As filed with the Securities and Exchange Commission on April , 1999
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Westinghouse Air Brake Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 3743 25-1615902
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
Telephone: (412) 825-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Robert J. Brooks
Chief Financial Officer and Chief Accounting Officer
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
Telephone: (412) 825-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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with a copy to:
David L. DeNinno, Esquire
Reed Smith Shaw & McClay LLP
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Telephone: (412) 288-3214
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering: [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of each Class of to be Offering Price Offering Registration
Securities to be Registered Registered Per Note(1) Price(1) Fee
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9 3/8% Senior Notes Due
2005, Series B2.......... $75,000,000 100% $75,000,000 $20,850
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(1) Estimated solely for purposes of calculating the amount of registration
fee.
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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 laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated April 26, 1999
OFFER TO EXCHANGE
9 3/8% Series B2 Senior Notes due 2005
for Any and All Outstanding 9 3/8% Series B Senior Notes due 2005
of
Westinghouse Air Brake Company
The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1999, unless extended
LOGO
WESTINGHOUSE AIR BRAKE COMPANY OFFERS TO EXCHANGE ITS 9 3/8% SENIOR NOTES DUE
2005, SERIES B2, FOR ANY AND ALL OF ITS OUTSTANDING 9 3/8% SENIOR SUBORDINATED
NOTES DUE 2005, SERIES B. THE EXCHANGE OFFER WILL EXPIRE AT [ ], 1999,
UNLESS EXTENDED.
Westinghouse Air Brake Company, a Delaware corporation ("WABCO" or the
"Company"), hereby offers to exchange (the "Exchange Offer"), upon the terms
and conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), $1,000
principal amount of its 9 3/8% Senior Notes Due 2005, Series B2 (the "Exchange
Notes"), registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 9
3/8% Senior Notes due 2005, Series B (the "Old Notes"), of which $75,000,000
principal amount is outstanding. The form and terms of the Exchange Notes are
the same in all material respects as the form and term of the Old Notes, except
that (i) the Exchange Notes will bear a Series B2 designation, (ii) the
Exchange Notes will be registered under the Securities Act and, therefore, will
not contain terms with respect to transfer restrictions. The Old Notes and the
Exchange Notes are referred to herein collectively as the "Notes." The Exchange
Notes will evidence the same debt as the Old Notes (which they replace) and
will be issued under and be entitled to the benefits of the Indenture dated as
January 12, 1999 (the "Indenture") by and among the Company and the Bank of New
York, as trustee, governing the Notes. See "The Exchange Offer" and
"Description of the Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m. New York City time on [ ], 1999,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Company sold the Old Notes on January 12, 1999 to Chase Securities Inc.
(the "Initial Purchaser") in a transaction not registered under the Securities
Act in reliance upon an exemption under the Securities Act (the "Initial
Offering"). The Initial Purchaser subsequently placed the Old Notes with
qualified institutional buyers, as defined in Rule 144A under the Securities
Act ("QIBs"), pursuant to Rule 144A, and in offshore transactions to persons
other than "U.S. persons," as defined in Regulation S under the Securities Act
("Non-U.S. Persons"), in reliance on Regulation S. Accordingly, the Old Notes
may not be re-offered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements under the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Exchange and Registration Rights Agreement entered
into by the Company and the Initial Purchaser in connection with the Initial
Offering (the "Exchange and Registration Rights Agreement"). See "The Exchange
Offer." (Continued on following page).
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
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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.
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The date of this Prospectus is , 1997
Interest on the Notes will accrue from their date of original issuance and
will be payable semi-annually on June 15 and December 15 of each year,
commencing on June 15, 1999, at the rate of 9 3/8% per annum. The Company may
not redeem the Notes prior to June 15, 2000. At any time on or after June 15,
2000, it may redeem all or part of the Notes at 104.688% of par, plus accrued
and unpaid interest, if any, to the date of repurchase. The premium declines
ratably to zero on or after June 15, 2002. If the Company optionally redeems
the Notes or its previously existing 9 3/8% Senior Notes due 2005 issued in
1995 (the "Existing Notes"), the Company must also redeem the Existing Notes or
Notes on a pro rata basis. See "Description of the Notes--Optional Redemption."
Upon the occurrence of a "Change of Control," the Company will be required
to make an offer to repurchase each holder's Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. See "Description of the Notes--Change of Control."
