per share of Common Stock and $414 per share of Common Stock underlying the
Common Stock Purchase Warrants, (vi) the Sommers Family Trust (whose holdings
are beneficially owned by Christopher Sommers, an officer of the Company) will
purchase 270 shares of Common Stock from Mr. Morlok for $514 per share, and
(vii) Mr. Morrison, an officer of the Company, will purchase 20 shares of Common
Stock from Mr. Morlok for $514 per share.
To finance the Recapitalization, RBC will enter into bank credit facilities
(the Senior Credit Facilities) (comprised of $16,000 term loans and a $54,000
revolving credit facility of which approximately $10,900 will be utilized in the
form of letters of credit to be issued upon the closing of the Recapitalization
as security for the IRBs) and will issue the Notes, and Holdings will issue to
the Discount Purchasers the Discount Debentures and the Holdings Warrants
resulting in $40,000 gross proceeds to Holdings.
In connection with effecting the Recapitalization, (i) RBC will pay to
Holdings a dividend (the Dividend) in the amount of approximately $57,700 to
finance the Recapitalization, (ii) using the proceeds of the Dividend and the
issuance of the Discount Debentures, Holdings will redeem Common Stock
(including 375 shares owned by Mr. Morlok) and Preferred Stock and purchase
Common Stock Purchase
F-24
ROLLER BEARING COMPANY OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SUBSEQUENT EVENT (CONTINUED)
Warrants including as described above for aggregate consideration of
approximately $92,500, (iii) Holdings will repurchase 1,250 Common Stock
Purchase Warrants from Dr. Hartnett for an amount per share of Common Stock
underlying the Common Stock Purchase Warrants equal to $514 less the
approximately $77 exercise price of such warrants (an aggregate of approximately
$550), (iv) Holdings will issue Common Stock Purchase Warrants exercisable for
1,250 shares of Common Stock at an exercise price of $514 per share of Common
Stock to Dr. Hartnett, (v) Holdings will loan $500 to Dr. Hartnett (the Hartnett
Loan) to finance a portion of Dr. Hartnett's purchase of Common Stock and Common
Stock Purchase Warrants referred to above, (vi) Holdings will pay to Dr.
Hartnett a fee of $1,000 (the Hartnett Fee), (vii) RBC will repay outstanding
indebtedness (approximately $52,100) on its revolving credit facility and its
term loan both with Heller Financial, Inc., and (viii) RBC and Holdings will pay
certain other fees and expenses ($6,800 and $3,200, respectively) payable in
connection with the Transactions.
In addition, in conjunction with the purchase of the Discount Debentures,
the Discount Purchasers will be issued warrants to acquire an aggregate of 6,682
shares of Common Stock (representing approximately 20% of the
post-Recapitalization Common Stock outstanding on a fully diluted basis) for a
nominal exercise price. In addition, in conjunction with the Recapitalization
Oaktree, one of the Discount Purchasers, will acquire 1,400 shares of Common
Stock and 1,322 Common Stock Purchase Warrants (representing in the aggregate
approximately 8% of the post-Recapitalization Common Stock outstanding on a
fully diluted basis). In addition, the Company has agreed to appoint a
representative of Oaktree to the board of directors of Holdings.
B. RELATED TRANSACTIONS
In connection with the Recapitalization, (i) Holdings will pay to Dr.
Hartnett the Hartnett Fee of $1,000 out of the proceeds from the sale of the
Discount Debentures, which fee is to be paid at the closing of the
Recapitalization, (ii) Holdings will advance the Hartnett Loan in the amount of
$500 to Dr. Hartnett, the proceeds of which Dr. Hartnett will use to purchase
shares of Common Stock from IRBP, which loan will be recourse only to the
securities being purchased with the proceeds thereof, (iii) Holdings will
purchase 1,250 Common Stock Purchase Warrants from Dr. Hartnett for
approximately $437 per share underlying such Common Stock Purchase Warrants and
will issue 1,250 new Common Stock Purchase Warrants to Dr. Hartnett with an
exercise price of $514 per share, (iv) Holdings will redeem shares of Common
Stock held by members of the Selling Group and all outstanding shares of
Preferred Stock (including shares of Common Stock and Preferred Stock owned by
members of management) and (v) Holdings and the other parties will consummate
the transactions set forth under Note 15.A.
