As filed with the Securities and Exchange Commission on November 20, 1997
Registration No. 333-33085
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT
NO. 2 TO
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 (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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Industrial Tectonics Bearings Corporation
(Exact name of Registrant as specified in its charter)
Delaware 3562 95-4284623
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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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 (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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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 (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
---------------
Bremen Bearings, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 3562 06-1491241
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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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. |_|
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.
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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 November 18,
1997, the amount of Senior Indebtedness of the Company was approximately $26.5
million, and the Company had the ability to borrow up to an additional $43.1
million under the Revolving Credit Facility. As of such date, the Company had no
debt outstanding that was subordinated to the Notes. The Exchange Notes will be
fully and unconditionally guaranteed, jointly and severally, on a senior
subordinated basis by Industrial Tectonics Bearings Corporation ("ITB"), RBC
Linear Precision Products, Inc. ("LPP"), RBC Nice Bearings, Inc. ("Nice") and
Bremen Bearings, Inc. ("Bremen" 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 of the Outstanding Notes. 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.
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
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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 such
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 Letter of Transmittal to be executed by each holder of
Outstanding Notes participating in the Exchange Offer will contain a
representation of such holder, that such holder is not engaged in nor does such
holder intend to engage in a distribution of 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 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 the no-action letters referred to above 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
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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
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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 manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States with, the Company
believes, a leading position in many of the markets in which it competes.
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 United States market for bearings was estimated by the United States
Department of Commerce (the "Commerce Department") to be approximately $5.3
billion in 1996, and, according to the Commerce Department, the United States
represents approximately 30% of the worldwide market for bearings. 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. In fiscal 1997, the Company had sales to
more than 1,200 customers, with no single customer amounting to more than 9.7%
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. 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
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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 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, Nice, the oldest
active brand name in the domestic bearing industry and Bremen, a manufacturer of
needle bearings. 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:
o 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.
o 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, it
believes, shorter lead times than its direct competitors,
particularly in the aerospace market.
o 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.
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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.
o 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, the Company
believes, are often less focused on smaller sales volume
opportunities and generally provide lower levels of technical
support to these niche market segments.
o 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.
o 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.
o 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.
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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. From fiscal 1992 through fiscal 1997, the Company
consummated four acquisitions. After the end of fiscal 1997, the Company
completed the purchase of Bremen. 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
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 one of the purchasers of the Discount Debentures (as defined
herein)).
The Recapitalization was financed with the proceeds from the issuance by
the Company of the Outstanding Notes and borrowings made by the Company under
the Senior Credit Facilities, and the
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issuance by Holdings of 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.
Additionally, in connection with the Recapitalization, (i) the Company
paid a dividend to Holdings in the amount of approximately $56.1 million (the
"Dividend") to finance the Recapitalization, (ii) Holdings used the proceeds of
the Dividend and the proceeds from the sale of the Discount Debentures and the
Discount Warrants, to redeem Common Stock and Preferred Stock and purchase
Common Stock Purchase Warrants for aggregate consideration of approximately
$92.2 million, (iii) Holdings assigned its rights to purchase certain shares of
Common Stock and Common Stock Purchase Warrants under the Recapitalization
Agreement to Dr. Michael J. Hartnett, certain affiliates of the Initial
Purchaser, OCM Principal Opportunities Fund, L.P. (the "Oaktree Fund"), Kirk
Morrison, The Sommers Family Trust and Mitchell Quain, (iv) Holdings repurchased
(the "Hartnett Repurchase") 1,250 Common Stock Purchase Warrants from Dr.
Hartnett for an amount per share of Common Stock underlying such Common Stock
Purchase Warrants equal to $514 less the approximately $77 exercise price of
such warrants (an aggregate of approximately $550,000), (v) Holdings issued
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, (vi)
Holdings loaned $500,000 to Dr. Hartnett (the "Hartnett Loan") to finance a
portion of his purchase of Common Stock and Common Stock Purchase Warrants
referred to in clause (iii) above, (vii) Holdings paid to Dr. Hartnett a fee of
$1 million (the "Hartnett Fee"), (viii) the Company repaid outstanding
indebtedness (approximately $52.1 million) on its revolving credit facility (the
"Existing Revolving Credit Facility") and its term loan (the "Existing Term
Loan") both with Heller Financial, Inc., and (ix) the Company and Holdings paid
certain other fees and expenses, in the approximate aggregate amount of $10.2
million, payable in connection with the foregoing.
The assignment of rights under the Recapitalization Agreement referred to
in clause (iii) above, was undertaken in order to achieve certain proportional
post-Recapitalization equity positions desirable to Holdings or that Holdings
was contractually obligated to achieve, including the desire to have a majority
of the equity of Holdings held by Dr. Hartnett and other members of management
of the Company, the desire of certain members of management to purchase
additional equity in Holdings and obligations to the Initial Purchaser and the
Oaktree Fund regarding equity positions to be purchased by each of them and
their affiliates. Such wishes were complied with and obligations satisfied
through the assignment of rights referred to above rather than through the
issuance of additional equity securities by Holdings. In exchange for such
assignments, the assignees assumed the obligations of the Company and Holdings
under the Recapitalization Agreement with respect to such shares of Common Stock
or Common Stock Purchase Warrants.
The Hartnett Repurchase and the grant of certain Common Stock Purchase
Warrants to Dr. Hartnett referred to in clause (v) above were undertaken to
enable Dr. Hartnett to fulfill his obligations with respect to certain shares of
Common Stock assigned to him and referred to in clause (iii) above without Dr.
Hartnett suffering a diminution of his fully-diluted equity position in
Holdings. Upon the Hartnett Repurchase, all obligations of Holdings under the
Common Stock Purchase Warrants repurchased were extinguished.
The Hartnett Fee was paid to Dr. Hartnett in consideration of services
rendered in connection with the preparation, negotiation and consummation of the
Recapitalization.
The net effect of the payment of the Hartnett Fee, the funding of the
Hartnett Loan, the effecting of the Hartnett Repurchase, the issuance of Common
Stock Purchase Warrants to Dr. Hartnett referred to in clause (v) above and the
purchase by Dr. Hartnett of shares of Common Stock and Common Stock Purchase
Warrants in connection with the Recapitalization was to increase Dr. Hartnett's
ownership interest in Holdings to 3,948.4 shares of Common Stock and 10,077.4
Common Stock Purchase Warrants, with Dr. Hartnett retaining approximately
$784,000 from the proceeds of the Hartnett Fee, the Hartnett Loan and the
Hartnett Repurchase (in addition to the proceeds to Dr. Hartnett from the
redemption by Holdings of shares of Preferred Stock). Additionally, Dr. Hartnett
remains liable to Holdings under the Hartnett Loan and 1,250 of the Common Stock
Purchase Warrants owned by Dr. Hartnett prior to the Recapitalization, which
were exercisable at approximately $77 per share of Common Stock underlying such
warrants, are, following the Recapitalization, exercisable at $514 per share
of Common Stock.
The Company bears no direct, indirect or contingent liability under the
Discount Debentures. Under the terms of the Indenture, the payment of dividends
to Holdings is restricted. See "Description of the Notes--Certain Covenants."
All operations of Holdings are conducted through the Company and subsidiaries of
the Company. Payments under the Exchange Notes are not subordinated in any way
to payments under the Discount Debentures, and the issuance by Holdings of the
Discount Debentures should in no way affect the ability of the Company to make
payments under the Exchange Notes. There are no cash payments of interest or
principal required on the Discount Debentures until 2002. It is currently
contemplated that repayment of the Discount Debentures by Holdings will be
funded through a refinancing of the Discount Debentures or a Public Equity
Offering (as defined in the Indenture governing the Discount Debentures (the
"Discount Indenture")) of Holdings, in each case as permitted by the Discount
Indenture. Should Holdingts default in its obligations under the Discount
Debentures, the then holders of the Discount Debentures may be able to foreclose
on the outstanding capital stock of the Company which has been pledged by
Holdings for the benefit of such holders. Upon such foreclosure, the
stockholders of the Company would change, however, its obligations under the
Indenture to make payments on the Exchange Notes or otherwise will remain
unchanged.
Dr. Hartnett, the Chairman, President and Chief Executive Officer of the
Company, currently owns approximately 43% (approximately 42% on a fully diluted
basis) of the outstanding capital stock of
9
<PAGE>
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."
-------
On August 8, 1997, Bremen, a wholly-owned subsidiary of the Company,
completed the acquisition of the Bremen Bearings Division of SKF USA, Inc.
("SKF"), a manufacturer of needle bearings with facilities in Bremen, Indiana.
The aggregate purchase price for the acquisition, which was effective as of July
1, 1997, was, subject to certain adjustments and conditions subsequent,
approximately $5.3 million, $3.6 million of which was paid at closing, $473,000
of which is due following the installation of certain equipment and $1.2 million
of which is due on August 8, 1998. According to data provided by SKF, in fiscal
1997 results for their Bremen Bearings Division included gross sales (subject to
adjustment for returns and other allowances) of approximately $14.3 million and
earnings before interest, taxes and depreciation of approximately $2.1 million.
-------
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.
10
<PAGE>
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. The
Company is making the Exchange Offer in reliance
on the position of the staff of 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. See "The Exchange Offer--Purpose and
Effects."
Expiration Date............. 5:00 P.M., New York City time, on __________,
unless extended. See "The Exchange Offer--Period
for Tendering Outstanding Notes."
11
<PAGE>
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."
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."
12
<PAGE>
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 95/8%
Senior Subordinated Notes Due 2007, Series B.
Comparison with
Outstanding Notes;
Transferability............. Generally, the Exchange Notes will be freely
transferable under the Securities Act by Holders
who are not affiliates of the Company and are not
broker-dealers who purchased 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. 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
__________________.
13
<PAGE>
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 November 18, 1997, the amount
of Senior Indebtedness of the Company was
approximately $26.5 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, jointly and severally,
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."
14
<PAGE>
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."
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.
15
<PAGE>
Summary Consolidated Historical and Unaudited Pro Forma 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, 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 and for the six-month period ended September
28, 1996 has been derived from the consolidated financial statements of the
Company. The summary consolidated historical financial information presented
below for the six-month period ended September 27, 1997 has been derived from
the condensed consolidated financial statements of the Company included
elsewhere in the Prospectus. The pro forma summary consolidated information for
the fiscal year ended March 29, 1997 is based on the consolidated financial
statements of the Company and gives effect to the acquisitions of Nice, LPP and
Bremen and the Recapitalization as if each of such transactions had occurred as
of the beginning of fiscal year 1997. The pro forma summary consolidated
information for the six-month period ended September 27, 1997 is based on the
condensed consolidated financial statements of the Company and gives effect to
the acquisition of Bremen and the Recapilatization as if such transactions had
occurred as of the beginning of fiscal year 1998. The information presented
below 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
and Condensed Consolidated Financial Statements of the Company contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Ended Fiscal Year
----------------- Ended
April 3, April 2, April 1, March 30, March 29, March 29,
1993 1994(a) 1995 1996 1997(b) 1997(c)
---- ------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................... $ 53,837 $ 65,306 $ 73,904 $ 82,233 $ 93,427 $125,612
Cost of sales ........................... 36,774 49,596(f) 57,204 60,054 64,215 90,051
-------- -------- -------- -------- -------- --------
Gross profit ............................ 17,063 15,710(f) 16,700 22,179 29,212 35,561
Selling, general and administrative
expense ............................ 8,917 10,201 8,987 11,104 14,537 16,372
Other expense, net of other income (g)(h) 945 8,694 1,057 1,388 1,473 1,044
-------- -------- -------- -------- -------- --------
Income (loss) from operations ........... 7,201 (3,185) 6,656 9,687 13,202 18,145
Interest expense, net ................... 3,471 4,333 6,445 6,165 5,338 13,815
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary charge ............... 3,730 (7,518) 211 3,522 7,864 4,330
Provision (benefit) for income taxes .... 1,810 (2,721) 110 1,700 3,224 1,614
Extraordinary charge (i) ................ -- -- -- 995 -- 816
-------- -------- -------- -------- -------- --------
Net income (loss) ....................... $ 1,920 $ (4,797) $ 101 $ 827 $ 4,640 $ 1,900
======== ======== ======== ======== ======== ========
Net income (loss) per share ........ $ 19,200 $(47,970) $ 1,010 $ 8,270 $ 46,396 $ 19,005
======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding ................. 100 100 100 100 100 100
Ratio of earnings to fixed charges (j) .. 2.0x (k) 1.0x 1.5x 2.4x 1.2x
</TABLE>
Pro Forma
Six
Six Months Ended Months
---------------- Ended
Sept. 28, Sept. 27, Sept. 27,
1996 1997(d) 1997(e)
---- ------- -------
Statement of Operations Data:
Net sales ............................... $ 41,967 $ 60,971 $ 64,843
Cost of sales ........................... 29,447 43,143 46,201
-------- -------- --------
Gross profit ............................ 12,520 17,830 18,642
Selling, general and administrative
expense ............................ 6,450 8,661 8,934
Other expense, net of other income (g)(h) 410 1,022 914
-------- -------- --------
Income (loss) from operations ........... 5,660 8,147 8,794
Interest expense, net ................... 2,748 4,894 6,770
-------- -------- --------
Income (loss) before income taxes and
extraordinary charge ............... 2,912 3,253 2,024
Provision (benefit) for income taxes .... 1,194 1,334 845
Extraordinary charge (i) ................ 0 625 625
-------- -------- --------
Net income (loss) ....................... $ 1,718 $ 1,294 $ 554
======== ======== ========
Net income (loss) per share ........ $ 17,180 $ 12,940 $5,540
======== ======== ========
Weighted average number of
shares outstanding ................. 100 100 100
Ratio of earnings to fixed charges (j) .. 2.0x 1.6x 1.3x
As of
Sept. 27, 1997
--------------
Balance Sheet Data:
Cash and cash equivalents..................................... $10,020
Working capital............................................... 46,158
Property, plant and equipment................................. 44,588
Total assets.................................................. 150,276
Total debt (including current portion)........................ 137,650
Stockholder's equity.......................................... (17,552)
- ----------
(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) The Company acquired LPP effective as of October 1996, Nice effective as
of February 1997 and Bremen effective as of July 1997. Results of
operations of LPP, Nice and Bremen subsequent to their respective
effective dates of acquisition are included in the historical results of
operations of RBC. See Unaudited Pro Forma Consolidated Financial
Information for the combined results of LPP, Nice and Bremen (based upon
unaudited historical information provided by the respective sellers of the
acquired companies to RBC) for their respective pre-acquisition periods
from March 31, 1996 through the effective dates of the LPP and Nice
acquisitions, and through March 29, 1997, for the Bremen acquisition, and
the adjustments made to the pre-acquisition historical results of LPP,
Nice and Bremen and the adjustments to give effect to the Recapitalization
as of the beginning of fiscal year 1997 are summarized as follows:
16
<PAGE>
(d) Includes the results of operations of Bremen following the effective date
of acquisition as of July 1997.
(e) The Company acquired Bremen effective as of July 1997. Results of
operations of Bremen subsequent to the effective date of acquisition are
included in the historical results of operations of the Company. See
Unaudited Pro Forma Consolidated Financial Information for the results of
Bremen (based upon unaudited historical information provided by the seller
of the acquired company to the Company) for it's pre-acquisition periods
from March 30, 1997 through the effective date of such acquisition, and
the adjustments to give effect to the Recapitalization as of the beginning
of the fiscal year are as follows:
<TABLE>
<CAPTION>
Historical Acquisition Transaction Total
Bremen Adjustments Adjustments Adjustments
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 3,872 $ -- $ -- $ 3,872
Costs of sales 3,160 (67) -- 3,093
----------------------------------------------------
Gross margin 712 67 -- 779
Operating expenses: 340 -- -- 340
Selling, general and administrative expenses -- -- (108) (108)
Other expenses, net of other income 340 -- (108) 232
----------------------------------------------------
Operating income 372 67 108 547
Interest expense, net -- 107 2,963 3,070
----------------------------------------------------
Income before taxes and extraordinary charge 372 (40) (1,661) (1,329)
Provision for income taxes 167 (16) (681) (530)
----------------------------------------------------
Income before extraordinary charge 205 (24) (980) (799)
Extraordinary charge, net -- -- -- --
----------------------------------------------------
Net income $ 205 $ (24) $ (980) $ (799)
======= ======= ======= =======
</TABLE>
The acquisition adjustments primarily relate to recording charges
consistent with Company policy and to remove effect of expenses which are
not expected to be recurring.
(f) Cost of sales and the related gross profit for the fiscal year ended April
2, 1994, reflects a charge of $2,454, representing start up costs
associated with new production processes. It is the Company's policy to
expense such costs in the period incurred.