The Notes will be equal in right of payment with all of the Company's
existing and future unsubordinated debt; and senior in right of payment to all
of its existing and future subordinated debt. The Notes will effectively rank
below all liabilities of the Company's subsidiaries as reflected on its
December 31, 1998 balance sheet, excluding guarantees and intercompany
obligations, of $86.0 million. The Notes will not be guaranteed by the
Company's subsidiaries. The Company's senior secured credit facility, however,
is unconditionally guaranteed by all of its subsidiaries, which guarantee is
limited to $250 million in the aggregate so long as the Existing Notes remain
outstanding. The Notes will also not be secured by any collateral. The
Company's senior secured credit facility, however, is secured by substantially
all of its assets (including all of the stock of its domestic subsidiaries and
sixty-five percent (65%) of the stock of most of its foreign subsidiaries) and
substantially all of the assets of all of its subsidiaries. The Company
estimates that as of December 31, 1998, on a pro forma basis giving effect to
the offering of the Notes, the application of the net proceeds therefrom that
its total indebtedness would have been $468.1 million, all of which would have
been unsubordinated indebtedness. Approximately $269.4 million of such
indebtedness would have been secured indebtedness. See "Description of the
Notes--Ranking," "Description of Certain Indebtedness" and "Capitalization."
The Indenture relating to the Notes will contain certain restrictive
covenants, including, but not limited to, covenants with respect to the
following matters: limitation on indebtedness; limitation on payment of
dividends and redemption of stock; limitation on transactions with affiliates;
limitation on liens; limitation on sale of assets; limitation on investments in
and distributions from certain subsidiaries; limitation on the use of proceeds
from sales of assets and subsidiary stock; limitation on sale/leaseback
transactions; and restrictions on consolidations, mergers and the sale of
assets. These covenants are subject to a number of important exceptions. See
"Description of the Notes--Certain Covenants."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by any holder thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer-Resale of the Exchange Notes." Holders
of Old Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Exchange and Registration Rights Agreement, that
such conditions have been met. Each broker-dealer (a "Participating 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. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a Participating 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 Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
ii
where such Old Notes were acquired by such Participating 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, it will make
this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer. Holders of Old
Notes not tendered and accepted in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all the rights and benefits and will be
subject to the limitations applicable thereto under the Indenture and with
respect to transfer under the Securities Act. The Company will pay all the
expenses it incurs incident to the Exchange Offer. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market--
Restrictions on Resales." Moreover, to the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL [ ], 1999 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED) WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") (WITH LINKS TO EUROCLEAR AND
CEDEL) AND REGISTERED IN ITS NAME OR IN THE NAME OF ITS NOMINEE. BENEFICIAL
INTERESTS IN THE GLOBAL NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND
ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN
CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER
LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY
AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR
iii
SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. THE COMPANY IS
NOT MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES
REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER
APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS.
Disclosure Regarding Forward-Looking Statements
We believe that all statements other than statements of historical facts
included in this report, including certain statements under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Although we believe that our assumptions made in connection with
the forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct.
These forward-looking statements are subject to various risks, uncertainties
and assumptions about us, including, among other things:
--Interest rates;
--Demand for services in the freight and passenger rail industry;
--Consolidations in the rail industry;
--Demand for our products and services;
--Gains and losses in market share;
--Demand for freight cars, locomotives, passenger transit cars and buses;
--Industry demand for faster and more efficient braking equipment;
--Continued outsourcing by our customers;
--Governmental funding for some of our customers;
--Future regulation/deregulation of our customers and/or the rail industry;
--General economic conditions in the markets which we compete, including
North America, South America, Europe and Australia;
--Successful introduction of new products;
--Successful integration of newly acquired companies;
--Year 2000 concerns;
--Labor relations;
--Completion of additional acquisitions; and
--Other factors.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Available Information
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to
iv
each such contract, agreement or other document filed as an exhibit to the
Exchange Offer Registration Statement, reference is made to the exhibit for a
more complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. In
addition, the Company files periodic reporting and other information
requirements of the Exchange Act. The Exchange Offer Registration Statement,
including the exhibits thereto, and periodic reports and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. Reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of the New York Stock Exchange, Inc., 11 Wall Street, New York,
New York 10005.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act. This
Prospectus incorporates documents by reference which are not presented herein
or delivered herewith.