Concurrently with the Recapitalization, through the operation of provisions
to be incorporated into the certificate of incorporation of Holdings, whether or
not Dr. Hartnett owns a majority of the outstanding capital stock of Holdings,
he will have, subject to certain limitations, the power to control a majority of
the voting rights of all capital stock of Holdings. Such right will be suspended
for such periods as Dr. Hartnett ceases to serve as an officer of the Company,
or any successor thereto, or owns less than 50% of the outstanding Common Stock
on a fully diluted basis that be owned immediately following the
Recapitalization.
F-25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SUBSIDIARY GUARANTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary.............................. 4
The Exchange Offer.............................. 9
Description of Exchange Notes................... 10
Risk Factors.................................... 15
Use of Proceeds................................. 23
Capitalization.................................. 23
Selected Consolidated Historical Financial
Information................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 32
Management...................................... 47
Securities Ownership of Certain Beneficial
Owners and Management......................... 54
Certain Relationships and Related
Transactions.................................. 57
The Exchange Offer.............................. 59
Description of Certain Indebtedness............. 68
Description of the Notes........................ 70
Plan of Distribution............................ 102
Legal Matters................................... 103
Experts......................................... 103
Independent Auditors............................ 103
Available Information........................... 103
------------------------
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT 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.
ROLLER BEARING COMPANY OF
AMERICA, INC.
AND SUBSIDIARIES
$110,000,000
OFFER TO EXCHANGE 9 5/8%
SENIOR SUBORDINATED NOTES DUE 2007,
SERIES B
FOR 9 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("DGCL"), the
Registrants have broad powers to indemnify their directors, officers and other
employees. This section (i) provides that the statutory indemnification and
advancement of expenses provisions of the DGCL are not exclusive, provided that
no indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith, (ii) establishes
procedures for indemnification and advancement of expenses that may be contained
in the by-laws, or set forth in a resolution of the stockholders or the
disinterested directors or an agreement providing for indemnification and
advancement of expenses, (iii) applies a single standard for statutory
indemnification for third-party and derivative suits by providing that
indemnification is available if the director or officer acted in good faith, for
a purpose which he reasonably believed to be in the best interests of the
corporation, and, in criminal actions, had no reasonable cause to believe that
his conduct was unlawful, and (iv) permits the advancement of litigation
expenses upon receipt of an undertaking to repay such advance if the director or
officer is ultimately determined not to be entitled to indemnification or to the
extent the expenses advanced exceed the indemnification to which the director or
officer is entitled. Section 145(g) of the DGCL permits the purchase of
insurance to indemnify a corporation or its officers and directors to the extent
permitted.
As permitted by Section 145(e) of the DGCL, the By-laws of each of ITB, LPP
and Nice, and the Certificate of Incorporation of RBC provide that the
Registrants shall indemnify their respective officers and directors, as such, to
the fullest extent permitted by applicable law, and, in the case of LPP and
Nice, that expenses reasonably incurred by any such officer or director in
connection with a threatened or actual action or proceeding shall be advanced or
promptly reimbursed by the Registrant in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if and to the extent that it is
ultimately determined that such officer or director is not entitled to
indemnification.
Article Seventh of the Certificate of Incorporation of ITB provides that no
director of ITB shall be personally liable to ITB or its stockholders for
monetary damages for breaches of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to ITB or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Eighth of the Certificates of Incorporation
of each of RBC, LPP and Nice provide that to the fullest extent allowed under
the DGCL no director shall be liable to such corporations or its stockholders
for a breach of his or her fiduciary duty as a director.
II-1
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation, dated June 23, 1997, of Roller Bearing Company
of America, Inc.
3.2* By laws of Roller Bearing Company of America, Inc.
4.1* Indenture, dated as of June 15, 1997 between the Company and the Trustee with forms of Outstanding Note
and Exchange Note.
4.2* Registration Rights Agreement dated June 17, 1997 between the Company, the Subsidiary Guarantors and the
Initial Purchaser.
5.1* Opinion of McDermott, Will & Emery regarding the legality of the securities being registered.
10.1* Purchase agreement, dated June 17, 1997 among the Company and the Subsidiary Guarantors and the Initial
Purchaser (the "Purchase Agreement").
10.2* Redemption and Warrant Purchase Agreement by and among Roller Bearing Holding Co., Inc., Certain
Stockholders of Roller Bearing Holding Co., Inc., and Michael J. Hartnett as purchaser representative
dated as of May 20, 1997 as amended by that certain Amendment No. 1 dated as of June 23, 1997 by and
among Roller Bearing Holding Co., Inc., Certain Stockholders of Roller Bearing Holding Co., Inc., and
Michael J. Hartnett as purchaser representative.