(g) Includes a consulting fee of $292, $393, $400, $400 and $429 paid to
Tribos, an affiliate of Aurora Capital, pursuant to a consulting agreement
in fiscal 1993, 1994, 1995, 1996 and 1997, respectively. The amounts paid
for the six months ended September 28, 1996 and September 27, 1997 were
$209 and $108, respectively.
(h) Includes a $7,578 non-recurring restructuring charge in fiscal 1994, a
$425 non-recurring environmental remediation charge in fiscal 1996, a $500
non-recurring pension termination charge in fiscal 1997 and $645 in
non-recurring charges related to the Recapitalization in the amounts of
$63 and $82 for various fees relating to legal settlements for the six
months ended September 27, 1997.
(i) 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.
(j) 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).
(k) Earnings were insufficient to cover fixed charges in fiscal 1994 by
$7,518.
17
<PAGE>
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. As of November 18, 1997, RBC's
total indebtedness was $140.1 million and RBC had the ability to borrow an
additional $43.1 million under the Revolving Credit Facility. For the six months
ended September 27, 1997, RBC's ratio of earnings to fixed charges was 1.6 to
1.0 and as of such date RBC had negative net worth of $17.6 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
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."
18
<PAGE>
In connection with the Recapitalization, Holdings issued the Discount
Debentures. See "Description of Certain Indebtedness-Discount Debentures."
Although the Discount Debentures generally do not 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. The Company has contractual
relationships with almost all of its top ten customers, and in certain cases
such relationships cover significant portions of the sales to such customer,
however, in the aggregate, such relationships do not constitute substantially
all sales to the Company's largest customers. The Company's contracts with its
customers, including those with its largest customers, are generally not
cancelable by the customer without cause. 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.
19
<PAGE>
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 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
20
<PAGE>
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
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. See "--Restrictions Imposed by Debt Instruments." 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."
21
<PAGE>
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 November 18, 1997, the amount of Senior Indebtedness of RBC
was approximately $26.5 million, and RBC had the ability to borrow 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 to the Notes.
Under the Indenture, the Company is permitted to incur indebtedness so
long as the Consolidated Coverage Ratio (as defined herein) of the Company as of
the date of such incurrence and after giving effect thereto exceeds 2.0 to 1.0
if the indebtedness is incurred prior to June 15, 2002 or 2.25 to 1.0 if
incurred thereafter. Additionally the Company is permitted to incur the
indebtedness under the Senior Credit Facilities and up to $10 million of
additional indebtedness without regard to compliance with the ratio referred to
above. All such debt will be Senior Indebtedness.
Pursuant to the Senior Credit Facilities, the Company may, in addition to
the borrowings under the Senior Credit Facilities incur a maximum of
approximately $10,750,000 in Senior Indebtedness not existing on the date of the
closing of the Indenture and the Senior Credit Facilities. Under the restriction
on the Company's ability to incur additional Indebtedness contained in the
Senior Credit Facilities, the Company may incur the following additional Senior
indebtedness: (i) up to $10,000,000 of indebtedness secured by certain liens or
in respect of capitalized leases, (ii) indebtedness arising from endorsement of
negotiable instruments, (iii) indebtedness under certain indemnity agreements,
(iv) up to $250,000 in indebtedness relating to surety, appeal and similar
bonds, (iv) indebtedness with respect to open account arrangements or accrued
expenses in current account payables, (v) indebtedness up to $250,000 relating
to certain acquisitions and (vi) up to $250,000 of other indebtedness.
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, fully and unconditionally
guaranteed by the Subsidiary Guarantors on a joint and several basis. 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
22
<PAGE>
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."
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 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.
23
<PAGE>
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, as determined in accordance with generally accepted accounting
principles, the Company currently has a negative net worth for financial
accounting purposes, 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 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.
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 credit agreement relating to the Senior Credit Facilities
(the "Credit Agreement") requires the maintenance of certain financial
covenants, including a maximum Consolidated Leverage Ratio (as defined in the
Credit Agreement; a ratio of total debt to EBITDA (as defined in the Credit
Agreement)), a minimum Consolidated Interest Coverage Ratio (as defined in the
Credit Agreement; a ratio of EBITDA to interest expense) and a minimum
Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement; a
ratio of EBITDA to fixed charges) certain of which become more restrictive over
time as follows: Consolidated Leverage Ratio - 5.95 to 1.00 for fiscal 1998 to
3.25 to 1.00 following fiscal 2002; Consolidated Interest Coverage Ratio - 1.60
to 1.00 for fiscal 1998 to 2.50 to 1.00 following fiscal 2002; Consolidated
Fixed Charge Coverage Ratio - 1.00 to 1.00 for fiscal 1998 to 1.05 to 1.00
following fiscal 2002.
24
<PAGE>
As the Credit Agreement was entered into during the course of the 1998
fiscal year, determination of compliance with each of the foregoing financial
ratios for the 1998 fiscal year is made based on quarterly figures that are
annualized as set forth in the Credit Agreement. Based upon such calculation,
the Company currently meets all required ratios.
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 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
prohibit the Company from purchasing any Notes and also provide that the
occurrence of certain Change of Control events with respect to the Company
constitutes 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.
Notwithstanding the requirement that the Company repurchase the Notes upon
the occurrence of a Change of Control, the Company may enter into transactions,
including acquisitions, refinancings or other recapitalizations or highly
leveraged transactions, that, while not constituting a Change of Control under
the Indenture, may result in an increase in the amount of indebtedness of the
Company, otherwise affect the capital structure or credit ratings of the Company
or have adverse affects on the holders of the Notes, certain of which are
restricted by other covenants contained in the Indenture. See "Description of
the Notes-Change of Control" and "___ Certain Covenants."
The meaning of the phrase "all or substantially all" as used in the
definition of Change of Control varies according to the facts and circumstances
of the subject transaction, has no clearly established meaning under relevant
law and is subject to judicial interpretation. Accordingly, in certain
circumstances, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially all"
of the assets of the Company, and therefore it may be unclear whether the
foregoing provisions are applicable.
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."
25
<PAGE>
Labor Relations
As of September 27, 1997, the Company had approximately 1,099 active
employees, of whom approximately 23.1%, representing employees at the Company's
West Trenton, New Jersey and Fairfield, Connecticut facilities, were represented
by the United Auto Workers ("UAW"), and 7.1%, 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
September 27, 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 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.
26
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer.
The Company received approximately $106.2 million in proceeds from the
sale of the Outstanding Notes. The proceeds of such sale, together with the
proceeds from the Term Loans were used to repay the outstanding balance on the
Existing Revolving Credit Agreement and the Existing Term Loan, to pay the
Dividend to Holdings and to pay certain fees incurred in connection with the
Recapitalization. See "Prospectus Summary-Recent Developments," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions."
CAPITALIZATION
(dollars in thousands)
The following table sets forth the capitalization of the Company as of
September 27, 1997. 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 and Condensed Consolidated Financial Information of the Company
contained elsewhere in this Prospectus.
As of September 27, 1997
------------------------
Total debt:
Revolving Credit Facility (a).................... $ ----
Term Loans....................................... 15,750
Industrial Development Revenue Bonds ("IRBs").... 10,700
Capitalized leases............................... 3,773
Notes............................................ 110,000
Total debt....................................... 140,223
Total stockholder's equity (deficit)................... (17,552)
--------
Total capitalization............................. $122,671
========
- ----------
(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.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Pro Forma Financial Information") is based on the Consolidated Financial
Statements and the Condensed Consolidated Financial Statements of the Company
contained elsewhere in this Prospectus, adjusted to give effect to the
following: (i) the acquisition of LPP effective October 1996 (the "LPP
Acquisition"), (ii) the acquisition of Nice effective February 1997 (the "Nice
Acquisition"), (iii) the acquisition of Bremen effective July 1997 (the "Bremen
Acquisition" and collectively with the LPP Acquisition and the Nice Acquisition,
the "Acquisitions") and (iv) the Recapitalization. The Pro Forma Consolidated
Statements of Operations give effect to the Acquisitions and the
Recapitalization as if they had occurred as of March 31, 1996. The Acquisitions
and the Recapitalization and the related adjustments are described in the
accompanying notes. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable. The
Pro Forma Financial Information does not purport to represent what the Company's
results of operations would actually have been had the Acquisitions and the
Recapitalization in fact occurred on such date or to project the Company's
results of operations for any future period. The Pro Forma Financial Information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the Condensed Consolidated Financial Statements of the Company
contained elsewhere in this Prospectus.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended March 29, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Pro Forma Recapitalization
Historical Acquisition for the Transaction
Historical Acquisitions(a) Adjustments Acquisitions Adjustments(b) Pro Forma
---------- --------------- ----------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 93,427 $ 32,185 $ -- $125,612 $ -- $125,612
Cost of sales 64,215 27,559 (1,723)(c) 90,051 -- 90,051
-------- -------- -------- -------- -------- --------
Gross profit 29,212 4,626 1,723 35,561 -- 35,561
Operating Expenses:
Selling, general and
administrative expense 14,537 3,015 (1,180)(d) 16,372 -- 16,372
Other expense, net of
other income 1,473 -- -- 1,473 (429)(e) 1,044
-------- -------- -------- -------- -------- --------
16,010 3,015 (1,180) 17,845 (429) 17,416
Income from operations $ 13,202 $ 1,611 $ 2,903 $ 17,716 $ 429 $ 18,145
-------- -------- -------- -------- -------- --------
</TABLE>
Notes to Pro Forma Consolidated Statement of Operations
(Dollars in thousands)
(a) The Company acquired LPP effective as of October 1996, Nice effective as
of February 1997, and Bremen effective as of July 1997. Results of
operations of LPP, Nice and Bremen subsequent to their effective dates of
acquisition are included in the historical results of operations of RBC.
The combined results of LPP, Nice and Bremen (based upon unaudited
historical information provided by the respective sellers of the acquired
companies to RBC) for their respective pre-acquisition periods from March
31, 1996 through the effective dates of the LPP Acquisition and the Nice
Acquisition, and through March 29, 1997 for the Bremen Acquisition, are as
follows:
Combined
Historical
LPP Nice Bremen Acquisitions
--- ---- ------ ------------
Net sales $ 4,239 $13,621 $14,325 $32,185
Cost of sales 3,369 11,598 12,592 27,559
------------------------- -------
Gross profit 870 2,023 1,733 4,626
Selling, general and administrative
expense 141 1,534 1,340 3,015
Other expense, net of other income -- -- -- --
------------------------- -------
Income from operations $ 729 $ 489 $ 393 $ 1,611
======= ======= ======= =======
(b) The Pro Forma Consolidated Statements of Operations do not reflect
nonrecurring charges directly attributable to the Recapitalization.
Accordingly, they do not reflect the estimated additional compensation
expense of approximately $738, incurred by the Company as a result of the
redemption by Holdings of certain Common Stock Purchase Warrants held by
members of management of the Company in connection with the
Recapitalization.
<PAGE>
(c) Reflects the following adjustments made to the pre-acquisition historical
cost of sales of LPP. Nice and Bremen in connection with the Acquisitions
described above.
<TABLE>
<CAPTION>
Acquisition
LPP Nice Bremen Adjustments
--- ---- ------ -----------
<S> <C> <C> <C> <C>
To reflect the application of RBC's depreciation
policy based upon cost basis of fixed assets
versus replacement cost basis followed by
acquired companies $ 67 $ (696) $ (221) $ (850)
To reflect capitalization of fixed asset items
in accordance with RBC's policy -- (690) (404) (1,094)
To reflect adjustment to depreciation due to
adjustments to fixed assets in connection
with the Acquisitions -- (137) 427 290
To reclassify certain administrative salaries -- (392) (170) (562)
To reclassify certain expenses related to
cost of sales -- -- 187 187
To eliminate parent company charges to the
acquired company and certain employee benefits
included in cost of sales, all of which are
not expected to be recurring -- 407 (101) 306
------- ----------------- -------
Total $ 67 $(1,508) $ (282) $(1,723)
------- ----------------- -------
</TABLE>
(d) Reflects the following adjustments made to the pre-acquisition historical
selling, general and administrative expenses of Nice and Bremen in
connection with the Acquisitions described above.
<TABLE>
<CAPTION>
Acquisition
Nice Bremen Adjustments
---- ------ -----------
<S> <C> <C> <C>
To reclassify certain administrative salaries $ 392 $ 170 $ 562
To reclassify certain expenses related to cost
of sales -- (187) (187)
To eliminate parent company charges to the acquired
company and certain employee benefits included in
selling, general and administrative expenses, all
of which are not expected to be recurring (1,075) (480) (1,555)
----------------- -------
Total $ (683) $ (497) $(1,180)
----------------- -------
</TABLE>
(e) Reflects adjustment to eliminate the consulting fee paid to Tribos, an
affiliate of Aurora, pursuant to a consulting agreement. This agreement
will be terminated in connection with the Recapitalization. See "Certain
Relationships and Related Transactions".
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended September 27, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma Recapitalization
Historical Acquisition for the Transaction
Historical Bremen(a) Adjustments Acquisition Adjustments Pro Forma
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 60,971 $ 3,872 $ -- $ 64,843 $ -- $ 64,843
Cost of sales 43,141 3,160 (100)(b) 46,201 -- 46,201
------------------------------------------------------------------------
Gross margin 17,830 712 100 18,642 -- 18,642
Operating expenses:
Selling, general and administrative expense 8,661 340 (67)(b) 8,934 -- 8,934
Other expense, net of other income 1,022 -- -- 1,022 (108)(c) 914
------------------------------------------------------------------------
9,683 340 (67) 9,956 (108) 9,848
------------------------------------------------------------------------
Operating income $ 8,147 $ 372 $ 167 $ 8,686 $ 108 $ 8,794
------------------------------------------------------------------------
</TABLE>
Notes to Pro Forma Consolidated Statement of Operations
(Dollars in thousands)
(a) Includes the results of Bremen (based upon unaudited historical
information provided by the seller of the acquired company to RBC) for its
pre-acquisition period from March 30, 1997 through the effective date of
such Acquisition. The Company acquired Bremen effective as of July 1997.
Results of operations of Bremen subsequent to the effective date of the
Acquisition are included in the historical results of operations of RBC.
(b) Reflects the following adjustments made to the pre-acquisition historical
results of operations of Bremen in connection with the Acquisition
described above:
<TABLE>
<CAPTION>
Selling,
Cost of general and
sales administrative
---------------------------
<S> <C> <C>
To reflect the application of RBC's depreciation
policy based upon cost basis of fixed assets versus
replacement cost basis followed by acquired company $ (69) $ --
To reflect capitalization of fixed asset items in
accordance with RBC's policy (88) --
To reflect adjustment to depreciation due to
adjustments to fixed assets in connection with the
Acquisition 107 --
To reclassify certain administrative salaries (38) 38
To reclassify certain expenses related to cost of sales 26 (26)
To eliminate parent company charges to the acquired
company and certain employee benefits included in cost
of sales and selling, general and administrative expenses,
all of which are not expected to be recurring (38) (79)
---------------------------
Total $(100) $ (67)
---------------------------
</TABLE>
(c) Reflects adjustment to eliminate the consulting fee paid to Tribos, an
affiliate of Aurora. pursuant to a consulting agreement. This agreement
will be terminated in connection with the Recapitalization. See "Certain
Relationships and Related Transactions".
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA 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 and for the six-month period ended September 28, 1996 has
been derived from the condensed consolidated financial statements of the
Company. The selected consolidated historical financial information presented
below for the six-month period ended September 27, 1997 and at September 27,
1997 has been derived from the condensed consolidated financial statements of
the Company included elsewhere in this Prospectus. The pro forma selected
consolidated information for the fiscal year ended March 29, 1997 is based on
the consolidated financial statements of the Company and gives effect to the
acquisitions of Nice, LPP and Bremen and the Recapitalization as if each of such
transactions had occurred as of the beginning of fiscal year 1997. The pro forma
selected consolidated information for the six-month period ended September 27,
1997 is based on the condensed consolidated financial statements of the Company
and gives effect to the acquisition of Bremen and the Recapitalization as if
such transactions had occurred as of the beginning of fiscal year 1998. The
information presented below should be read in conjunction with "Unaudited Pro
Forma Financial Information of Operations," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and condensed the beginning of fiscal year 1998.