Incorporation Of Certain Documents By Reference
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1998;
2. The Company's definitive Proxy Statement, dated March 31, 1999, which
was mailed to its stockholders in connection with the Annual Meeting of
Stockholders to be held on May 19, 1999; and
3. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, that indicate on
the cover page thereof that they are to be incorporated by reference, after
the date of this Prospectus and prior to the Expiration Date, shall be
deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such reports and documents.
These documents are available without charge upon request from Westinghouse
Air Brake Company, 1001 Air Brake Avenue, Wilmerding, Pennsylvania 15148,
Attention: Alvaro Garcia-Tunon, Vice President--Treasurer, telephone (412) 825-
1000. In order to ensure timely delivery of the documents, any request should
be made by [ ], 1999 (five business days prior to the Expiration Date)
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
v
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes the Company and all of its subsidiaries and its and their respective
predecessors and subsidiaries. Unless otherwise indicated, all financial
statements used in this Prospectus have been prepared in accordance with United
States generally accepted accounting principles and all dollar references are
to U.S. dollars. All references to "fiscal 1998" refer to the year ended
December 3l, 1998 and prior years are referred to in a corresponding manner
unless otherwise indicated. Industry data contained herein is derived from
publicly available industry trade journals, reports and other publicly
available sources, which the Company has not independently verified, or from
estimates the Company believes to be reasonable but which have not been
independently verified. See "Use Of Proceeds," "Recent Acquisitions" and
"Selected Historical Financial Data."
The Company
Westinghouse Air Brake Company is North America's largest manufacturer of
value-added equipment for locomotives, railway freight cars and passenger
transit vehicles. The Company believes that it maintains a market share in
North America in excess of fifty percent (50%) for its primary braking related
equipment and a significant market share in North America for its other
principal products. The Company also sells its products in Europe, Australia,
South America and Asia. Its products are intended to enhance safety, improve
productivity and reduce maintenance costs for its customers. The Company's
major product offerings include electronic controls and monitors, air brakes,
couplers, door controls, draft gears and brake shoes. It aggressively pursues
technological advances with respect to both new product development and product
enhancements. The Company believes that its new and enhanced products developed
since 1992 generated approximately twenty-five percent (25%) of its net sales
in fiscal 1998. Acquisitions have also added significantly to WABCO's net sales
and EBITDA growth. The Company had net sales and EBITDA (as defined) of $670.9
million and $129.0 million, respectively, for the twelve months ended December
31, 1998.
WABCO also provides value-added service centers to the railroad and
passenger transit aftermarkets, operating 15 repair and upgrade sites in North
America, Australia and the United Kingdom. Through its service centers, it
capitalizes on the increased outsourcing of repair and upgrade business by
railroads and transit authorities.
Products
The Company has a significant breadth of products and services within each
of its product groups. Its new product development programs also provide it
with an array of product upgrades that strengthen its original equipment
manufacturer ("OEM") and aftermarket sales. WABCO believes that it has a
competitive advantage in its markets based on its breadth of products, product
quality, competitive pricing and ability to support its products in the
aftermarket through service and upgrade centers. The Company's products and
services (listed by group) include:
. Railroad Group (58% of the Company's revenues for the year ended December
31, 1998)
> Freight Car--WABCO manufactures, sells and services air brake equipment,
brake valves, draft gears, hand brakes and slack adjusters for freight
cars.
> Locomotive--WABCO manufactures, sells and services air brake equipment,
compressors, air dryers, slack adjusters and brake cylinders for
locomotives.
1
> Electronics--WABCO manufactures, sells and services high-quality
electronics for the railroads in the form of monitoring products and
control equipment and braking products for locomotives and freight cars.
It is an industry leader in insulating or "hardening" electronic
components to protect them from severe conditions, including extreme
temperatures and high shock/vibration environments. Its acquisition of
Rockwell Railroad Electronics ("RRE") on October 5, 1998 significantly
strengthened its capabilities by expanding its freight electronic air
brake capability and broadening its electronics product line to include
display and positioning systems, data communications and monitoring
products for locomotives.
. Transit Group (32% of the Company's revenues for the year ended December 31,
1998)
> Passenger Transit--The Company manufactures, sells and services
electronic brake equipment, pneumatic control equipment, air
compressors, tread brakes and disc brakes, couplers, collection
equipment, overhead electrification, monitoring systems, wheels, climate
control and door equipment and other components for passenger transit
vehicles. It believes that its ability to manufacture a wide range of
integrated products gives it a competitive advantage in the passenger
transit market. In 1997, the Company received contracts valued at $150
million to provide equipment for 1,080 new passenger transit cars for
the Metropolitan Transportation Authority/New York City Transit (the
"MTA"). It expects deliveries to commence in the second half of 1999.