10.3* Credit Agreement dated as of June 23, 1997, among Roller Bearing Company of America, Inc., the Lenders
and Credit Suisse First Boston as Administrative Agent.
10.4* Asset Purchase Agreement by and among BFM Aerospace Corporation, Ground Support, Inc., RBC Transport
Dynamics Corporation and Roller Bearing Holding Company, Inc., dated as of October 26, 1992.
10.5* Asset Purchase Agreement by and among BFM Aerospace Corporation, BFM Transport Dynamics Corporation, RBC
Transport Dynamics Corporation and Roller Bearing Holding Company, Inc., dated as of October 26, 1992.
10.6* Agreement and Plan of Reorganization among Roller Bearing Company of America, Inc., Roller Bearing
Acquisition Company, Inc., Roller Bearing Holding Company, Inc. and the Stockholders of Roller Bearing
Company of America, Inc., dated March 31, 1992.
10.7* Agreement of Merger between Roller Bearing Acquisition Company, Inc. and Roller Bearing Company of
America, Inc., dated March 31, 1992.
10.8* Asset Sale Agreement by and between IMO Industries Inc. and Roller Bearing Company of America, Inc.,
dated as of May 10, 1993.
10.9* Asset Sale Agreement by and between IMO Industries Inc. and Roller Bearing Company of America, Inc.,
dated as of May 10, 1993.
10.10* Asset Purchase Agreement By and Among SKF USA Inc., RBC Nice Bearings, Inc. and Roller Bearing Company
of America, Inc., dated as of February 28, 1997.
10.11* Business Property Lease entered into October 30, 1996 by and between Dana Corporation and BPP
Acquisition for Walterboro, South Carolina premises.
10.12* Lease between General Sullivan Group, Inc. and RBC Bearings, dated July 11, 1995, for West Trenton, New
Jersey premises.
10.13* Lease between Industrial Development Group and Roller Bearing Company of America, Inc., dated March 12,
1996 for Waterbury, Connecticut premises.
10.14* Letter of Credit Agreement, dated as of September 1, 1994, between the Company and Heller Financial, Inc.
* To be filed by amendment.
II-2
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
10.15* Loan Agreement, dated as of September 1, 1994, between the South Carolina Job--Economic Development
Authority, ("the Authority") and the Roller Bearing Company of America, Inc., with respect to the
Series 1994A Bonds.
10.16* Trust Indenture, dated as of September 1, 1994, between the Authority and Mark Twain Bank, ("Trustee"),
with respect to the Series 1994A Bonds.
10.17* Loan Agreement, dated as of September 1, 1994, between the Authority and the Company, with respect to
the Series 1994B Bonds.
10.18* Loan Agreement, dated as of September 1, 1994, between the Authority and the Company, with respect to
the Series 1994B Bonds.
10.19* Trust Indenture, dated as of September 1, 1994, between the Authority and Trustee, with respect to the
Series 1994B Bonds.
10.21* Collective Bargaining Agreement between RBC Heim, the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America, U.A.W., and Amalgamated Local 376, U.A.W., effective
February 1, 1996.
10.22* Collective Bargaining Agreement between Nice Specialty Bearings Division, SKF Bearing Industries and
United Steelworkers of America (AFL--CIO) and its Local 6326, effective October 26, 1996
10.23* Collective Bargaining Agreement between Roller Bearing Company of America, Inc. and the International
Union U.A.W. and its Local 502, effective December 1, 1996.
21 Subsidiaries of the Registrant.
23.1* Consent of McDermott, Will & Emery (contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney for Roller Bearing Company of America (Included on signature page).
24.2 Powers of Attorney for Industrial Tectonics Bearings Corporation (Included on signature page).
24.3 Powers of Attorney for RBC Linear Precision Products, Inc. (Included on signature page).
24.4 Powers of Attorney for RBC Nice Bearings, Inc. (Included on signature page).
25 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule of Roller Bearing Company of America, Inc.
27.2 Financial Data Schedule of Industrial Tectonics Bearings Corporation.
27.3 Financial Data Schedule of RBC Linear Precision Products, Inc.
27.4 Financial Data Schedule of RBC Nice Bearings, Inc.
99* Letter of Transmittal.
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake to do the following.
(a) 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.