Consolidated Financial Statements of the Company contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Ended Fiscal Year
----------------- Ended
April 3, April 2, April 1, March 30, March 29, March 29,
1993 1994(a) 1995 1996 1997(b) 1997(c)
---- ------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................................... $ 53,837 $ 65,306 $ 73,904 $ 82,233 $ 93,427 $125,612
Cost of sales ............................... 36,774 49,596(f) 57,204 60,054 64,215 90,051
-------- -------- -------- -------- -------- --------
Gross profit ................................ 17,063 15,710(f) 16,700 22,179 29,212 35,561
Selling, general and administrative expense . 8,917 10,201 8,987 11,104 14,537 16,372
Other expense, net of other income (g)(h) ... 945 8,694 1,057 1,388 1,473 1,044
-------- -------- -------- -------- -------- --------
Income (loss) from operations ............... 7,201 (3,185) 6,656 9,687 13,202 18,145
Interest expense, net ....................... 3,471 4,333 6,445 6,165 5,338 13,815
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary charge ................... 3,730 (7,518) 211 3,522 7,864 4,330
Provision (benefit) for income taxes ........ 1,810 (2,721) 110 1,700 3,224 1,614
Extraordinary charge (i) .................... -- -- -- 995 -- 816
-------- -------- -------- -------- -------- --------
Net income (loss) ........................... $ 1,920 $ (4,797) $ 101 $ 827 $ 4,640 $ 1,900
======== ======== ======== ======== ======== ========
Net income (loss) per share ............ $ 19,200 $(47,970) $ 1,010 $ 8,270 $ 46,396 $ 19,005
======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding ..................... 100 100 100 100 100 100
Ratio of earnings to fixed charges (j) ...... 2.0x (k) 1.0x 1.5x 2.4x 1.2x
</TABLE>
Pro Forma
Six
Six Months Ended Months
---------------- Ended
Sept. 28, Sept. 27, Sept. 27,
1996 1997(d) 1997(e)
---- ------- -------
Statement of Operations Data:
Net sales ................................... $ 41,967 $ 60,971 $ 64,843
Cost of sales ............................... 29,447 43,143 46,201
-------- -------- --------
Gross profit ................................ 12,520 17,830 18,642
Selling, general and administrative expense . 6,450 8,661 8,934
Other expense, net of other income (g)(h) ... 410 1,022 914
-------- -------- --------
Income (loss) from operations ............... 5,660 8,147 8,794
Interest expense, net ....................... 2,748 4,894 6,770
-------- -------- --------
Income (loss) before income taxes and
extraordinary charge ................... 2,912 3,253 2,024
Provision (benefit) for income taxes ........ 1,194 1,334 845
Extraordinary charge (i) .................... 0 625 625
-------- -------- --------
Net income (loss) ........................... $ 1,718 $ 1,294 $ 554
======== ======== ========
Net income (loss) per share ............ $ 17,180 $ 12,940 $ 5,540
======== ======== ========
Weighted average number of
shares outstanding ..................... 100 100 100
Ratio of earnings to fixed charges (j) ...... 2.0x 1.6x 1.3x
As of
Sept. 27, 1997
--------------
Balance Sheet Data:
Cash and cash equivalents.................................... $ 10,020
Working capital.............................................. 46,158
Property, plant and equipment................................ 44,588
Total assets................................................. 150,276
Total debt (including current portion)....................... 137,650
Stockholder's equity......................................... (17,552)
- ----------
(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) The Company acquired LPP effective as of October 1996, Nice effective
as of February 1997 and Bremen effective as of July 1997. Results of
operations of LPP, Nice and Bremen subsequent to their respective
effective dates of acquisition are included in the historical results of
operations of RBC. See Unaudited Pro Forma Financial Information for the
combined results of LPP, Nice and Bremen (based upon unaudited historical
information provided by the respective sellers of the acquired companies
to RBC) for their respective pre-acquisition periods from March 31, 1996
through the effective dates of the LPP and Nice acquisitions, and through
March 29, 1997 for the Bremen Acquisition and the adjustments made to the
pre-acquisition historical results of LPP, Nice and Bremen, and the
adjustments to give effect to the Recapitalization as of the beginning of
fiscal year 1997.
28
<PAGE>
(d) Includes the results of operations of Bremen following the effective date
of acquisition as of July 1997.
(e) The Company acquired Bremen effective as of July 1997. Results of
operations of Bremen subsequent to the effective date of acquisition are
included in the historical results of operations of the Company. See
Unaudited Pro Forma Consolidated Financial Information for the results of
Bremen (based upon unaudited historical information provided by the seller
of the acquired company to the Company) for it's pre-acquisition periods
from March 30, 1997 through the effective date of such acquisition, and
the adjustments to give effect to the Recapitalization.
(f) Cost of sales and related gross profit for the fiscal year ended April 2,
1994, reflects a charge of $2,454, representing start up costs associated
with new production processes. It is the Company's policy to expense such
costs in the period incurred.
(g) Includes a consulting fee of $292, $393, $400, $400 and $429 paid to
Tribos, an affiliate of Aurora, pursuant to a consulting agreement in
fiscal 1993, 1994, 1995, 1996 and 1997, respectively. The amounts paid for
the six months ended September 28, 1996 and September 27, 1997 were $209
and $108, respectively.
(h) 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 and $645 in
non-recurring charges related to the Recapitalization in the amounts of
$563 and $82 for various fees relating to legal settlements for the six
months ended September 27, 1997.
(i) 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.
29
<PAGE>
(j) 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).
(k) Earnings were insufficient to cover fixed charges in fiscal 1994 by
$7,518.
30
<PAGE>
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 manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States, with, the
Company believes, a leading position in many of the markets in which it
competes. 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. In
fiscal 1997, the Company had sales to more than 1,200 customers, with no single
customer amounting to more than 9.7% 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 United States market for bearings was estimated by the Commerce
Department to be approximately $5.3 billion in 1996, and, according to the
Commerce Department, the United States represents approximately 30% of the
worldwide market for bearings. 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
31
<PAGE>
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.
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
recently consummated the purchase of Bremen for approximately $5.3 million, of
which $3.6 million was paid at closing. The purchase price was financed by
borrowings under the Term Loans. See "Prospectus Summary-Recent Developments."
Environmental Matters
In 1996, the Company recorded a $425,000 charge against earnings for
expenditures relating to the settlement of claims relating to a release of
certain pollutants from its West Trenton Facility. See "--Fiscal 1997 Compared
to Fiscal 1996."
Under applicable Connecticut law, the purchase by the Company of its
Fairfield facility in 1996 necessitated the undertaking of an environmental
investigation of the facility. The results of such investigation revealed the
presence of certain low level soil and groundwater contamination the remediation
of which had been commenced by the previous owner of the facility. In 1996, the
Company received regulatory approval of an investigation and remediation plan,
and has implemented that plan at a total cost that the Company estimates will
reach $50,000 (including attorney's fees). All costs incurred to date in
connection with such remediation activities have been satisfied out of current
operational revenues of the Company and are expensed currently. The
investigation has not to date revealed conditions that would require further
remediation, although the regulatory authorities may require ongoing monitoring
of any residual contamination to ensure that it does not reach unsafe levels. As
the magnitude of such costs, if any, is impossible to determine at this time,
the Company has not made any reserves or taken any charges in connection
therewith.
There are certain ongoing remediation activities being conducted at
certain of the Company's other facilities by past owners of such facilities. See
"Risk Factors--Potential Exposure to Environmental Liabilities" and
"Business--Environmental Matters." The Company may be required to expend funds
in the future to address these and other environmental issues; however, the
Company believes that indemnification from prior owners of the facilities should
adequately cover costs relating to such remediation activities, and accordingly,
does not believe such activities will have a material effect on the results of
operations, liquidity or financial condition of the Company.
Prior to, and in connection with, the acquisition of a facility or
business, the Company endeavors to obtain indemnification from parties whom the
Company believes to be able to support such indemnities.
32
<PAGE>
Further, the Company takes such actions as it deems warranted to establish the
scope of any environmental issues that exist as of such purchase, as well as to
project what potential environmental liabilities exist. Such actions include
investigations by members of management of the Company of the records and
facilities relating to the facility or business to be acquired, analysis of
existing investigations, analyses and compliance work done by the sellers and
commissioning its own studies, investigations or analyses.
The Company continuously monitors its various facilities and operations
for compliance with Environmental Laws and exposure to environmental claims,
including, where deemed necessary, the hiring of outside consultants to conduct
surveys and tests. When presented with a potential violation or claim, the
manager of the facility in question will, in coordination and consultation with
management of the Company, endeavor to establish the scope and nature of the
issue, and, if possible, resolve the issue without resort to litigation or
formal proceedings. The Company also undertakes an analysis of the various
indemnification obligations owed to it to ascertain which, if any, would apply,
and the procedures to be followed to perfect its rights with respect to
potential recoveries. Several members of management of the Company have
experience in dealing with such issues and take a leading role in resolving
issues that arise.
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.
In connection with the Recapitalization and certain related matters the
Company and Holdings paid certain fees and expenses totaling approximately $12.0
million. The fees included the Hartnett Fee, a fee in the amount of
approximately $1 million paid to Ernst & Young LLP for consulting services (the
"EY Consulting Fee"), fees in the amount of $1.75 million and $5.45 million to
the Initial Purchaser and affiliates of the Initial Purchaser in connection with
the Senior Credit Facilities and the issuances of the Notes and the Discount
Debentures, legal and accounting fees, printing fees, rating agency fees, and
other fees and reimbursement of expenses to various parties who provided
services in connection with the Recapitalization. Substantially all such fees,
other than the Hartnett Fee and the EY Consulting Fee, are being amortized over
the term of the debt instrument in connection with which such fees were
incurred. Costs associated with the redemption by Holdings of Common Stock and
Preferred Stock and the purchase by Holdings of Common Stock Purchase Warrants
in connection with the Recapitalization (including the EY Consulting Fee) were
included as part of the costs of redeeming such securities. The Hartnett Fee was
currently expensed. Accordingly, the Hartnett Fee impacted Holdings' results of
operations for the fiscal quarter ended September 27, 1997, and the other fees,
to the extent incurred by the Company will negatively impact the Company's
results of operations in amounts between approximately $524,000 and
approximately $982,000 per year through fiscal 2007. As all such fees and
expenses were paid in the first quarter of fiscal 1998 out of the proceeds of
the Recapitalization Indebtedness, they are not expected to affect the Company's
liquidity in the future. See "Certain Relationships and Related Transactions."
33
<PAGE>
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 $738,000 (which
will be recorded in 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
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
----------------------------------------------------------------------------------
April 1, 1995 March 30, 1996 March 29, 1997 Sept. 28, 1996 Sept. 27, 1997
$ % $ % $ % $ % $ %
- - - - - - - - - -
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 73.9 100.0% $ 82.2 100.0% $ 93.4 100.0% $ 42.0 100.0% $ 61.0 100.0%
Cost of sales ........... 57.2 77.4 60.1 73.1 64.2 68.7 29.5 70.2 43.2 70.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit ............ 16.7 22.6 22.1 26.9 29.2 31.3 12.5 17.8 29.2
Selling, general and
administrative expense. 9.0 12.2 11.1 13.5 14.5 15.5 6.5 8.7
Other expense, net of
other income........... 1.1 1.5 1.4 1.7 1.5 1.6 0.4 1.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income from operations .. $ 6.6 8.9% $ 9.6 11.7% $ 13.2 14.1% $ 5.6 13.3% $ 8.1 13.3%
</TABLE>
Six Months Ended September 28, 1997 Compared to Six Months Ended
September 27, 1996
Net Sales
Net sales for the six months ended September 27, 1997 were approximately
$61.0 million an increase of $19.0 million or 45.2% over the six months ended
September 28, 1996. The increase included sales totaling approximately $15.1
million from LPP, Nice and Bremen, acquired effective October 1996, February
1997, and July 1997, respectively. Net sales increased approximately $3.9
million or 9.3% without the LPP, Nice and Bremen sales. The primary reason for
this increase was due to continued strong performance particularly in the
aerospace, airframe and construction & mining segments of the Company's
business.
Gross Profit
Gross Profit increased by approximately $5.3 million or 42.4% for the six
months ended September 27, 1997, as compared to the corresponding period in the
prior year, as a result of higher sales volume. Gross profit as a percentage of
net sales decreased by 0.6% from 29.8% for the first six months of fiscal 1997,
to 29.2% for the first six months of fiscal 1998 primarily due to the lower
gross margins realized on sales from LPP, Nice, and Bremen. Gross margins
excluding these acquired companies was 31.0% when compared to the same period
last year.
Selling, General and Administrative
Selling, general and administrative expense increased by approximately
$2.2 million or 33.8% for the six month period ended September 27, 1997 compared
to the corresponding period in the prior year. The increase was
34
<PAGE>
primarily due to infrastructure costs necessary to support the Company's
expanded business as well as the additional expenses related to the three
acquired companies. Selling, General and Administrative Expense as a percentage
of net sales decreased from 15.5% for the first six months of fiscal 1997, to
14.3% for the first six months of fiscal 1998. Other operating expenses
increased by $612,000 primarily due to a change relating to the difference
between redemption price and exercise price ($563,000) of certain options
repurchased by Holdings at the time of the Recapitalization and other charges
net of other income ($49,000).
Income from Operations
Income from operations increased by approximately $2.5 million or 44.6% to
approximately $8.1 million for the six months ended September 27, 1997, as
compared to approximately $5.7 million for the corresponding period in the prior
year. The increase primarily resulted from higher gross margin from higher sales
volume, partially offset by higher Selling General and Administrative Expense
and other operating expenses.
Income Before Taxes and Extraordinary Charges
Income before taxes and extraordinary charges increased for the six month
period ended September 27, 1997 to approximately $3.3 million from approximately
$2.9 million for the corresponding period in the prior year, as a result of
higher operating income less higher interest expense resulting from the debt
incurred in connection with acquisition financing and the Recapitalization.
Net Income
Net income for the six months ended September 27, 1997 reflects a tax
provision of approximately $1.3 million compared to approximately $1.2 million
for the first six months of fiscal 1997, an effective combined Federal and State
effective tax rate of 41% in both years. Income before extraordinary charges
increased by $201,000 to approximately $1.9 million from approximately $1.7
million for the corresponding period in the prior year. However, net income
decreased to approximately $1.3 million from approximately $1.7 million in
fiscal 1997, due to an extraordinary charge relating to the early extinguishment
of debt of approximately $1.1 million less related tax benefit of $434,000
($625,000 net). The early extinguishment of debt related to the
Recapitalization.
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. As the Company instituted only nominal
price increases and did not realize significant growth in net sales due to the
introduction of new products in fiscal 1997, the Company believes that most of
the increase in net sales resulted from increases in volume of products sold.
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.
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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, taken in connection with
the Company's ongoing process of evaluating its inventory in light of changes in
its customer base, market conditions and sales opportunities. Based upon such
analyses, the Company determined that no additional write-down was required for
fiscal 1997. 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. This $1.2 million adjustment represents a reduction
of reserves previously established in fiscal 1994 related to the Company's West
Trenton facility. The reserves were originally established to cover severance
benefits related to personnel reductions caused primarily by a downturn in the
Company's aerospace business at this facility. Improvements in this sector of
the Company's business and a shift in certain operations resulted in rehirings
of personnel, which in turn, reduced the post employment liability previously
accrued. 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.
The charge for environmental expenditures resulted from costs incurred in
connection with the settlement by the Company of its liability relating to the
release of certain pollutants from the Company's West Trenton facility. The
Company entered into a stipulated settlement with the New Jersey Attorney
General which called for the payment by the Company of a $150,000 civil penalty
to the State of New Jersey and for the Company to make an additional donation of
$50,000 to a local conservation group. Additionally, the Company expended
approximately $225,000 in legal fees relating to the release and settlement. See
"Business--Environmental Matters."
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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. As the
Company instituted only nominal price increases and did not realize significant
growth in net sales due to the introduction of new products in fiscal 1996, the
Company believes that most of the increase in net sales resulted from increases
in volume of products sold. 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 from the write-down
of $2.6 million in fiscal 1995. The inventory write-downs were made in
connection with the Company's ongoing process of evaluating its inventory in
light of changes in its customer base, market conditions and sales
opportunities. 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. This $1.2
million adjustment represents a reduction of reserves previously established in
fiscal 1994 related to the Company's West Trenton facility. The reserves were
originally established to cover severance benefits related to personnel
reductions caused primarily by a downturn in the Company's aerospace business at
this facility. Improvements in this sector of the Company's business and a shift
in certain operations resulted in rehirings of personnel, which in turn, reduced
the post employment liability previously accrued. 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.
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Liquidity and Capital Resources
Six Months Ended September 27, 1997 Compared to Six Months Ended
September 28, 1996
Working capital at September 27, 1997 was approximately $46.1 million
compared to approximately $37.6 million at March 29, 1997, an increase of
approximately $8.5 million. For the six months ended September 27, 1997, the
Company provided approximately $7.2 million of cash from operating activities.
Cash used for capital expenditures for the six months ended September 27,
1997 was approximately $2.8 million as compared to approximately $4.2 million
for the corresponding period in the prior year.