. Molded Products Group (10% of the Company's revenues for the year ended
December 31, 1998)
> Friction and Other Products and Services--WABCO manufactures and sells
brake shoes, disc brake pads and other rubber products.
Historically, approximately half of the Company's net sales have been
derived from products sold directly to OEMs of locomotives, railway freight
cars and passenger transit vehicles with the balance of its net sales generated
from the sale of replacement parts, repair services and upgrade work purchased
by operators of rail vehicles such as railroads, transit authorities, utilities
and leasing companies (collectively, "end-users" or the "aftermarket"). The
Company believes that its substantial installed base of OEM products is a
significant competitive advantage in providing products and services in the
aftermarket. It also believes that end-users tend to purchase the Company's
replacement parts due to the high quality of its products and services. The
Company expects its replacement, repair and upgrade sales to increase as a
result of the increased utilization and the aging of rail transport equipment
and the technological improvements of its products. The Company believes that
it is less adversely affected by fluctuations in domestic demand for new
railroad vehicles than its competitors because of its substantial aftermarket
sales.
Industry Overview
Rail traffic, in terms of both freight and passengers, is a key factor
underlying the demand for the Company's products. Government investment in
public rail transportation also plays a significant role. Additionally,
railroads continuously seek to increase the efficiency and productivity of
their rail operations in order to improve profitability. The Company designs an
array of products to meet this goal and believes that through its products and
service offerings, it is well positioned to contribute to and benefit from the
railroad industry's drive to improve efficiency and productivity. For example,
WABCO's end of train device, automated single car tester and electro-pneumatic
brake all provide significant cost saving opportunities for its customers.
Demand for North American locomotive and freight car products remains strong
due to:
. continued growth in revenue ton-miles in the United States (defined as
weight times distance traveled by Class 1 railroads), of 1,376 billion
in 1998 as compared to 1,067 billion in 1992;
2
. continued strong delivery of new freight cars:
> aging freight car fleet, with an average age of 17.8 years in 1998
with approximately 50% over 17 years old; and
. the desire of railroads to gain efficiency improvements from larger,
more efficient aluminum cars;
. aging locomotive fleet, with more than 52% of the fleet over 17 years
old; and
. newer AC locomotives, which are more powerful and efficient than DC
locomotives.
Demand for passenger transit original equipment manufacturer ("OEM") and
aftermarket products is driven by:
. replacement building and/or expansion programs by transit authorities;
these programs are funded in part by federal and state governments,
including the recently reauthorized Intermodal Surface Transportation
and Efficiency Act (providing up to $42 billion to be made available,
subject to appropriations, for transit-related infrastructure between
1998 and 2003); and
. aging United States passenger transit car fleet, with an average age of
21.6 years in 1997 as compared to 19.3 years in 1995.
WABCO believes that order backlogs at locomotive, freight car and passenger
transit car manufacturers are currently near record levels. Its backlog as of
December 31, 1998 is also at record levels, with an aggregate sales price of
approximately $460.9 million, compared to $376.3 million as of December 31,
1997. Consistent with the Company's past experience, most of its backlog is in
passenger transit products. See "Business."
Strategy
WABCO is committed to enhancing its position as a producer of value-added
equipment for the rail industry and will continue to seek ways to increase its
content per rail vehicle. Building on its leading market share, strong
aftermarket presence and technological leadership, it is pursuing a strategy
involving five key elements:
Expand Technology-Driven New Product Development and Product Lines
. WABCO plans to continue to emphasize research and development to create new
and improved products to increase its market share and profitability.
. WABCO is focusing on technological advances, especially in the areas of
electronics, braking products and other on-board systems as a means of new
product growth.
Increase Repair and Upgrade Services
. By continuing to leverage the Company's broad product offering and its large
installed product base, it intends to expand its presence in the repair and
upgrade services market.
. WABCO believes that its services are more cost effective than, and it offers
product upgrades not available in, most independent repair shops.
. To capitalize on the growing aftermarket, the Company is developing and
marketing retrofit and upgrade products, which serve as a platform for
offering additional installation, replacement parts and repair services to
customers.
3
Grow International Presence
. The Company believes that international sales represent a significant
opportunity for further growth.