(b) Every prospectus: (i) that is filed pursuant to paragraph (a)
immediately preceding; or (ii) that purports to meet the requirements of Section
10(a)(3) of the 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 for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) They will 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.
(d) They will supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Fairfield,
State of Connecticut, on August 6, 1997.
ROLLER BEARING COMPANY
OF AMERICA, INC.
BY: /s/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
the sole director of the Registrant, by virtue of his signature to this
Registration Statement appearing below, hereby constitutes and appoints Michael
J. Hartnett and Anthony S. Cavalieri, or any one of them, with full power of
substitution, as attorneys-in-fact in his name, place and stead to execute any
and all amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, in the capacities set
forth opposite his name and hereby ratifies all that said attorneys-in-fact may
do by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
August 6, 1997 By: /s/ MICHAEL J. HARTNETT
------------------------------------------
Michael J. Hartnett
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
August 6, 1997 By: /s/ STEPHEN A. KAPLAN
------------------------------------------
Stephen A. Kaplan
DIRECTOR
August 6, 1997 By: /s/ ANTHONY S. CAVALIERI
------------------------------------------
Anthony S. Cavalieri
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Fairfield,
State of Connecticut, on August 6, 1997.
INDUSTRIAL TECTONICS
BEARINGS CORPORATION
BY: /S/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
the sole director of the Registrant, by virtue of his signature to this
Registration Statement appearing below, hereby constitutes and appoints Michael
J. Hartnett and Anthony S. Cavalieri, or any one of them, with full power of
substitution, as attorneys-in-fact in his name, place and stead to execute any
and all amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, in the capacities set
forth opposite his name and hereby ratifies all that said attorneys-in-fact may
do by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
August 6, 1997 By: /s/ MICHAEL J. HARTNETT
------------------------------------------
Michael J. Hartnett
SOLE DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
August 6, 1997 By: /s/ ANTHONY S. CAVALIERI
------------------------------------------
Anthony S. Cavalieri
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Fairfield,
State of Connecticut, on August 6, 1997.
RBC LINEAR PRECISION
PRODUCTS, INC.
BY: /S/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
the sole director of the Registrant, by virtue of his signature to this
Registration Statement appearing below, hereby constitutes and appoints Michael
J. Hartnett and Anthony S. Cavalieri, or any one of them, with full power of
substitution, as attorneys-in-fact in his name, place and stead to execute any
and all amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, in the capacities set
forth opposite his name and hereby ratifies all that said attorneys-in-fact may
do by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
August 6, 1997 By: /s/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
SOLE DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
August 6, 1997 By: /s/ ANTHONY S. CAVALIERI
-----------------------------------------
Anthony S. Cavalieri
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Fairfield,
State of Connecticut, on August 6, 1997.
RBC NICE BEARINGS, INC.
BY: /S/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
the sole director of the Registrant, by virtue of his signature to this
Registration Statement appearing below, hereby constitutes and appoints Michael
J. Hartnett and Anthony S. Cavalieri, or any one of them, with full power of
substitution, as attorneys-in-fact in his name, place and stead to execute any
and all amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, in the capacities set
forth opposite his name and hereby ratifies all that said attorneys-in-fact may
do by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
August 6, 1997 By: /s/ MICHAEL J. HARTNETT
-----------------------------------------
Michael J. Hartnett
SOLE DIRECTOR, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
August 6, 1997 By: /s/ ANTHONY S. CAVALIERI
-----------------------------------------
Anthony S. Cavalieri
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
II-7
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation, dated June 23, 1997, of Roller Bearing Company
of America, Inc.
3.2* By laws of Roller Bearing Company of America, Inc.
4.1* Indenture, dated as of June 15, 1997 between the Company and the Trustee with forms of Outstanding Note
and Exchange Note.
4.2* Registration Rights Agreement dated June 17, 1997 between the Company, the Subsidiary Guarantors and the
Initial Purchaser.
5.1* Opinion of McDermott, Will & Emery regarding the legality of the securities being registered.
10.1* Purchase agreement, dated June 17, 1997 among the Company and the Subsidiary Guarantors and the Initial
Purchaser (the "Purchase Agreement").
10.2* Redemption and Warrant Purchase Agreement by and among Roller Bearing Holding Co., Inc., Certain
Stockholders of Roller Bearing Holding Co., Inc., and Michael J. Hartnett as purchaser representative
dated as of May 20, 1997 as amended by that certain Amendment No. 1 dated as of June 23, 1997 by and
among Roller Bearing Holding Co., Inc., Certain Stockholders of Roller Bearing Holding Co., Inc., and
Michael J. Hartnett as purchaser representative.