The Company had net cash inflows from financing activities of
approximately $8.6 million , primarily due to the Recapitalization. In
connection with the Recapitalization, the Company received gross proceeds of
$110.0 million from the sale of the Notes and $16.0 million under the Term
Loans. The Company utilized these funds to pay off the balance of the Company's
Existing Revolving Credit Facility of $24.6 million, and its then Existing Term
Loan of $27.5 million. The Company has also used funds of $250,000 for principal
payments on the Term Loans. In addition, the Company has paid a dividend to
Holdings, aggregating approximately $56.2 million; used by Holdings for the
redemption of its common stock in the amount of $17.6 million, its preferred
stock in the amount of $37.0 million, and warrants to purchase its common stock
for approximately $823,000; and approximately $778,000 for professional fees
paid by Holdings. Finally, the Company paid approximately $8.2 million in fees
related to the Recapitalization, of which $7.4 million have been capitalized as
deferred financing costs and are being amortized over the term of the Notes and
Term Loans. During the six month period ended September 27, 1997, the Company
used $692,000 of funds for capital lease obligations.
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.
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.
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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 September 27, 1997,
the Company had outstanding approximately $125.8 million of indebtedness,
primarily consisting of $110.0 million principal amount of the Notes and the
Term Loans of $15.8 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,
interest payments on the Notes, and the funding of acquisitions, 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 obligation of Holdings to make payments under the Discount Debentures
will have no impact on the liquidity of the Company. There are no cash payments
of interest or principal required on the Discount Debentures until 2002. It is
currently contemplated that repayment of the Discount Debentures by Holdings
will be funded through a refinancing of the Discount Debentures or a Public
Equity Offering (as defined in the Discount Indenture) of Holdings, in each case
as permitted by the Discount Indenture. Accordingly, the Company should not be
considered a source of repayment for the Discount Debentures.
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 and $2.8 million
and $4.2 million for the six-month periods ended September 27, 1997 and
September 28, 1996, respectively. Capital expenditures are expected to be $7.0
million for the fiscal year ended March 28, 1998 which are expected to be
utilized for acquisition of equipment and upgrade and maintenance of facilities.
Additional expenditures may be made in connection with acquisitions.
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. The Company is restricted in its
borrowings under the Senior Credit Facilities by its obligation to comply with
the financial ratios contained therein (consisting of leverage, fixed charge
coverage and interest coverage ratios) and the other covenants contained
therein. The ability of the Company to borrow outside of the Senior Credit
Facilities is strictly limited by the covenants contained therein, including
covenants restricting the incurrence of indebtedness, the ability of the Company
to enter into sale and leaseback transactions, the ability of the Company and
its subsidiaries to issue additional capital stock and the ability of the
Company to dispose of assets. The Senior Credit Facilities also limit the
ability of the Company to pay dividends to Holdings and to make capital
expenditures above a certain threshold amount.
The Indenture, among other things, (i) prohibits the Company from (x)
incurring indebtedness other than indebtedness in connection with the Notes and
the Senior Credit Facilities if its Consolidated Coverage Ratio does not meet
certain standards, and (y) making Restricted Payments (as defined herein),
including the payment of dividends to Holdings and redemptions of capital stock
of the Company, (ii)
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limits the ability of the Company to sell certain assets and stock in its
subsidiaries, and (iii) limits the Company's ability to enter into certain
transactions with its affiliates.
The foregoing restrictions limit the ability of the Company to locate
alternative sources of liquidity. The Company believes that these restrictions
will not adversely impact its continuing operations or liquidity in the
foreseeable future. See "Risk Factors-Restrictions Imposed by Debt Instruments,"
"Description of Certain Indebtedness-Senior Credit Facilities" and "Description
of the Notes."
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BUSINESS
General
The Company is a manufacturer and distributor of highly engineered
precision roller, ball and plain bearings in the United States with, the Company
believes, a leading position in many of the markets in which it competes.
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 United States market for bearings was estimated by the United
States Department of Commerce (the "Commerce Department") to be approximately
$5.3 billion in 1996, and, according to the Commerce Department, the United
States represents approximately 30% of the worldwide market for bearings. 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. In fiscal 1997, the
Company had sales to more than 1,200 customers with no single customer amounting
to more than 9.7% 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. 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
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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 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,
Nice, the oldest active brand name in the domestic bearing industry and Bremen,
a manufacturer of needle bearings. 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:
o 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.
o 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, it
believes, shorter lead times than its direct competitors,
particularly in the aerospace market.
o 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.
o 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, the Company
believes, are often less focused on smaller sales volume
opportunities and generally provide lower levels of technical
support to these niche market segments.
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o 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.
o 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.
o 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.
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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. From fiscal 1992 through fiscal 1997, the Company
consummated four acquisitions. After the end of fiscal 1997, the Company
completed the purchase of Bremen. 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
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, Nice, the oldest active brand
name in the domestic bearing industry, for $7.5 million and Bremen, a
manufacturer of needle bearings.
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 recently consummated the
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purchase of Bremen for approximately $5.3 million, of which $3.6 million was
paid at closing. The purchase price was financed by borrowings under the Terms
Loans. See "Prospectus Summary-Recent Developments", "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.
The United States market for bearings was estimated by the Commerce
Department to be approximately $5.3 billion in 1996, and, according to the
Commerce Department, the United States represents approximately 30% of the
worldwide market for bearings. The domestic bearing industry grew at a CAGR of
7.4% between 1992 and 1996. 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).
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. 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, the Company believes 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.
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The following table summarizes the Company's sales to its three market
segments:
<TABLE>
<CAPTION>
============================================================================================================
Industrial Aerospace Government
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Technologies WS Wilson
Kaman
- ------------------------------------------------------------------------------------------------------------
Percentage of fiscal OEMs: 42% OEMs: 23% 6%
1997 net sales: Distributors: 19% Distributors: 10%
============================================================================================================
</TABLE>
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
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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 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.
While a significant portion of the Company's sales are either directly or
indirectly to the government or related to military or other government
projects, no significant portion of such sales are subject to renegotiation of
profits or termination of contracts at the election of the government.
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
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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 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.
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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.
7
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(R),
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 Boeing 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.
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
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<PAGE>
operate in this market, the opportunity exists for higher margins. The Company
does not currently expect this program to have a material impact upon its
results of operations or liquidity for at least the next three to five years.
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.
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.
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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.
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Backlog
As of September 27, 1997, the Company had a backlog, including orders to
LPP, Nice and Bremen, of $74.0 million ($66.6 million excluding LPP, Nice and
Bremen) as compared to a backlog of $53.3 million as of September 28, 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 1,099 employees at September 27, 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
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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.
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 negotiates with the landlord for the purchase of 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
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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 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. With respect to the Rancho
Dominguez, CA facility, the Company has contributed a total of approximately
$100,000 toward the cost of the on-going cleanup. Under the acquisition
agreement, the previous facility owner is responsible for all further costs to
cleanup conditions existing at the time of the transfer of the facility, up to a
maximum of the full purchase price. The previous owner is in the final stages of
completing that cleanup, and costs are not expected to approach the cap amount.
At the Santa Ana, CA facility, the Company has not contributed toward the
cost of the on-going cleanup. The previous owner is working with the regional
regulatory authority to obtain its approval of the completed cleanup. To the
Company's knowledge, cleanup costs have not approached the $4,500,000 limit on
the previous owner's liability under the acquisition agreement for this
facility.
At the West Trenton, NJ facility, the previous facility owner has been
investigating and remediating the land where the facility is located since the
mid-1980s. The previous owner, who still owns the real property on which the
facility is located, both indemnified the Company with respect to its cleanup
obligations and is performing the cleanup pursuant to a consent order with the
New Jersey Department of Environmental Protection. The Company has not
contributed to the costs of remediation at this facility, and does not expect to
do so with respect to conditions existing at the time the Company acquired the
facility.
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, in
connection with negotiating the terms of the acquisition, assumed responsibility
for
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completing remediation at the facility. In 1996, the Company received regulatory
approval of an investigation and remediation plan, and has implemented that plan
at a total cost that the Company estimates will reach $50,000 (including
attorney's fees). The investigation has not to date revealed conditions that
would require further remediation, although the regulatory authorities may
require ongoing monitoring of any residual contamination to ensure that it does
not reach unsafe levels.
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.
In connection with the Recapitalization and the redemption of certain
shares of Preferred Stock by Holdings pursuant thereto, Holdings released
certain Preferred Stockholders who were prior stockholders of the Company, from
certain indemnification obligations owing to Holdings. Such obligations arose
under the agreement pursuant to which Holdings purchased the Company from such
stockholders. The shares of Preferred Stock were held in escrow in connection
with such stockholders' obligations under such indemnification provisions. The
provisions of the escrow provided that the escrowed shares were to be released
upon any transaction involving a change in control of Holdings, except as to the
extent of claims previously made. As there were no pending claims, upon
consummation of the Recapitalization, such shares were released from escrow and
redeemed by Holdings. Any claims for environmental remediation at the facilities
covered by the released indemnification are being covered by other indemnifying
parties, and the Company believes that such other indemnification obligations
should be sufficient to cover all costs associated with the known or likely
environmental conditions at such facilities.
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" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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 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
55
<PAGE>
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 was 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. On September 26,
1997, the Company and Emerson entered into a Settlement Agreement and Mutual
Release (the "Settlement Agreement") settling all these actions.
The Settlement Agreement, the terms of which are confidential, provides
for the dismissal of all of the above claims and the execution of releases by
each of the Company and Emerson. The Company does not expect the terms of the
Settlement Agreement to have a material effect on its financial condition or
results of operations.
In September 1995, Emerson commenced an action in the Porter Superior
Court, located in Porter County, 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 in
the amount of $400,000, resulting from the Company's failure to timely deliver
the bearings. The Company commenced an action against Emerson in the United
States District Court for the District of 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 the Superior Court for the Judicial District
of Fairfield, Connecticut 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 unspecified amounts. In addition,
in the Connecticut state court suit, Emerson counter-sued the Company, claiming
damages in unspecified amounts on the same theory as in the Indiana suit. The
damages claims have not yet been concluded, and settlement discussions have
commenced.
The Settlement Agreement, the terms of which are confidential, provides
for the dismissal of all of the above claims and the execution of releases by
each of the Company and Emerson. The Company does not expect the terms of the
Settlement Agreement to have a material effect on its financial condition or
results of operations.
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."
56
<PAGE>
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, LPP and Bremen
Anthony S. Cavalieri....... 51 Vice President and Chief Financial Officer
of Holdings and RBC, Chief Financial Officer
of ITB, Nice, LPP and Bremen
Michael S. Gostomski....... 46 Executive Vice President, Mergers and
Acquisitions, of Holdings, RBC, ITB, Nice
and LPP, Executive Vice President of Bremen,
Secretary of Nice, LPP and Bremen
Frederick L. Morlok........ 57 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 and RBC
William E. Myers, Jr....... 37 Director of Holdings and RBC
Mitchell I. Quain.......... 45 Director of Holdings and RBC
Stephen A. Kaplan.......... 38 Director of Holdings and 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 Company, one of the three largest
bearings manufacturers in the United States. 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
57
<PAGE>
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.
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, an investment banking and brokerage company. From
June 1975 to May 1997 he served as a Managing Director of Schroeder Wertheim &
Company, an investment banking 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.
58
<PAGE>
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
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 Messrs. Kaplan, Larsen, Myers and Quain. Dr. Hartnett is the sole director
of ITB, Nice and LPP. Pursuant to the Stockholders Agreement (as defined
herein), the Oaktree Fund has the right to designate one 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"):
59
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------------ ----------------
Other Securities
Annual Underlying
Name and Principal Position Fiscal Year Salary Bonus Compensation Warrants
- --------------------------------- ------------- ---------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Dr. Michael J. Hartnett,
Chairman,
President and Chief
Executive Officer ............. 1997 $305,000(a)(b)(c) $287,167(d) $ 39,466(g) -
1996 305,000(a)(b) 110,000(e) 11,962(h) -
1995 305,000(a)(b) 200,000(f) 16,326(i) -
Michael S. Gostomski,
Executive Vice President,
Mergers and Acquisitions ...... 1997 $159,500(b) $150,000(d) $ 6,840(j) -
1996 159,500(b) 86,000(e) 14,327(k) -
1995 148,625(b) 60,000(f) 15,167(l) -
Frederick L. Morlok,
Vice President
Marketing and Sales ........... 1997 $165,000(b)(c) $ 50,000(d) $ 14,102(m)
1996 159,167(b) 75,000(e) 12,709(n) 250(s)
1995 151,667(b) 40,000(f) 9,937(o) -
Richard J. Edwards,
Vice President
and General Manager,
RBC Division .................. 1997 $120,333(b)(c) 30,000(d) $124,031(p) -
1996 111,750(b) 51,625(e) 1,696(q) 250(s)
1995 105,833(b) 45,188(f) 2,241(r) 500(t)
</TABLE>
- ----------
(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.
(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.
60
<PAGE>
(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.
The following table sets forth information concerning outstanding options
to purchase Common Stock held by the Named Executive Officers as of March 29,
1997:
61
<PAGE>
Warrant Exercises During Fiscal 1997
and Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Shares Warrants at Warrants at
Acquired March 29, 1997 March 29, 1997
on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable (a)
- ---- -------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
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............... 350 119,700(e) 1,015/85 420,210/35,190
</TABLE>
- ----------
(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).
(e) Based upon a per share price of $442 (the price at which Holdings
repurchased such shares following exercise of the Common Stock Purchase
Warrants by Mr. Edwards) and an exercise price of $100 per warrant.
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
62
<PAGE>
(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 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.
63
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists, as of September 27, 1997, all shares of Common
Stock of Holdings beneficially owned by (i) each director of the 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 September 27, 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. As of September 27, 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 September 27, 1997, there were 100 shares, par value $.01 per
share, of ITB, and 10 shares, par value $.01 per share, of each of Nice, LPP and
Bremen 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.
<TABLE>
<CAPTION>
Stockholder (a) Number of Shares (a) Percentage of Class
- --------------- -------------------- -------------------
<S> <C> <C>
Dr. Michael J. Hartnett............................ 14,216 (b) 72.8% (c)
Michael S. Gostomski............................... 1 *
Frederick L. Morlok................................ 525 5.7%
Christopher J. Sommers............................. 919 (d) 10.0%
Richard J. Edwards................................. 1,100 (e) 10.7%
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 (f)(g) 51.3%
Mitchell Quain
230 Park Avenue
New York, New York 10020.......................... 400 (h) 4.2%
Oaktree Capital Management, LLC
550 South Hope Street
Los Angeles, California 90071..................... 8,191 (f)(g)(i) 51.3%
OCM Principal Opportunities Fund, L.P.
550 South Hope Street
Los Angeles, California 90071..................... 8,191 (f)(g) 51.3%
Bruce Karsh
550 South Hope Street
Los Angeles, California 90071...................... 8,191 (f)(g) 51.3%
Howard Marks
550 South Hope Street
Los Angeles, California 90071...................... 8,191 (f)(g) 51.3%
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Stockholder (a) Number of Shares (a) Percentage of Class
- --------------- -------------------- -------------------
<S> <C> <C>
Northstar High Total Return Fund
Two Pickwick Plaza
Greenwich, Connecticut 06830...................... 1,262 (j) 12.1%
Northstar Investment Management Corp.
Two Pickwick Plaza
Greenwich, Connecticut 06830...................... 1,262 (j) 12.1%
Merban Equity(k)
c/o Credit Suisse First Boston
Bleichistrasse 8
P.O. Box 4263
CH-6304 Zug, Switzerland.......................... 1,400 (m)(n) 14.3%
Credit Suisse First Boston
Corporation (o)
11 Madison Avenue
New York, New York 10010 2,194 (n)(p) 22.33%
Credit Suisse Group (q)
Uetlibergstrasse 231
Ch-8045
Zurich, Switzerland 2,194 (m)(n)(p) 22.33%
Mark Kennelley(k)
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).. 29,065 (r) 93.0%
</TABLE>
- ----------
* 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 10,077.4 shares of Class B Common
Stock.
(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) Consists of shares of Common Stock and Discount Warrants owned by the
Oaktree Fund. To the extent that the stockholder, 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. The stockholder
disclaims beneficial ownership of such shares of Common Stock and Discount
Warrants.
(g) Includes Discount Warrants to purchase up to 6,791 shares of Class A
Common Stock.
(h) Includes Common Stock Purchase Warrants to purchase up to 340 shares of
Class A Common Stock.
65
<PAGE>
(i) Consists of shares of Common Stock and Discount Warrants owned by the
Oaktree Fund of which the stockholder is the general partner.
(j) Consists of Discount Warrants to purchase Class A Common Stock owned by
Northstar High Total Return Fund (the "Northstar Fund"). Northstar is the
investment advisor of the Northstar Fund and may be deemed to beneficially
own such Discount Warrants.