. The Company's net sales outside of the United States and Canada comprised
approximately 17% of its net sales for the year ended December 31, 1998,
compared to 4% in 1994. WABCO intends to increase its existing international
sales by:
> acquisitions,
> direct sales of products through our subsidiaries and licensees; and
> forming joint ventures with railway suppliers having a strong presence
in their local markets.
Pursue Strategic Acquisitions
. WABCO intends to pursue strategic acquisitions that expand its product
lines, increase its aftermarket business, increase international sales and
increase its technical capabilities.
. An integral component of the Company's acquisition strategy is to realize
revenue growth and cost savings through the integration of the acquired
business.
Further Improve Manufacturing Efficiency and Quality
The Company intends to retain what it considers to be a leading position as
a low cost producer in the industry while maintaining world-class product
quality, technology and customer responsiveness. It is dedicated to utilizing
the WABCO Performance System, which includes continuous improvement across all
phases of its business through:
. its proven Kaizen employee-directed initiatives (a Japanese-developed
team concept used to continuously improve quality, lead time and
productivity; and
. its total Quality Improvement Program (an ongoing program to
continuously improve the manufacturing process by encouraging feedback
from work "teams," continuing worker training, statistical engineering,
monitoring systems and evaluation of the process); and
. a continuing emphasis on "lean manufacturing" principles and roadmap to
drive customer satisfaction and enterprise value to world class levels.
These efforts enable WABCO to streamline processes, improve product quality
and customer satisfaction, reduce product cycle times and respond more rapidly
to market developments. It believes that its management and employees are
appropriately incentivized to carry out its strategy. Management owns
approximately 31% of our Common Stock and our employees own Common Stock
through an Employee Stock Ownership Plan ("ESOP").
Recent Acquisitions
On October 5, 1998, the Company purchased RRE from Rockwell Collins, Inc., a
wholly-owned subsidiary of Rockwell International Corporation, for
approximately $80 million (subject to adjustment based on the closing date
balance sheet), which was financed entirely through borrowings (the "Rockwell
Acquisition"). RRE is a leading manufacturer and supplier of mobile electronics
(display and positioning equipment), data communications, and electronic
braking equipment for the railroad industry. The Company believes that through
the expansion of its electronic technological capability, which has been
significantly enhanced by the Rockwell Acquisition, it is uniquely positioned
to provide the next generation of train communications and control equipment.
4
WABCO also acquired in October 1998 the air brake repair business of Comet
Industries, Inc. for approximately $13.2 million (the "Comet Acquisition" and
together with the Rockwell Acquisition, the "Acquisitions"). The purchase price
consisted of $1.0 million in cash, unsecured promissory notes in the aggregate
amount of $6.2 million delivered by the Company and a promissory note in the
amount of $6.0 million delivered by one of its subsidiaries which is secured by
the acquired assets.
In 1998, the Company has acquired five (5) companies and/or product lines,
including RRE and Comet, for an aggregate purchase price of $112.9 million.
Each of the acquisitions has been accounted for using the purchase method of
accounting.
The Exchange Offer
Securities Offered............... $75,000,000 aggregate principal amount of
9 3/8% Senior Subordinated Notes due 2005,
Series B2, of the Company (the "Exchange
Notes").
The Exchange Offer............... $1,000 principal amount of Exchange Notes
in exchange for each $1,000 principal
amount of Old Notes. As of the date hereof,
$75,000,000 aggregate principal amount of
Old Notes are outstanding. The Company will
issue the Exchange Notes to holders on or
promptly after the Expiration Date.
Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale,
resold and otherwise transferred by any
holder thereof (other than any such holder
which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such Exchange Notes are acquired in
the ordinary course of such holder's
business and that such holder does not
intend to participate and has no
arrangement or understanding with any
person to participate in the distribution
of such Exchange Notes.
Any Participating Broker-Dealer that
acquired Old Notes for its own account as a
result of market-making activities or other
trading activities may be a statutory
underwriter. Each Participating 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. The Letter of
Transmittal states that by so acknowledging
and by delivering a prospectus, a
Participating 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 Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where
such Old Notes were acquired by such
Participating 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, it
5
will make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange
Offer with the intention to participate, or
for the purpose of participating, in a
distribution of the Exchange Notes could
not rely on the position of the staff of
the Commission enunciated in no-action
letters and, in the absence of an exemption
therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities
Act for which the Company does not
indemnify the holder.