10.3* Credit Agreement dated as of June 23, 1997, among Roller Bearing Company of America, Inc., the Lenders
and Credit Suisse First Boston as Administrative Agent.
10.4* Asset Purchase Agreement by and among BFM Aerospace Corporation, Ground Support, Inc., RBC Transport
Dynamics Corporation and Roller Bearing Holding Company, Inc., dated as of October 26, 1992.
10.5* Asset Purchase Agreement by and among BFM Aerospace Corporation, BFM Transport Dynamics Corporation, RBC
Transport Dynamics Corporation and Roller Bearing Holding Company, Inc., dated as of October 26, 1992.
10.6* Agreement and Plan of Reorganization among Roller Bearing Company of America, Inc., Roller Bearing
Acquisition Company, Inc., Roller Bearing Holding Company, Inc. and the Stockholders of Roller Bearing
Company of America, Inc., dated March 31, 1992.
10.7* Agreement of Merger between Roller Bearing Acquisition Company, Inc. and Roller Bearing Company of
America, Inc., dated March 31, 1992.
10.8* Asset Sale Agreement by and between IMO Industries Inc. and Roller Bearing Company of America, Inc.,
dated as of May 10, 1993.
10.9* Asset Sale Agreement by and between IMO Industries Inc. and Roller Bearing Company of America, Inc.,
dated as of May 10, 1993.
10.10* Asset Purchase Agreement By and Among SKF USA Inc., RBC Nice Bearings, Inc. and Roller Bearing Company
of America, Inc., dated as of February 28, 1997.
10.11* Business Property Lease entered into October 30, 1996 by and between Dana Corporation and BPP
Acquisition for Walterboro, South Carolina premises.
10.12* Lease between General Sullivan Group, Inc. and RBC Bearings, dated July 11, 1995, for West Trenton, New
Jersey premises.
10.13* Lease between Industrial Development Group and Roller Bearing Company of America, Inc., dated March 12,
1996 for Waterbury, Connecticut premises.
10.14* Letter of Credit Agreement, dated as of September 1, 1994, between the Company and Heller Financial, Inc.
* To be filed by amendment.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
10.15* Loan Agreement, dated as of September 1, 1994, between the South Carolina Job--Economic Development.
Authority, ("the Authority") and the Roller Bearing Company of America, Inc., with respect to the
Series 1994A Bonds.
10.16* Trust Indenture, dated as of September 1, 1994, between the Authority and Mark Twain Bank, ("Trustee"),
with respect to the Series 1994A Bonds.
10.17* Loan Agreement, dated as of September 1, 1994, between the Authority and the Company, with respect to
the Series 1994B Bonds.
10.18* Loan Agreement, dated as of September 1, 1994, between the Authority and the Company, with respect to
the Series 1994B Bonds.
10.19* Trust Indenture, dated as of September 1, 1994, between the Authority and Trustee, with respect to the
Series 1994B Bonds.
10.21* Collective Bargaining Agreement between RBC Heim, the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America, U.A.W., and Amalgamated Local 376, U.A.W., effective
February 1, 1996.
10.22* Collective Bargaining Agreement between Nice Specialty Bearings Division, SKF Bearing Industries and
United Steelworkers of America (AFL--CIO) and its Local 6326, effective October 26, 1996.
10.23* Collective Bargaining Agreement between Roller Bearing Company of America, Inc. and the International
Union U.A.W. and its Local 502, effective December 1, 1996.
21 Subsidiaries of the Registrant.
23.1* Consent of McDermott, Will & Emery (contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney for Roller Bearing Company of America (Included on signature page).
24.2 Powers of Attorney for Industrial Tectonics Bearings Corporation (Included on signature page).
24.3 Powers of Attorney for RBC Linear Precision Products, Inc. (Included on signature page).
24.4 Powers of Attorney for RBC Nice Bearings, Inc. (Included on signature page).
25 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule of Roller Bearing Company of America, Inc.
27.2 Financial Data Schedule of Industrial Tectonics Bearings Corporation.
27.3 Financial Data Schedule of RBC Linear Precision Products, Inc.
27.4 Financial Data Schedule of RBC Nice Bearings, Inc.
99* Letter of Transmittal.
* To be filed by amendment.