(k) Affiliate of the Initial Purchaser. Such shares may be deemed to be
beneficially owned by the Initial Purchaser.
(l) A wholly-owned subsidiary of Credit Suisse Group, an entity incorporated
under the laws of Switzerland.
(m) Such shares and warrants may be deemed to be beneficially owned by the
Initial Purchaser.
(n) Includes Common Stock Purchase Warrants to purchase 647 shares of Class A
Common Stock.
(o) An indirect wholly-owned subsidiary of Credit Suisse Group, an entity
incorporated under the laws of Switzerland. The Initial Purchaser is a
subsidiary of Credit Suisse First Boston, Inc., which is a subsidiary of
Credit Suisse First Boston, a Swiss Bank, which is a subsidiary of Credit
Suisse Group. Each of such entities may be deemed to beneficially own the
shares of Common Stock and Common Stock Purchase Warrants owned by
affiliates of the Initial Purchaser.
(p) Consists of shares of Common Stock and Common Stock Purchase Warrants
owned by affiliates of the Initial Purchaser.
(q) The stockholder, an entity incorporated under the laws of Switzerland, is
the ultimate parent entity of the Initial Purchaser and Merban Equity.
(r) 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 5,215 shares of Class A Common Stock, and (4) Common Stock
Purchase Warrants to purchase up to 10,077.4 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.
66
<PAGE>
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) the Company paid the Dividend
to Holdings in the amount of approximately $56.1 million to finance the
Recapitalization, (ii) Holdings sold the Discount Debentures and the Discount
Warrants to the Oaktree Fund and Northstar Investment Management Corp.
("Northstar"), (iii) Holdings used the proceeds of the Dividend and the proceeds
from the sale of the Discount Debentures and the Discount Warrants to redeem
Common Stock and Preferred Stock and purchase Common Stock Purchase Warrants for
aggregate consideration of approximately $92.2 million (including shares of
Common Stock and Preferred Stock and Common Stock Purchase Warrants owned by
members of management and affiliates of Holdings), (iv) Holdings assigned its
rights to purchase certain shares of Common Stock and Common Stock Purchase
Warrants under the Recapitalization Agreement to Dr. Hartnett, certain
affiliates of the Initial Purchaser, the Oaktree Fund, Mr. Morrison, The Sommers
Family Trust and Mr. Quain, (v) Holdings effected the Hartnett Repurchase of
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 $550,000), (vi) Holdings issued 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, (vii) Holdings made the Hartnett Loan in
the amount of $500,000, (viii) Holdings paid the Hartnett Fee in the amount of
$1 million, (ix) the Company repaid outstanding indebtedness (approximately
$52.1 million) on the Existing Revolving Credit Facility and the Existing Term
Loan, (x) Holdings paid a fee of $1.6 million to the Initial Purchaser, in
connection with the sale of the Discount Debentures, (xi) the Company paid a fee
to the Initial Purchaser of $3.85 million in connection with the sale of the
Outstanding Notes, (xii) 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 (xiii) agreed to indemnify the Initial Purchaser and
certain affiliates of the Initial Purchaser in connection with certain matters
relating to the Recapitalization.
The Hartnett Loan bears no interest and is recourse only to the securities
purchased with the proceeds thereof. As of September 27, 1997, the entire
principal balance of the Hartnett Loan remained outstanding.
The assignment of rights under the Recapitalization Agreement referred to
in clause (iv) above, was undertaken in order to achieve certain desired
post-Recapitalization equity positions and to satisfy certain contractual
obligations of the Company and Holdings. In exchange for such assignments, the
assignees assumed the obligations of the Company and Holdings under the
Recapitalization Agreement with respect to such shares of Common Stock or Common
Stock Purchase Warrants.
The Hartnett Repurchase and the grant of certain Common Stock Purchase
Warrants to Dr. Hartnett referred to in clause (vi) above were undertaken to
enable Dr. Hartnett to fulfill his obligations with respect to certain shares of
Common Stock assigned to him and referred to in clause (iv) above without Dr.
Hartnett suffering a diminution of his fully-diluted equity position in
Holdings. Upon the Hartnett Repurchase, all obligations of Holdings under the
Common Stock Purchase Warrants repurchased were extinguished.
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The Hartnett Fee was paid to Dr. Hartnett in consideration of services
rendered in connection with the preparation, negotiation and consummation of the
Recapitalization.
The Company bears no direct, indirect or contingent liability under the
Discount Debentures. Under the terms of the Indenture, the payment of dividends
to Holdings is severely restricted. See "Description of the Notes--Certain
Covenants." All operations of Holdings are conducted through the Company and
subsidiaries of the Company. Payments under the Exchange Notes are not
subordinated in any way to payments under the Discount Debentures, and the
issuance by Holdings of the Discount Debentures should in no way affect the
ability of the Company to make payments under the Exchange Notes.
In connection with the Recapitalization, the Oaktree Fund purchased
approximately $59.8 million principal amount at maturity of Discount Debentures
and Discount Warrants to purchase 5,469 shares of Common Stock from Holdings in
exchange for approximately $32 million. Mr. Kaplan, a director of Holdings and
the Company, is a principal of Oaktree, the general partner of the Oaktree Fund.
In addition, in connection with the Recapitalization and the other
transactions consummated in connection therewith, the Company paid Ernst & Young
LLP a consulting fee.
In connection with the Recapitalization and the redemption of certain
shares of Preferred Stock by Holdings pursuant thereto, Holdings released
certain Preferred Stockholders who were prior stockholders of the Company, from
certain indemnification obligations owing to Holdings. Such obligations arose
under the agreement pursuant to which Holdings purchased the Company from such
stockholders. The shares of Preferred Stock were held in escrow in connection
with such stockholders' obligations under such indemnification provisions. The
provisions of the escrow provided that the escrowed shares were to be released
upon any transaction involving a change in control of Holdings, except as to the
extent of claims previously made. As there were no pending claims, upon
consummation of the Recapitalization, such shares were released from escrow and
redeemed by Holdings. Any claims for environmental remediation at the facilities
covered by the released indemnification are being covered by other indemnifying
parties, and the Company believes that such other indemnification obligations
should be sufficient to cover all costs associated with the known or likely
environmental conditions at such facilities.
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."
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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 & Company, an entity owned and controlled by Mr. Myers, a
director of Holdings, received a $100,000 fee in 1997 for the provision of
investment banking services 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) of securities of Holdings, (iii) tag-along rights in favor of the
other parties to the Stockholders Agreement upon certain transfers of securities
of Holdings by Dr. Hartnett, (iv) certain rights in favor of Dr. Hartnett to
compel the other parties to the Stockholders Agreement to sell securities of
Holdings held by such parties upon certain sales of securities of Holdings by
Dr. Hartnett, (v) certain preemptive rights in favor of the Oaktree Fund,
Northstar and Dr. Hartnett with respect to securities of Holdings, (vi)
piggyback registration rights in favor of all of the parties to the Stockholders
Agreement with respect to securities of Holdings, (vii) demand registration
rights in favor of the Oaktree Fund and Northstar with respect to securities of
Holdings, 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
Prior to the Recapitalization, the Company and Tribos, an affiliate of
Aurora (the former principal stockholder of Holdings), 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
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the acquisition of Nice. The total fees paid in fiscal 1997, 1996 and 1995
pursuant to the consulting agreement were $429,000, $400,000 and $400,000,
respectively. The Consulting Agreement was terminated in connection with the
Recapitalization. Prior to January 1997, Mr. Larsen, a director of Holdings and
the Company, served as a principal of Aurora.
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.
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 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
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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 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 September 27, 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.
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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.
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
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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.
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.
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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 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.
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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 (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
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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 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
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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.
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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 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 on a joint and
several basis. In addition, the Senior Credit Facilities are secured by
substantially all the assets of the Company and the Subsidiary Guarantors.
The Credit Agreement contains certain covenants that, among other things,
restrict the ability of the Company and the Subsidiary Guarantors to: 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. The Credit Agreement also prohibits
the Company and the Subsidiary Guarantors from declaring dividends on,
repurchasing or redeeming their capital stock, except that (a) the subsidiaries
of the Company may pay dividends to the Company, (b) the Company and its
subsidiaries may make certain payments to Holdings under tax sharing
arrangements, (c) the Company may pay dividends to Holdings solely in its
capital stock, (d) under certain circumstances, the Company may pay dividends to
Holdings to be used to pay its operating expenses, and (e) the Company may,
under certain circumstances, pay dividends of up to $500,000 in any calendar
year to Holdings to redeem capital stock of Holdings held by present and former
employees and directors.
In addition, the Credit Agreement requires the maintenance of certain
financial covenants, including a maximum Consolidated Leverage Ratio (as defined
in the Credit Agreement; a ratio of total debt to EBITDA (as defined in the
Credit Agreement)), a minimum Consolidated Interest Coverage Ratio (as defined
in the Credit Agreement; a ratio of EBITDA to interest expense) and a minimum
Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement; a
ratio of EBITDA to fixed charges) certain of which become more restrictive over
time as follows: Consolidated Leverage Ratio - 5.95 to 1.00 for fiscal 1998 to
3.25 to 1.00 following fiscal 2002; Consolidated Interest Coverage Ratio - 1.60
to 1.00 for fiscal 1998 to 2.50 to 1.00 following fiscal 2002; Consolidated
Fixed Charge Coverage Ratio - 1.00 to 1.00 for fiscal 1998 to 1.05 to 1.00
following fiscal 2002.
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.
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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 contained therein, any
representation or warranty being materially incorrect when made, cross default
and cross acceleration to other indebtedness in a principal amount in excess of
$2,500,000, 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 and Discount Warrants 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.
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 was issued warrants to acquire up to 5,469 shares of Common
Stock and Northstar was issued warrants to acquire up to 1,262 shares of Common
Stock (representing, in the aggregate, 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,
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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.
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 all material 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 all material
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.
Many defined terms used in this section and throughout this Prospectus are
defined in the "Certain Definitions" section beginning on page 104 below.
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
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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 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.
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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, are fully and
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 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 November 18, 1997, the Company's Senior Indebtedness was
approximately $26.5 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."
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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, as to a Subsidiary Guarantee, creditors of such Subsidiary
Guarantor). 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
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
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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.
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
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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, 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
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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.
The Indenture provides that any certificate representing Notes must be
executed by two officers of the Company and authenticated by the Trustee. The
Trustee is obligated under the terms of the Indenture to authenticate Notes in
an aggregate principal amount of $110 million upon the written order of the
Company. The Trustee is permitted to appoint an authenticating agent reasonably
acceptable to the Company to perform the above function.
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.
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
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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 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.
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The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
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
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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 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;
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(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;
(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
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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 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 1/2 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
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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 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.
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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 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
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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 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,
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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, 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.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
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
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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.
Compliance Certificate
Within 120 days following the end of each fiscal year of the Company, the
Company shall deliver to the Trustee a certificate, duly executed by two
officers of the Company, stating that in the course of performing such officers'
duties as officers of the Company, such officers would normally have knowledge
of any Default, and whether such officers have any knowledge of any default that
occurred during such fiscal year. If such officers have any knowledge of a
Default, the certificate shall describe the Default, its status and what action
the Company is taking or proposed to take with respect thereto.
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 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
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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 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
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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, 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
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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
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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 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).
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"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.
"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.
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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 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
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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
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.
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"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;
(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.
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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.
"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
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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; (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.
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"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.
"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
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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 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
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<PAGE>
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-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,
111
<PAGE>
(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.
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
112
<PAGE>
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.
113
<PAGE>
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.
Each holder of Outstanding Notes participating in the Exchange Offer will,
by execution of the Letter of Transmittal, represent to the Company that such
holder is not engaged in nor does such holder intend to engage in a distribution
of Exchange Notes.
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 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.
114
<PAGE>
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
On June 23, 1997 management of the Company determined that the
Company's independent auditors for the fiscal year commencing March 30, 1997
will be Arthur Andersen LLP, and accordingly, has dismissed Ernst & Young LLP as
of such date. 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, and for the period from March 29,
1997 through June 23, 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.
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.
115
<PAGE>
Index to Audited Consolidated Financial Statements
Contents
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at March 29, 1997
and March 30, 1996 ....................................................... F-3
Consolidated Statements of Operations for Fiscal Years
Ended March 29, 1997, March 30, 1996 and April 1, 1995.................... F-4
Consolidated Statements of Stockholder's Equity for Fiscal Years
Ended March 29, 1997, March 30, 1996 and April 1, 1995.................... F-5
Consolidated Statements of Cash Flows for Fiscal Years
Ended March 29, 1997, March 30, 1996 and April 1, 1995.................... F-6
Notes to Audited Consolidated Financial Statements........................ F-7
<PAGE>
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, stockholder's 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
<PAGE>
Roller Bearing Company of America, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 29, 1997 March 30, 1996
-----------------------------------
<S> <C> <C>
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 50,093
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.
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
===================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Roller Bearing Company of America, Inc.
Consolidated Statements of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, March 30, April 1,
1997 1996 1995
-----------------------------------------------------
(52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
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
=====================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Roller Bearing Company of America, Inc.
Consolidated Statements of Stockholder's Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Minimum
Common Paid-In Earnings Pension
Stock Capital (Deficit) Liability Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Roller Bearing Company of America, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, March 30,
1997 1996 April 1, 1995
------------------------------------------
(52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
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)
==========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except 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.
The combined purchased net assets of LLP and Nice were allocated as follows:
F-6
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
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 of the Company based upon unaudited
statements of LLP and Nice for the fiscal years ended March 29, 1997 and March
30, 1996, as if the acquisitions took place at the beginning of the period were
as follows:
Fiscal Year Ended
--------------------------------
March 29, March 30,
1997 1996
--------------------------------
(unaudited)
Net Sales $111,287 $105,571
Net Income $ 6,155 $ 2,317
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.
F-7
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
3. Summary of Significant Accounting Policies (continued)
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.
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.
F-8
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
3. Summary of Significant Accounting Policies (continued)
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.
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). The
Company employs the straight line method, as it approximates the results
achieved using the effective interest method. Impairment is determined to exist
if estimated undiscounted future cash flows are less than the carrying amount.
If impairment is determined to exist, the Company reduces the carrying amount of
the assets to their net realizable value.
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.
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.
F-9
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
3. Summary of Significant Accounting Policies (continued)
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. The Company is required to disclose the pro
forma net income as if the fair value method had been applied to all grants made
on or after March 31, 1996. See Note 14 for pro forma disclosures.
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.
F-10
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
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 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
F-11
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
5. Long-Term Debt (continued)
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.
The term notes payable under the Credit Facility and the Bonds consist of the
following:
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
-----------------------------
<S> <C> <C>
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
=============================
</TABLE>
F-12
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
5. Long-Term Debt (continued)
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
=============
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.
The funded status of the union plans is as follows:
F-13
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
7. Pension Plans (continued)
<TABLE>
<CAPTION>
Heim West Trenton
--------------------------- --------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
--------------------------- --------------------------
<S> <C> <C> <C> <C>
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)
=========================== ==========================
</TABLE>
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:
F-14
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
7. Pension Plans (continued)
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).
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 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.
F-15
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
8. Postretirement Health Care and Life Insurance Benefits (continued)
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, 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.
<TABLE>
<CAPTION>
Heim West Trenton
-----------------------------------------------
March March March March
29, 30, 29, 30,
1997 1996 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
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
===============================================
</TABLE>
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
F-16
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
8. Postretirement Health Care and Life Insurance Benefits (continued)
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.
9. Income Taxes
The Company's effective income tax rate is reconciled to the U.S. Federal
statutory tax rate as follows:
Fiscal Year Ended
-----------------------------------
March 29, March 30, April 1,
1997 1996 1995
-----------------------------------
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax 5.0% 6.9% 7.0%
benefit
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 Year 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:
F-17
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
9. Income Taxes (continued)
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.
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:
F-18
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
11. Commitments and Contingencies (continued)
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.
Under applicable Connecticut law, the purchase by the Company of its Fairfield
facility in 1996 necessitated the undertaking of an environmental investigation
of the facility. The results of such investigation revealed the presence of
certain low level soil and groundwater contamination the remediation of which
had been commenced by the previous owner of the facility. In 1996, the Company
received regulatory approval of an investigation and remediation plan, and has
implemented that plan at a total cost that the Company estimates will reach $50
(including attorney's fees). All costs
F-19
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
incurred to date in connection with such remediation activities have been
satisfied out of current operational revenues of the Company and are expensed
currently. The investigation has not to date revealed conditions that would
require further remediation, although the regulatory authorities may require
ongoing monitoring of any residual contamination to ensure that it does not
reach unsafe levels. As the magnitude of such costs, if any, is impossible to
determine at this time, the Company has not made any reserves or taken any
charges in connection therewith.