Expiration Date.................. 5:00 p.m., New York City time, on [ ],
1999, unless the Exchange Offer is
extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is
extended.
Accrued Interest on the Exchange Each Exchange Note will bear interest from
Notes and the Old Notes......... its issuance date. Holders of Old Notes
that are accepted for exchange will
receive, in cash, accrued interest thereon
to, but not including, the issuance date of
the Exchange Notes. Such interest will be
paid with the first interest payment on the
Exchange Notes. Interest on the Old Notes
accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Conditions to the Exchange....... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "Terms of the Exchange
Offer--Conditions."
Procedures for Tendering......... Each holder of Old Notes wishing to accept
the Old Notes Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and in the Letter of Transmittal,
and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together
with the Old Notes and any other required
documentation to the Exchange Agent at the
address set forth herein. By executing the
Letter of Transmittal, each holder will
represent to the Company that, among other
things, the Exchange Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business
of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person has any arrangement
or understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See
"The Exchange Offer--Purpose and Effect of
the Exchange Offer" and "Terms of the
Exchange Offer--Procedures for Tendering
Old Notes. Following the consummation of
the Exchange Offer, holders of Old Notes
eligible
6
to participate but who do not tender their
Old Notes will not have any further
exchange rights and such Old Notes will
continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes
could be adversely affected.
Exchange Date.................... The date of acceptance for exchange of the
Old Notes will be as soon as practicable
after the Expiration Date.
Certain Federal Income Tax The exchange of notes pursuant to the
Consequences.................... Exchange Offer should not be a taxable
event for federal income tax purposes. See
"Certain Federal Income Tax Consequences."
Guaranteed Delivery Procedures... If Holders wish to tender Old Notes and
time will not permit their required
documents to reach the Exchange Agent by
the expiration date, or the procedure for
book-entry transfer cannot be completed on
time, the Holder thereof may tender the Old
Notes according to the guaranteed delivery
procedures set forth in "Terms of the
Exchange Offer--Procedures for Tendering
Old Notes."
Consequences of Failure to The Old Notes that are not exchanged
Exchange........................ pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such
Old Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule
144 under the Securities Act or pursuant to
some other exemption under the Securities
Act, (iii) outside the United States to a
foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or
(iv) pursuant to an effective registration
statement under the Securities Act. See
"Terms of the Exchange Offer--Consequences
of Failure to Exchange."
Shelf Registration Statement..... If any holder of the Old Notes (other than
any such holder that is an "affiliate" of
the Company within the meaning of Rule 405
under the Securities Act) is not eligible
under applicable securities laws to
participate in the Exchange Offer, and such
holder has satisfied certain conditions
relating to the provision of information to
the Company for use therein, the Company
has agreed to register the Old Notes on a
shelf registration statement (the "Shelf
Registration Statement") and to use its
best efforts to cause it to be declared
effective by the Commission as promptly as
practical on or after the consummation of
the Exchange Offer. The Company has agreed
to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to
cover resales of the Old Notes held by any
such holders.
Special Procedures for Beneficial Any beneficial owner whose Old Notes are
Owners.......................... registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender
on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior
to completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time.
7
Withdrawal Rights................ Tenders may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and The Company will accept for exchange any
Delivery of Exchange Notes...... and all Old 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--Terms of the
Exchange Offer."
Use of Proceeds.................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
Exchange Agent................... The Bank of New York.
The Exchange Notes
General.......................... The form and terms of the Exchange Notes
are the same in all material respects as
the form and terms of the Old Notes (which
they replace) except that (i) the Exchange
Notes bear a Series B2 designation, (ii)
the Exchange Notes have been registered
under the Securities Act and, therefore,
will not bear legends restricting the
transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to
certain rights under the Exchange and
Registration Rights Agreement, including
the provisions providing for an increase in
the interest rate on the Old Notes in
certain circumstances relating to the
timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer."
The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled
to the benefits of the Indenture. See
"Description of the Exchange Notes." The
Old Notes and the Exchange Notes are
referred to herein collectively as the
"Notes."
Issuer........................... Westinghouse Air Brake Company.
Securities Offered............... $75,000,000 aggregate principal amount of
9 3/8% Senior Notes due 2005, Series B2.
Maturity......................... June 15, 2005.
Interest Payment Dates........... June 15 and December 15 of each year,
commencing June 15, 1999.
Sinking Fund..................... None.