There are certain ongoing remediation activities being conducted at certain of
the Company's other facilities by past owners of such facilities. The Company
may be required to expend funds in the future to address these and other
environmental issues; however, the Company believes that indemnification from
prior owners of the facilities should adequately cover costs relating to such
remediation activities, and accordingly, does not believe such activities will
have a material effect on the results of operations, liquidity or financial
condition of the Company.
F-20
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except 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
==========================================
In 1996, the Company recorded a $425 charge against earnings for expenditures
relating to the settlement of claims relating to a release of certain pollutants
from its West Trenton Facility. The Company entered into a stipulated settlement
with the New Jersey Attorney General which called for the payment by the Company
of a $150 civil penalty to the State of New Jersey and for the Company to make
an additional donation of $50 to a local conservation group. Additionally, the
Company expended approximately $225 in legal fees relating to the release and
settlement.
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-21
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
14. Stockholders' Equity of Roller Bearing Holding Company, Inc.
The stockholders' equity of Holdings is as follows:
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
------------------------
<S> <C> <C>
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 $ 1 $ 1
$18,665 in 1997
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 1 1
$12,353 in 1997
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 1 1
1996 and 1995
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
========================
</TABLE>
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):
F-22
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
14. Stockholders' Equity of Roller Bearing Holding Company, Inc. (continued)
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.
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 the Company for indemnified
environmental claims. All remaining shares held in the escrow account at March
31, 2004 will be released to the stockholders. See Note 15 for a discussion of
the treatment of such shares in connection with the Recapitalization.
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.
F-23
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
14. Stockholders' Equity of Roller Bearing Holding Company, Inc. (continued)
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.
The Series C Preferred Stock is convertible, in whole or in part, at the
holder's 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
F-24
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
14. Stockholders' Equity of Roller Bearing Holding Company, Inc. (continued)
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 29, 1997, 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.
The Company has adopted the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation" and as permitted by SFAS No. 123, the Company has elected to
account for the above warrants under APB No. 25, and as such no compensation
expenses were recorded. Pro forma information regarding net income is required
by SFAS No. 123, and has been determined as if the Company had accounted for
Holdings warrants under the fair value method of that Statement. The fair value
for the Holdings warrants was estimated at the date of grant using a
Black-Scholes warrant pricing model with the following weighted-average
assumptions: risk free interest rates of 6%; dividend yields of 0%; volatility
factors of expected market price of Holdings common stock of .44%; and a
weighted-average expected life of the warrants of three
F-25
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
years. For purposes of pro forma disclosures, the estimated fair value of the
warrants is amortized to expense over the warrants' vesting period. The
estimated weighted-average fair value per warrant is approximately $430.47. The
pro forma effect on the Company's fiscal 1996 and 1997 operations is as follows:
Net Income
-------------------------------
1996 1997
-------------------------------
As reported $827 $4,640
Pro forma $826 $4,554
The Black Scholes warrant valuation model was developed for use in estimating
the fair value of traded warrants which have no vesting restrictions and are
fully transferable. In addition, warrant valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Holdings warrants have characteristics significantly different from
those of traded warrants, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its warrants.
Because Statement 123 is applicable only to warrants granted subsequent to
fiscal years that began after December 15, 1994, its pro forma effect will not
be fully reflected until 1998.
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).
15. Subsequent Event
A. The Recapitalization and the Offering
On May 20, 1997, pursuant to a Redemption and Warrant Purchase Agreement (the
"Recapitalization Agreement"), the Company Equity Partners, L.P. and, PRBC
Investment Partners, L.P. (together with all stockholders and warrantholders of
Holdings who elect to become a party to the Recapitalization Agreement, 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
F-26
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
15. Subsequent Event (continued)
Selling Group will be purchased by Holdings. Following the Recapitalization,
members of management of the Company, 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.
("Oaktree"), Northstar Investment Management Corporation ("Northstar" and
together with Oaktree, the "Discount Purchasers") and Mitchell Quain will own
all of the outstanding capital stock of Holdings.
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.
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.
F-27
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
15. Subsequent Event (continued)
Under the Recapitalization Agreement, Holdings is permitted to, and it is
currently contemplated that Holdings will, assign certain of its rights to
redeem shares of Common Stock and purchase Common Stock Purchase Warrants to
certain persons, including, Dr. Hartnett, other members of management of
Holdings, affiliates of the Initial Purchaser and Oaktree.
To finance the Recapitalization, RBC will issue $110,000 aggregate principal
amount of 9-5/8% Senior Subordinated Notes due 2007 (the "Notes"), 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
Holdings will issue to the Discount Purchasers the Discount Debentures and the
Discount Warrants (as defined below) resulting in $40,000 gross proceeds to
Holdings.
The Notes will pay interest semi-annually and mature on June 15, 2007, but will
be able to be redeemed at the Company's option beginning on June 15, 2002, as
well as, earlier under certain conditions specified in the indenture under which
the Notes will be issued. The Notes will be unsecured and subordinate to all
existing and future senior indebtedness of the Company. The Notes will be fully
and unconditionally and irrevocably guaranteed, jointly and severally, on a
senior subordinated basis by each of the wholly-owned subsidiaries of the
Company.
The separate financial statements of the subsidiary guarantors have not been
presented because management has determined that they would not be material to
investors. However, the summarized combined financial information of the
guarantor subsidiaries are as follows:
March 29, March 30, April 1,
1997 1996 1995
-------- -------- --------
Balance Sheet Data
Total current assets $ 17,730 $ 9,918 $ 10,238
Noncurrent assets 16,417 8,873 6,411
-------- -------- --------
Total assets $ 34,147 $ 18,791 $ 16,649
-------- -------- --------
Total current liabilities $ 31,716 $ 18,381 $ 11,836
Noncurrent liabilities 1,228 1,630 6,096
-------- -------- --------
Total liabilities $ 32,944 $ 20,011 $ 17,932
-------- -------- --------
Stockholder's equity $ 1,203 $ (1,220) $ (1,283)
Operating Results
Net sales $ 23,858 $ 14,641 $ 9,796
Gross margin 6,065 2,738 (372)
Income (loss) before extraordinary
charge 1,925 (90) (2,045)
Net income (loss) $ 1,925 $ (446) $ (1,620)
-------- -------- --------
Total current liabilities includes intercompany liabilities of $28,312, $18,800
and $11,711 as of March 29, 1997, March 30, 1996 and April 1, 1995,
respectively. Income (loss) before extraordinary charge includes charges for
corporate overhead allocated from the Company of $1,040 in each of fiscal years
1997, 1996 and 1995, and a provision for (benefit from) income taxes of $1,338,
($64) and ($1,421) in fiscal years 1997, 1996 and l995, respectively.
In connection with effecting the Recapitalization, (i) RBC will pay to Holdings
a dividend (the "Dividend") in the amount of approximately $56,100 to finance
the Recapitalization, (ii) using the proceeds of the Dividend and the issuance
of the Discount Debentures, Holdings will redeem Common Stock and Preferred
Stock and purchase Common Stock Purchase Warrants including as described above
for aggregate consideration of approximately $92,200, (iii) Holdings will
repurchase (the "Hartnett 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 payable in connection with the Transactions.
In addition, in conjunction with the purchase of the Discount Debentures, the
Discount Purchasers will be issued warrants (the "Discount 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,
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.
F-28
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
15. Subsequent Event (continued)
Following the Recapitalization, Dr. Hartnett, the Chairman, President and Chief
Executive Officer of the Company, will own approximately 43% (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 will have the power to control a majority of the voting rights of all capital
stock of Holdings.
The redemption of shares of Common Stock and Preferred Stock and Common Stock
Purchase Warrants will be treated as a recapitalization transaction.
Accordingly, funds disbursed by Holdings and the Company (other than for the
additional compensation described below) will be charged against their capital
accounts to the extent permitted by law.
In connection with the Recapitalization, Holdings will (a) redeem (i) 5,253.022
shares of Class A Common Stock in exchange for aggregate consideration of
approximately $2,700, (ii) 127,545.876 shares of Series A Preferred Stock in
exchange for aggregate consideration of approximately $18,849, (iii) 109,818
shares of Class B Preferred Stock in exchange for aggregate consideration of
approximately $12,583, and (b) purchase Common Stock Purchase Warrants to
purchase 3,327.2 shares of Common Stock for aggregate consideration of
approximately $1,369.
The Hartnett Loan will be reflected as an asset of Holdings, discounted to
reflect a market interest rate, since the loan is non-interest bearing. The
discounted amount will be reflected as a charge to compensation expense at the
time of the loan and will be accredited into interest income of Holdings through
maturity in 2007. The $1 million Hartnett Fee will be reflected as a charge to
operations of Holdings.
In connection with the Recapitalization, Holdings will purchase Common Stock
Purchase Warrants to purchase (i) 1,250 shares of Class A Common Stock from Dr.
Hartnett, which warrants have an exercise price of $76.77 per share underlying
such warrants, and which were received by Dr. Hartnett in his capacity as a
director of Holdings, for aggregate consideration of approximately $546, (ii)
463 shares of Class A Common Stock from William A. Smith, which warrants have an
exercise price of $100.00 per share underlying such warrants, and which were
received by Mr. Smith in his capacity as a director of Holdings, for aggregate
consideration of approximately $192, and (iii) 1,524.2 shares of Class B Common
Stock from Banque Indosuez and Indosuez Roller Bearing Partners II, which
warrants have an exercise price of $100.00 per share underlying such warrants,
and which were received by such entities in connection with financing
transactions, for aggregate consideration of approximately $631.
Warrants that have been redeemed from current and former directors will be
accounted for as compensation expense at RBC based upon the amount of stock
appreciation redeemed (the difference between the redemption price and the
warrant exercise price). The charge relating to such compensation expense should
be approximately $738. Warrants redeemed from individuals or companies that
provided financing to RBC or Holdings, have been accounted for as a capital
transaction since the original value of such warrants was assigned to equity at
the time the warrant was issued.
In connection with the redemption of certain shares of Preferred Stock by
Holdings, Holdings will release certain Preferred Stockholders who were prior
stockholders of RBC from certain
F-29
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Consolidated Financial Statements
March 29, 1997
(dollars in thousands, except share data)
15. Subsequent Event (continued)
indemnification obligations owing to Holdings. Such obligations arose under the
agreement pursuant to which Holdings purchased RBC from such stockholders. The
shares of Preferred Stock have been held in escrow in connection with such
stockholders' obligations under such indemnification provisions. The provisions
of the escrow provided that the escrowed shares were to be released upon any
transaction involving a change in control of Holdings, except as to the extent
of claims previously made. As there are no pending claims, upon consummation of
the Recapitalization, such shares will be released from escrow and redeemed by
Holdings.
The Discount Debentures will be reflected in the financial statements of
Holdings net of both the discounted interest amount and the value of the
Discount Warrants issued in connection with these securities. The value of the
Discount Warrants, which have a nominal exercise price, is based upon the
redemption price established in connection with the recapitalization ($514 per
share) and will be included as a component of Holdings' stockholders' equity.
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-30
<PAGE>
Index to Unaudited Condensed Financial Statements
Contents
Condensed Consolidated Balance Sheets at September 27, 1997
and March 29, 1997 ..................................................... F-37
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 27, 1997 and
September 28, 1996 ..................................................... F-38
Condensed Consolidated Statements of Stockholder's Equity for
Fiscal Years Ended March 30, 1996 and March 29, 1997 and for
the Three Months Ended September 27, 1997 .............................. F-39
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended September 27, 1997
and September 28, 1996 ................................................. F-40
Notes to Condensed Consolidated Financial Statements ..................... F-41
F-31
<PAGE>
Roller Bearing Company of America, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Sept. 27, 1997 March 29, 1997
-----------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 10,020 $ 859
Accounts receivable, net 19,965 19,766
Inventories 41,559 36,852
Prepaid expenses and other current assets 1,289 764
-------- --------
Total current assets 72,833 58,241
-------- --------
Property, plant, and equipment, net 44,588 40,098
Restricted marketable securities 3,993 3,901
Goodwill, net of accumulated amortization of $3,131
at September 1997, and $2,843 at March 1997 19,622 19,911
Deferred financing costs, net of accumulated
amortization of $318 at September 1997, and
$337 at March 1998 8,162 1,383
Other assets 1,078 979
-------- --------
Total assets $150,276 $124,513
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $12,969 $9,644
Accrued expenses and other current liabilities 11,381 7,136
Current portion of long-term debt 1,125 2,500
Obligations under capital leases, current portion 1,200 1,325
-------- --------
Total current liabilities 26,675 20,605
-------- --------
Long-term debt:
Senior subordinated note payable 110,000 -
Bank term loan payable 114,625 -
Revolving credit agreement - 24,627
Term notes payable - 24,988
Industrial development revenue bonds 10,700 10,700
-------- --------
135,325 60,315
Capital lease obligations, less current portion 2,573 3,141
Other noncurrent liabilities 3,255 3,080
-------- --------
Total liabilities 167,828 87,141
-------- --------
Stockholder's equity:
Common stock - $.01 par value; 1,000 shares
authorized, issued and outstanding shares:
100 shares at September 1997, and at March 1997 -- --
Additional paid-in capital -- 35,831
-------- --------
Retained earnings (deficit) (17,552) 1,541
Total stockholder's equity (17,552) 37,372
-------- --------
Total liabilities and stockholder's equity $150,276 $124,513
======== ========
</TABLE>
See notes to condensed financial statements
F-32
<PAGE>
Roller Bearing Company of America, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands)
Three Months Ended Six Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 27,
1997 1996 1997 1996
------------------------------------------------
(Unaudited) (Unaudited)
Net sales $32,309 $20,847 $60,971 $41,967
Cost of sales 22,855 14,785 43,141 29,447
------- ------- ------- -------
Gross margin 9,454 6,062 17,830 12,520
Operating expenses:
Selling, general and
administrative 4,531 3,247 8,661 6,450
Other expense, net of other 234 222 1,022 410
income ------- ------- ------- -------
4,765 3,469 9,683 6,860
------- ------- ------- -------
Operating Income 4,689 2,593 8,147 5,660
Interest expense, net 3,311 1,393 4,894 2,748
------- ------- ------- -------
Income before taxes and
extraordinary charges 1,378 1,200 3,253 2,912
Provision for income taxes 565 492 1,334 1,194
------- ------- ------- -------
Income before extraordinary
charge 813 708 1,919 1,718
Extraordinary charge, net 0 0 625 0
------- ------- ------- -------
Net income $ 813 $ 708 1,294 $ 1,718
======= ======= ======= =======
See notes to condensed consolidated financial statements.
F-33
<PAGE>
Roller Bearing Company of America, Inc.
Condensed Consolidated Statements of Stockholder's Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Minimum
Common Paid-In Earnings Pension
Stock Capital (Deficit) Liability Total
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Dividends paid to Parent -- (35,831) (20,387) -- (56,218)
Net income -- -- 1,294 -- 1,294
--------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 27, 1997 $ -- $ -- $(17,552) $ -- $(17,552)
========= ======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-34
<PAGE>
Roller Bearing Company of America, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Sept. 27, 1997 Sept. 28, 1996
-----------------------------------------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities
Net income $ 1,294 $ 1,718
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Deferred income taxes (105) --
Depreciation 3,453 2,484
Amortization of goodwill 289 288
Amortization of deferred financing costs 333 107
Extraordinary charge 625 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,765) 445
(Increase) decrease in Inventories (3,402) (1,211)
(Increase) decrease in prepaid (542) (240)
expenses and other current assets
(Increase) decrease in other noncurrent assets 434 (56)
Increase (decrease) in accounts payable 1,207 (541)
Increase (decrease) in accrued expenses and other current 4,995 (196)
liabilities --------- ----------
Net cash provided by operating activities 7,176 2,798
Cash flows from investing activities:
Purchase of property, plant & equipment, net (2,761) (4,176)
Purchase of restricted marketable securities (93) --
Acquisition of subsidiaries (3,721) --
--------- ----------
Net cash used in investing activities (6,575) (4,176)
--------- ----------
Cash flows from financing activities:
Net increase (decrease) in revolving credit facility (24,627) 1,589
Proceeds from long-term debt 126,000 --
Payments of long-term debt (27,488) (625)
Payments of bank term loan (250) --
Proceeds from capital lease obligations -- 804
Principal payments on capital lease obligations (692) (630)
Dividends paid to parent company (56,218) --
Financing fees paid in connection with the (8,165) --
Recapitalization --------- ----------
Net cash provided by financing activities 8,560 1,138
--------- ----------
Net increase (decrease) in cash 9,161 (240)
Cash, at beginning of period 859 366
--------- ----------
Cash, at end of period $ 10,020 $ 126
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,830 $ 2,640
Income taxes $ 1,011 $ 425
</TABLE>
See notes to condensed consolidated financial statements.
F-35
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Condensed Consolidated Financial Statements
September 27, 1997
(dollars in thousands, except share data)
The condensed consolidated financial statements included herein have been
prepared by Roller Bearing Company of America, Inc. (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The year end condensed balance sheet data was derived from the
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The interim financial statements
furnished with this report have been prepared on a consistent basis with the
audited financial statements for the year ended March 29, 1997. These statements
reflect all adjustments, consisting only of items of a normal recurring nature,
which are, in the opinion of management, necessary for the fair statement of the
consolidated financial condition and consolidated results of operations for the
interim periods presented. It is suggested that these financial statements be
read in conjunction with the audited financial statements and notes thereto
included in the Company's registration on Form S-4, initially filed with the
Commission on August 7, 1997.
The results of operations for the six month period ended September 27, 1997 are
not necessarily indicative of the operating results for the full year.
All references to "Holdings" refer to Roller Bearing Holding Company, Inc., a
Delaware corporation and the corporate parent and sole stockholder of the
Company.
1. Acquisition of Wholly Owned Subsidiary
On August 8, 1997, Bremen Bearings, Inc., a wholly-owned subsidiary of the
Company, completed the acquisition of the Bremen Bearings Division of SKF USA,
Inc., a manufacturer of needle bearings with facilities in Bremen, Indiana. The
purchase was effective as of July 1, 1997. The acquisition was accounted for
under the purchase method of accounting. The aggregate purchase price of $5,313
was subject to certain adjustments and subsequent conditions. Thus, $3,640 was
paid at closing and the payments deferred include $473, which is due following
the installation of certain equipment, and $1,200, which is due on August 8,
1998.
Proforma consolidated results of operations of the Company based upon unaudited
statements of Bremen for the six months ended September 27, 1997, as if the
acquisition took place at the beginning of the period were as follows:
Six Months Ended
September 27,
1997
----------------
Net sales $64,843
Income before extraordinary charge $ 1,179
Net Income $ 554
2. Inventories
Inventories are summarized as follows:
September 27,1997 March 29, 1997
----------------- --------------
Raw material $ 2,375 $ 1,711
Work in process 18,300 17,170
Finished goods 20,884 17,971
------ ------
Total inventories $41,559 $36,852
------- -------
F-36
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Condensed Consolidated Financial Statements
September 27, 1997
(dollars in thousands, except share data)
3. Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
September 27,1997 March 29, 1997
----------------- --------------
Land $ 7,536 $ 7,536
Building 7,764 7,287
Machinery & equipment 56,701 43,886
------ -------
Total property, plant &
equipment, at cost 72,001 58,709
Less, accumulated
depreciation and amortization 27,413 18,611
------- ------
Property, plant
and equipment, net $44,588 $40,098
------- -------
4. Recapitalization
On June 23, 1997, the Company and Holdings consummated a Recapitalization
transaction whereby all of Holdings' preferred stock as well as a substantial
portion of its common stock and warrants to purchase its common stock were
redeemed by Holdings. In connection with the Recapitalization, the Company
issued the Senior Subordinated Notes and incurred the Term Loans described
below. The proceeds therefrom were utilized to pay a dividend to Holdings to
finance its redemption of common stock, preferred stock and warrants to purchase
common stock and to pay certain Recapitalization fees and expenses. This
transaction was further financed from the proceeds of the certain debt issued
directly by Holdings. In addition, a new group of investors (who were not
previously stockholders of Holdings) purchased shares and warrants from certain
Holdings' stockholders directly. The redemption of shares and warrants were
treated as a recapitalization transaction.
Holdings stockholders constituting approximately 7% of the outstanding voting
shares prior to the effective date of the Recapitalization, owned approximately
71% of the outstanding voting shares immediately following the Recapitalization.
The new group of investors referred to above owned the remaining 29% of the
voting shares at such time and are thus not controlling stockholders 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.
Funds disbursed by Holdings and the Company were charged against their capital
accounts to the extent permitted by law.
F-37
<PAGE>
Roller Bearing Company of America, Inc.
Notes to Condensed Consolidated Financial Statements
September 27, 1997
(dollars in thousands, except share data)
5. Debt
In connection with the financing of the Recapitalization, the Company issued
$110,000 aggregate principal amount of 9 5/8% Senior Subordinated Notes Due 2007
(the "Notes"). The Notes pay interest semi-annually and mature on June 15, 2007,
but may be redeemed at the Company's option beginning on June 15, 2002, as well
as earlier under certain conditions specified in the indenture under which the
Notes were issued. The Notes are unsecured and subordinate to all existing and
future senior indebtedness of the Company. The Notes are fully, unconditionally
and irrevocably guaranteed jointly and severally on a senior subordinated basis
by each of the wholly owned subsidiaries of the Company. The separate financial
statements of the subsidiary guarantors have not been presented because
management has determined that they would not be material investors. However,
the summarized combined financial information of the guarantor subsidiaries are
as follows:
September 27, 1997 September 28, 1996
------------------ ------------------
Balance Sheet Data
Total current assets $25,165 $ 9,754
Noncurrent assets 21,081 8,582
------- -------
Total assets $46,246 $18,336
------- -------
Total current liabilities $41,525 $17,318
Noncurrent liabilities 1,123 1,549
------- -------
Total liabilities $42,648 $18,867
------- -------
Stockholder's equity $ 3,598 $ (531)
Operating Results
Net sales $23,889 $ 7,824
Gross margin 5,991 1,869
Income before extraordinary charge 2,161 808
Net Income $ 2,161 160
Total current liabilities includes intercompany liabilities of $33,763 and
$19,125 as of September 27, 1997 and September 28, 1996, respectively. Income
before extraordinary charge includes charges for corporate overhead allocated
from RBC of $520 and $520 in fiscal years 1997 and 1996, respectively, and a
provision for income taxes of $1,502 and $561 in fiscal years 1997 and 1996,
respectively.
The Company incurred financing fees of approximately $8,165 primarily related to
costs associated with this borrowing as well as the Senior Credit Facility
described below, approximately $7,400 of which have been capitalized as deferred
financing costs and are being amortized over the terms of the Notes and Term
Loans (described below).
In addition, in connection with the Recapitalization, the Company entered into
bank credit facilities (the "Senior Credit Facilities") with a group of lenders
providing for $16,000 of term loans (the "Term Loans") and up to $54,000 of
revolving credit loans and letters of credit the "Revolving Credit Facility").
Approximately $10,900 of the Revolving Credit Facility is being utilized to
provide letters of credit to secure the Company's obligations relating to
certain Industrial Development Revenue Bonds. As of September 27, 1997 the
Company had the ability to borrow up to an additional $43,100 under the
Revolving Credit Facility.
Proceeds from these borrowings were used to repay certain existing indebtedness
as well as to pay a dividend to Holdings in order to consummate the
Recapitalization described above.
The debt agreements require that the Company meet certain financial covenants,
principally limiting the incurrence of additional indebtedness, the payment of
dividends and certain other transactions.
6. Extraordinary Charge
The extraordinary charge for the period ended September 27, 1997 resulted from
the write off of unamortized deferred financing costs due to the Company's early
extinguishment of debt in connection with the Recapitalization described above.
The extraordinary charge was $1,059 and is reflected net of the related tax
benefit of $434.
7. Stockholders' Equity of Roller Bearing Holding Company, Inc.
The stockholders' equity of Holdings is as follows:
The stockholders' equity of Holdings is as follows:
<TABLE>
<CAPTION>
Additional Retained
Common Preferred Paid-In Earnings Treasury
Stock Stock Capital (Deficit) Stock Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 30, 1996 $ 1 $ 2 $ 34,679 $ (1,950) $ - $ 32,732
Exercise of 350 warrants to purchase
Class A Common stock and
repurchase for treasury - - 35 - (35) -
Net income - - - 4,640 - 4,640
-------- -------- -------- -------- -------- --------
BALANCE AT MARCH 29, 1997 1 2 34,714 2,690 (35) 37,372
Cost of securities acquired through
recapitalization (1) (2) (34,714) (54,481) 35 (89,163)
Net income - - - (338) - (338)
-------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 27, 1997 $ - $ - $ - $(52,129) $ - $(52,129)
======== ======== ======== ======== ======== ========
</TABLE>
F-38
<PAGE>
================================================================================
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........................................................... 5
Risk Factors................................................................. 19
Use of Proceeds.............................................................. 28
Capitalization............................................................... 28
Unaudited Pro Forma Consolidated Financial Information ...................... 29
Selected Consolidated Historical and Unaudited Pro Forma Financial
Information............................................................ 33
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 35
Business..................................................................... 45
Management................................................................... 61
Securities Ownership of Certain Beneficial Owners
and Management......................................................... 68
Certain Relationships and Related Transactions............................... 71
The Exchange Offer........................................................... 74
Description of Certain Indebtedness.......................................... 83
Description of the Notes..................................................... 85
Certain Federal Income Tax Considerations....................................118
Plan of Distribution.........................................................119
Legal Matters................................................................120
Experts......................................................................120
Independent Auditors.........................................................120
Available Information........................................................120
Index to Audited Condensed Consolidated Financial Statements ................F-1
Index to Unaudited Consolidated Financial Statements .......................F-36
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
================================================================================
<PAGE>
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
<PAGE>
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. ("RBCA").
3.2* Bylaws of RBCA.
3.3* Certificate of Incorporation, dated January 28, 1997, of RBC
Nice Bearings, Inc.
3.4* Bylaws of RBC Nice Bearings, Inc.
3.5* Certificate of Incorporation, dated June 18, 1996, of BPP
Acquisition Corporation and Certificate of Amendment dated May
15, 1997, changing its name to RBC Linear Precision Products,
Inc.
3.6* Bylaws of BPP Acquisition Corporation.
3.7* Certificate of Incorporation, dated June 26, 1990, of ITI
Acquisition, Inc. and Certificate of Amendment changing its
name to Industrial Tectonics Bearings Corporation, filed July
19, 1990.
3.8* Bylaws of Industrial Tectonics Bearings Corporation.
3.9* Certificate of Incorporation, dated August 1, 1997, of Bremen
Bearings, Inc.
3.10* Bylaws of Bremen Bearings, Inc.
4.1* Indenture, dated as of June 15, 1997 between RBCA and the
Trustee with forms of Outstanding Note and Exchange Note.
4.1(a)* Supplemental Indenture, dated as of August 8, 1997 by and
between Bremen Bearings, Inc. and United States Trust Company
of New York.
4.2* Global Note Issued to Depository Trust Co., duly authenticated
by the Company and the Trustee.
4.3* Registration Rights Agreement dated June 17, 1997 between
RBCA, 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 RBCA, the
Subsidiary Guarantors and the Initial Purchaser (the "Purchase
Agreement").
- ----------
* Previously filed.
** Filed herewith.
II-2
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.2* Redemption and Warrant Purchase Agreement by and among Roller
Bearing Holding Company, Inc., Certain Stockholders of Roller
Bearing Holding Company, 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.
10.3* Credit Agreement dated as of June 23, 1997, among RBCA, the
Lenders named therein and Credit Suisse First Boston, as
Administrative Agent.
10.4* Pledge Agreement dated as of June 23, 1997, among RBCA, each
Subsidiary of the Borrower named therein and Credit Suisse
First Boston.
10.5* Security Agreement dated as of June 23, 1997, among RBCA, each
Subsidiary of the Borrower named therein and Credit Suisse
First Boston.
10.6* Guarantee Agreement dated as of June 23, 1997, among each of
the subsidiaries named therein of RBCA and Credit Suisse First
Boston.
10.7* 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.
10.8* 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.
10.9* Agreement and Plan of Reorganization among RBCA, Roller
Bearing Acquisition Company, Inc., Roller Bearing Holding
Company, Inc. and the Stockholders of RBCA, dated March 31,
1992.
10.10* Agreement of Merger between Roller Bearing Acquisition
Company, Inc. and RBCA, dated March 31, 1992.
10.11* Asset Sale Agreement by and between IMO Industries Inc. and
RBCA, dated as of May 10, 1993.
10.12* Asset Purchase Agreement by and among BPP Acquisition
Corporation, Beaver Precision Products, Inc., RBCA, and Lloyd
J. Baretz, dated as of October 18, 1996.
10.13* Asset Purchase Agreement By and Among SKF USA Inc., RBC Nice
Bearings, Inc. and RBCA, dated as of February 28, 1997.
10.14* Business Property Lease entered into October 30, 1996 by and
between Dana Corporation and BPP Acquisition for Walterboro,
South Carolina premises.
10.15* Lease between General Sullivan Group, Inc. and RBC Bearings,
dated July 11, 1995, for West Trenton, New Jersey premises.
- ----------
* Previously filed.
** Filed herewith.
II-3
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.16* Lease between Industrial Development Group and RBCA, dated
March 12, 1996 for Waterbury, Connecticut premises.
10.17* Letter of Credit Agreement, dated as of September 1, 1994,
between RBCA and Heller Financial, Inc.
10.18* Termination, Release and Enhancement Letter of Credit
Documents Continuation Agreement dated June 23, 1997, by and
between Heller Financial, Inc., RBCA and Industrial Tectonics
Bearings Corporation.
10.19* Executed counterpart of the Pledge and Security Agreement,
dated as of September 1, 1994, between RBCA, Heller and
Trustee.
10.20* Loan Agreement, dated as of September 1, 1994, between the
South Carolina Job - Economic Development Authority, ("the
Authority") and RBCA with respect to the Series 1994A Bonds.
10.21* Trust Indenture, dated as of September 1, 1994, between the
Authority and Mark Twain Bank, ("Bond Trustee"), with respect
to the Series 1994A Bonds.
10.22* Loan Agreement, dated as of September 1, 1994, between the
Authority and RBCA, with respect to the Series 1994B Bonds.
10.23* Trust Indenture, dated as of September 1, 1994, between the
Authority and Bond Trustee, with respect to the Series 1994B
Bonds.
10.24* 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.
10.25* 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.
10.26* Collective Bargaining Agreement between RBCA and the
International Union U.A.W. and its Local 502, effective
December 1, 1996.
10.27* Employment Agreement effective as of June 23, 1997 between
RBCA and Michael J. Hartnett, Ph.D.
10.28* Stockholders' Agreement dated as of June 23, 1997 by and among
Roller Bearing Holding Company, Inc., OCM Principal
Opportunities Fund, Northstar Investment Management
Corporation, Merban Equity, the CSFB Individuals named therein
and Dr. Michael J. Hartnett.
10.29* Promissory Note dated as of June 23, 1997 for $500,000 made by
Michael J. Hartnett, Ph.D. and payable to RBCA.
- ----------
* Previously filed.
** Filed herewith.
II-4
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.30* Tax Sharing Agreement effective as of June 23, 1997, by and
among Roller Bearing Holding Company, Inc. and RBCA,
Industrial Tectonics Bearings Corporation, RBC Linear
Precision Products, Inc. and RBC Nice Bearings, Inc.
10.31* Asset Purchase Agreement by and among SKF USA Inc., Bremen
Bearings, Inc. and RBCA dated as of August 8, 1997.
12** Statement regarding Computation of Ratios.
16.1* Statement of the Company regarding Change in Certifying
Accountant.
16.2* Letter of Ernst & Young LLP regarding Change in Certifying
Accountant.
21* Subsidiaries of RBCA.
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 RBCA (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).
24.5* Power of Attorney for Bremen Bearings, Inc. (Included on
signature page).
25** Statement of Eligibility of Trustee on Form T-1.
27* Financial Data Schedule.
99* Letter of Transmittal.
- ----------
* Previously filed.
** Filed herewith.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(d) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), 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.
(e) That 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 a post-effective 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.
(f) That 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.
(g) That 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-6
<PAGE>
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
persons of the registrants in the successful defense of any action suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Fairfield, State of Connecticut, on November 18,
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.
November 18, 1997 By: /s/ Michael J. Hartnett
---------------------------------------
Michael J. Hartnett
Chairman of the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)
November 18, 1997 By: *
---------------------------------------
Stephen A. Kaplan
Director
November 18, 1997 By: *
---------------------------------------
Kurt B. Larsen
Director
November 18, 1997 By: *
---------------------------------------
William E. Myers, Jr.
Director
- --------------------------
II-8
<PAGE>
November 18, 1997 By: *
---------------------------------------
Mitchell I. Quain
Director
November 18, 1997 By: /s/ Anthony S. Cavalieri
---------------------------------------
Anthony S. Cavalieri
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
- ----------
* By: /s/ Michael J. Hartnett
------------------------
Michael J. Hartnett
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Fairfield, State of Connecticut, on November 18,
1997.
INDUSTRIAL TECTONICS
BEARINGS CORPORATION
By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
President
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.
November 18, 1997 By: /s/ Michael J. Hartnett
--------------------------------------
Michael J. Hartnett
Sole Director and President
(Principal Executive Officer)
November 18, 1997 By: /s/ Anthony S. Cavalieri
--------------------------------------
Anthony S. Cavalieri
Chief Financial Officer
(Principal Financial and Accounting Officer)
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Fairfield, State of Connecticut, on November 18,
1997.
RBC LINEAR PRECISION
PRODUCTS, INC.
By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
President
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.
November 18, 1997 By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
Sole Director and President
(Principal Executive Officer)
November 18, 1997 By: /s/ Anthony S. Cavalieri
----------------------------------------
Anthony S. Cavalieri
Chief Financial Officer
(Principal Financial and Accounting Officer)
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Fairfield, State of Connecticut, on November 18,
1997.
RBC NICE BEARINGS INC.
By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
President
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.
November 18, 1997 By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
Sole Director and President
(Principal Executive Officer)
November 18, 1997 By: /s/ Anthony S. Cavalieri
----------------------------------------
Anthony S. Cavalieri
Chief Financial Officer
(Principal Financial and Accounting Officer)
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Fairfield, State of Connecticut, on November 18,
1997.
BREMEN BEARINGS, INC.
By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
President
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.
November 18, 1997 By: /s/ Michael J. Hartnett
----------------------------------------
Michael J. Hartnett
Sole Director and President
(Principal Executive Officer)
November 18, 1997 By: /s/ Anthony S. Cavalieri
----------------------------------------
Anthony S. Cavalieri
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
II-13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
3.1* Amended and Restated Certificate of Incorporation, dated June
23, 1997, of ("RBCA").
3.2* Bylaws of RBCA.
3.3* Certificate of Incorporation, dated January 28, 1997, of RBC
Nice Bearings, Inc.
3.4* Bylaws of RBC Nice Bearings, Inc.
3.5* Certificate of Incorporation, dated June 18, 1996, of BPP
Acquisition Corporation and Certificate of Amendment changing
its name to RBC Linear Precision Products, Inc.
3.6* Bylaws of BPP Acquisition Corporation.
3.7* Certificate of Incorporation, dated June 26, 1990, of ITI
Acquisition, Inc. and Certificate of Amendment changing its
name to Industrial Tectonics Bearings Corporation, filed July
19, 1990.
3.8* Bylaws of Industrial Tectonics Bearings Corporation.
3.9* Certificate of Incorporation, dated August 1, 1997, of Bremen
Bearings, Inc.
3.10* Bylaws of Bremen Bearings, Inc.
4.1* Indenture, dated as of June 15, 1997 between RBCA and the
Trustee with forms of Outstanding Note and Exchange Note.
4.1(a)* Supplemental Indenture dated as of August 8, 1997 by and
between Bremen Bearings, Inc. and United States Trust Company
of New York.
4.2* Global Note Issued to Depository Trust Co., duly authenticated
by RBCA and the Trustee.
4.3* Registration Rights Agreement dated June 17, 1997 between
RBCA, 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 RBCA, the
Subsidiary Guarantors and the Initial Purchaser (the "Purchase
Agreement").
10.2* Redemption and Warrant Purchase Agreement by and among Roller
Bearing Holding Company, Inc., Certain Stockholders of Roller
Bearing Holding Company, 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.
- ----------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.3* Credit Agreement dated as of June 23, 1997, among RBCA, the
Lenders named therein and Credit Suisse First Boston, as
Administrative Agent.
10.4* Pledge Agreement dated as of June 23, 1997, among RBCA, each
Subsidiary of the Borrower named therein and Credit Suisse
First Boston.
10.5* Security Agreement dated as of June 23, 1997, among RBCA, each
Subsidiary of the Borrower named therein and Credit Suisse
First Boston.
10.6* Guarantee Agreement dated as of June 23, 1997 among each of
the subsidiaries named therein of RBCA and Credit Suisse First
Boston.
10.7* 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.
10.8* 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.
10.9* Agreement and Plan of Reorganization among RBCA, Roller
Bearing Acquisition Company, Inc., Roller Bearing Holding
Company, Inc. and the Stockholders of RBCA, dated March 31,
1992.
10.10* Agreement of Merger between Roller Bearing Acquisition
Company, Inc. and RBCA, dated March 31, 1992.
10.11* Asset Sale Agreement by and between IMO Industries Inc. and
RBCA dated as of May 10, 1993.
10.12* Asset Purchase Agreement by and among BPP Acquisition
Corporation, Beaver Precision Products, Inc., RBCA, and Lloyd
J. Baretz, dated as of October 18, 1996.
10.13* Asset Purchase Agreement By and Among SKF USA Inc., RBC Nice
Bearings, Inc. and RBCA, dated as of February 28, 1997.
10.14* Business Property Lease entered into October 30, 1996 by and
between Dana Corporation and BPP Acquisition for Walterboro,
South Carolina premises.
10.15* Lease between General Sullivan Group, Inc. and RBC Bearings,
dated July 11, 1995, for West Trenton, New Jersey premises.
10.16* Lease between Industrial Development Group and RBCA, dated
March 12, 1996 for Waterbury, Connecticut premises.
10.17* Letter of Credit Agreement, dated as of September 1, 1994,
between RBCA and Heller Financial, Inc.
- ----------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.18* Termination, Release and Enhancement Letter of Credit
Documents Continuation Agreement dated June 23, 1997 by and
between Heller Financial, Inc., RBCA and Industrial Tectonics
Bearings Corporation.
10.19* Executed counterpart of the Pledge and Security Agreement,
dated as of September 1, 1994, between RBCA, Heller and
Trustee.
10.20* Loan Agreement, dated as of September 1, 1994, between the
South Carolina Job - Economic Development Authority, ("the
Authority") and RBCA, with respect to the Series 1994A Bonds.
10.21* Trust Indenture, dated as of September 1, 1994, between the
Authority and Mark Twain Bank, ("Bond Trustee"), with respect
to the Series 1994A Bonds.
10.22* Loan Agreement, dated as of September 1, 1994, between the
Authority and RBCA, with respect to the Series 1994B Bonds.
10.23* Trust Indenture, dated as of September 1, 1994, between the
Authority and Bond Trustee, with respect to the Series 1994B
Bonds.
10.24* 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.
10.25* 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.
10.26* Collective Bargaining Agreement between RBCA and the
International Union U.A.W. and its Local 502, effective
December 1, 1996.
10.27* Employment Agreement effective as of June 23, 1997 between
RBCA and Michael J. Hartnett, Ph.D.
10.28* Stockholders' Agreement dated as of June 23, 1997 by and among
Roller Bearing Holding Company, Inc., OCM Principal
Opportunities Fund, Northstar Investment Management
Corporation, Merban Equity, the CSFB Individuals named therein
and Dr. Michael J. Hartnett.
10.29* Promissory Note dated as of June 23, 1997 for $500,000 made by
Michael J. Hartnett, Ph.D. and payable to RBCA.
10.30* Tax Sharing Agreement effective as of June 23, 1997, by and
among Roller Bearing Holding Company, Inc. and RBCA,
Industrial Tectonics Bearings Corporation, RBC Linear
Precision Products, Inc. and RBC Nice Bearings, Inc.
10.31* Asset Purchase Agreement by and among SFK USA Inc., Bremen
Bearings, Inc. and RBCA, dated as of August 8, 1997.
12** Statement regarding Computation of Ratios.
- ----------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
16.1* Statement of the Company regarding Change in Certifying
Accountant.
16.2* Letter of Ernst & Young LLP regarding Change in Certifying
Accountant.
21* Subsidiaries of RBCA.
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 RBCA (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).
24.5* Power of Attorney for Bremen Bearings, Inc. (Included on
signature page).
25** Statement of Eligibility of Trustee on Form T-1.
27* Financial Data Schedule.
99* Letter of Transmittal.
- ----------
* Previously filed.
** Filed herewith.
November 20, 1997
Roller Bearing Company of America, Inc.
Industrial Tectonics Bearings Corporation
RBC Linear Precision Products, Inc.
RBC Nice Bearings, Inc.
Bremen Bearings, Inc.
60 Round Hill Road
Fairfield, Connecticut 06340
Gentlemen:
We have acted as your special counsel in connection with the proposed
offering and issuance of $110 million of 9-5/8% Senior Subordinated Notes Due
2007, Series B (the "Exchange Notes") of Roller Bearing Company of America, Inc.
(the "Company"), together with the guarantees thereof (the "Subsidiary
Guarantees" and collectively with the Exchange Notes, the "Securities") by each
of Industrial Tectonics Bearings Corporation. RBC Linear Precision Products,
Inc., RBC Nice Bearings, Inc. and Bremen Bearings, Inc. (collectively, the
"Subsidiary Guarantors") in exchange for a like amount of 9-5/8% Senior
Subordinated Notes Due 2007 (the "Outstanding Notes") of the Company, as
contemplated by the Prospectus (the "Prospectus") included as part of the
Registration Statement on Form S-4 (the "Registration Statement") with respect
to the Securities, which is being filed herewith with the Securities and
Exchange Commission under the Securities Act of 1993, as amended (the
"Securities Act").
For the purposes of this opinion, we have examined the Registration
Statement and the Prospectus contained therein, and have also examined and
relied upon the representations and warranties as to factual matters contained
in such documents and upon originals or copies of such corporate records and
other documents and have reviewed such
<PAGE>
November 20, 1997
Page 2
questions of law as we considered necessary or appropriate for the purposes of
this opinion. In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies, the genuineness of all
signatures on documents reviewed by us and the legal capacity of natural
persons.
Members of this firm are admitted to the Bar of the State of New York and
we express no opinon as to the applicability of, compliance with or effect of,
the law of any jurisdiction other than United States Federal law, the General
Corporation Law of the State of Delaware and the laws of the State of New York.
Based on such examination and review, we are of the opinion that:
1. The Exchange Notes have been duly authorized by the Company and the
Subsidiary Guarantees have been duly authorized by the Subsidiary
Guarantors; and
2. When (i) authenticated (in the case of the Exchange Notes) by the
trustee therefor (the "Trustee") in accordance with the provisions of
the Indenture (as defined in the Registration Statement, (ii) duly
executed by the Company and the Subsidiary Guarantors respectively and
(iii) issued and delivered in exchange for Outstanding Notes in
accordance with the terms of the Exchange Offer (as defined in the
Registration Statement), (a) the Exchange Notes will be duly issued
and will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their
terms, and (b) the Subsidiary Guarantees will constitute valid and
legally binding obligations of the Subsidiary Guarantors, enforceable
against the Subsidiary Guarantors respectively in accordance with
their terms, subject in each case to the following qualifications:
A. enforcement may be limited by applicable bankruptcy, insolvency,
reoganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter axisting affecting creditors' rights
generally and by general principles of equity (regardless of
whether enforcement is sought in equity or at law); and
<PAGE>
November 20, 1997
Page 3
B. we express no opinion to the enforceability of any rights to
contribution or indemnification provided for in the Securities
which are violative of the public policy underlying any law, rule
or regulation (including any federal or state securities law,
rule or regulation).
To the extent that the obligations of the Company of the Subsidiary
Guarantors under the Indenture may be dependent upon such matters, we have
assumed for purposes of this opinion the (i) the Trustee is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and is duly qualified to engage in the activities contemplated by
the Indenture, (ii) the Indenture has been duly authorized, executed and
delivered by and constitutes the legal, valid and binding obligation of the
Trustee, (iii) the Trustee is in compliance, generally and with respect to
acting as Trustee, under the Indenture, with all applicable laws and regulations
and (iv) the Trustee has the requisite organizational and legal power and
authority to perform its obligations under the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
ROLLER BEARING COMPANY OF AMERICA, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
4/3/93 4/2/94 4/1/95 3/30/96 3/29/97 9/27/96 9/28/97
------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical
Earnings
Income (loss) before income taxes
and extraordinary charge $3,730 $(7,518) $ 211 $ 3,522 $ 7,864 $2,912 $3,253
Fixed charges, excluding capitalized
interest - see below 3,805 4,762 6,861 6,686 5,711 2,924 5,088
------------------------------------------ --------------
Earnings $7,535 $(2,756) $7,072 $10,208 $13,575 $5,835 $8,341
------------------------------------------ --------------
Fixed Charges
Interest expense, net $3,471 $ 4,333 $6,445 $ 6,165 $ 5,338 $2,747 $4,894
Interest factor included in rentals 334 429 416 521 373 177 194
------------------------------------------ --------------
Fixed charges, excluding capitalized
interest 3,805 4,762 6,861 6,686 5,711 2,924 5,088
Interest capitalized -- -- -- -- -- -- --
------------------------------------------ --------------
Fixed charges $3,805 $ 4,762 $6,861 $ 6,686 $ 5,711 $2,924 $5,088
------------------------------------------ --------------
Ratio of earnings to fixed charges 2.0 (a) 1.0 1.5 2.4 2.0 1.6
========================================== ==============
Pro forma ratio of earnings to fixed
charges assuming the acquisition of LPP
and Nice as of March 31, 1996, and the
acquisition of Bremen as of March 30,
1997
Pro forma earnings before income taxes
and extrordinary charge $11,177 $3,685
Fixed charges, excluding capitalized
interest - see below 6,932 5,200
------- ------
Earnings $18,109 $8,885
------- ------
Fixed charges
Interest expense, net 6,539 5,001
Interest factor included in rentals 393 199
------- ------
Fixed charges, excluding capitalized
interest 6,932 5,200
------- ------
Interest capitalized -- --
------- ------
Fixed charges $ 6,932 $5,200
------- ------
Ratio of earnings to fixed charges 2.6 1.7
======= ======
</TABLE>
(a) Earnings were insufficient to cover charges in fiscal 1994 by $7,518.
<PAGE>
Exhibit 12
Page 2
ROLLER BEARING COMPANY OF AMERICA, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
4/3/93 4/2/94 4/1/95 3/30/96 3/29/97 9/27/96 9/28/97
------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma ratio of earnings to fixed
charges assuming the issuance of the
Recapitalization discussed herein and
the reduction of outstanding debt
Based on historical earnings and
fixed charges of the Company
Earnings, as above $ 13,575 $ 8,341
======== =======
Fixed charges, as above $ 5,711 $ 5,088
Additional interest as a result
of the Recapitalization
discussed herein 12,547 2,963
-------- -------
Pro forma fixed charges $ 18,258 $ 8,051
======== =======
Pro forma ratio of earnings to
fixed charges 0.7 1.0
======== =======
Based on the pro forma combined
results of the Company and its
acquisitions and the combined
fixed charges
Pro forma earnings, as above $ 18,109 $ 8,885
======== ========
Pro forma fixed charges, as above $ 6,932 $ 5,200
Additional interest as a result of
the Recapitalization discussed
herein 12,547 2,963
Reduction of interest expense as
a result of the repayment of the
existing debt (5,271) (1,194)
-------- -------
Pro forma fixed charges $ 14,208 $ 6,969
======== =======
Pro forma ratio of earnings to
fixed charges 1.3 1.3
======== =======
</TABLE>
Exhibit 23.2
CONSENT OF AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Consolidated Historical Financial Information", and to the use of our
report dated May 9, 1997 (except Note 15, as to which the date is May 20, 1997),
in the Registration Statement (Form S-4 No.333-33085) and related prospectus of
Roller Bearing Company of America, Inc. for the registration of its $110,000,000
of Senior Subordinated Notes Due 2007.
Ernst & Young LLP
White Plains, New York
November 17, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _____
---------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
---------------------------
Roller Bearing Company of America, Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3426227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------------
Industrial Tectonics Bearing Corporation
(Exact name of obligor as specified in its charter)
Delaware 95-4284623
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<PAGE>
---------------------------
RBC Linear Precision Products, Inc.
(Exact name of obligor as specified in its charter)
Delaware 06-1465144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------------
RBC Nice Bearings, Inc.
(Exact name of obligor as specified in its charter)
Delaware 06-1472609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------------
Bremen Bearings, Inc.
(Exact name of obligor as specified in its charter)
Delaware 06-1491241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Round Hill Road 06430
Fairfield, Connecticut (Zip code)
(Address of Principal executive offices)
---------------------------
9 5/8% Senior Subordinated Notes due 2007
(Title of the indenture securities)
================================================================================
<PAGE>
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New
York (Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust, powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
and 15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of November 17, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
----------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 17th day
of November 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ James E. Logan
----------------------------
James E. Logan
Vice President
JEL/pg
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1997
($ IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
Total Assets $2,832,660
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
----------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
----------
Total Liabilities $2,665,675
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
----------
Total Stockholder's Equity 166,985
----------
Total Liabilities and
Stockholder's Equity $2,832,660
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
November 13, 1997