Optional Redemption.............. The Company may not redeem the Notes prior
to June 15, 2000. At any time on or after
June 15, 2000, it may redeem all or part of
the Notes at 104.688% of par, plus accrued
and unpaid interest, if any, to the date of
repurchase. The premium declines ratably to
zero on or after June 15, 2002. If WABCO
optionally redeems the Notes or its
previously existing 9 3/8% Senior Notes due
2005 issued in 1995 (the "Existing Notes"),
it will also redeem Existing Notes or Notes
on a pro rata basis. See "Description of the
Notes--Optional Redemption."
8
Change of Control................ Upon the occurrence of a "Change of
Control," the Company will be required to
make an offer to repurchase each holder's
Notes at a price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
repurchase. See "Description of the Notes--
Change of Control."
Ranking.......................... The Notes will be:
X equal in right of payment with all of
the Company's existing and future
unsubordinated debt; and
X senior in right of payment to all of the
Company's existing and future
subordinated debt.
The Notes will effectively rank below all
liabilities of the Company's subsidiaries
as reflected on its December 31, 1998
balance sheet, excluding guarantees and
intercompany obligations, of $86.0 million.
The Notes will not be:
X guaranteed by the Company's
subsidiaries; however, its senior
secured credit facility is
unconditionally guaranteed by all of its
subsidiaries, which guarantee is limited
to $250 million in the aggregate so long
as the Existing Notes remain
outstanding; and
X secured by any collateral; however, its
senior secured credit facility is
secured by substantially all of its
assets (including all of the stock of
its domestic subsidiaries and sixty-five
percent (65%) of the stock of most of
its foreign subsidiaries) and
substantially all of the assets of all
of its subsidiaries.
The Company estimates that as of December
31, 1998, on a pro forma basis giving
effect to the offering of the Notes and the
application of the net proceeds therefrom,
that its total indebtedness would have been
$468.1 million, all of which would have
been unsubordinated indebtedness.
Approximately $269.4 million of such
indebtedness would have been secured
indebtedness. See "Description of the
Notes--Ranking," "Description of Certain
Indebtedness" and "Capitalization."
Restrictive Covenants............ The Indenture relating to the Notes will
contain certain covenants, including, but
not limited to, covenants with respect to
the following matters:
X limitation on indebtedness;
X limitation on payment of dividends and
redemption of stock;
X limitation on transactions with
affiliates;
X limitation on liens;
X limitation on sale of assets;
X limitation on investments in and
distributions from certain subsidiaries;
9
X limitation on the use of proceeds from
sales of assets and subsidiary stock;
X limitation on sale/leaseback
transactions; and
X restrictions on consolidations, mergers
and the sale of assets.
These covenants are subject to a number of
important exceptions. See "Description of
the Notes--Certain Covenants."
Use of Proceeds.................. The Company will receive no proceeds from
the issuance of the Exchange Notes upon
consummation of the Exchange Offer. The
Company used the net proceeds from the
Initial Offering (approximately $74.7
million) to repay approximately $30 million
of borrowings outstanding under its
existing unsecured credit facility (the
proceeds of which were used to consummate
the Rockwell Acquisition) and the remainder
to reduce revolving credit borrowings
outstanding under its senior secured credit
facility. See "Use of Proceeds."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
10
Summary Historical Financial Data For The Company
(Dollars in Thousands)
The selected financial data for each of the fiscal years in the five-year
period ended December 31, 1998 has been derived from WABCO's audited financial
statements. Such information is contained in and should be read in conjunction
with the financial statements and accompanying notes included or incorporated
by reference in its Annual Reports on Form 10-K for such years.
Year Ended December 31
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- --------- --------
In thousands, except per share amounts
Income Statement Data
Net sales.................... $670,909 $564,441 $453,512 $ 424,959 $347,469
Cost of sales................ 451,730 378,323 300,163 278,901 229,544
-------- -------- -------- --------- --------
Gross profit............... 219,179 186,118 153,349 146,058 117,925
Operating expenses........... 114,513 96,143 73,631 56,756 44,287
-------- -------- -------- --------- --------
Income from operations..... 104,666 89,975 79,718 89,302 73,638
Interest expense and other,
net......................... 32,136 29,385 26,070 30,793 11,184
-------- -------- -------- --------- --------
Income before taxes and
extraordinary item........ 72,530 60,590 53,648 58,509 62,454
Income taxes................. 27,561 23,327 20,923 23,402 25,613
-------- -------- -------- --------- --------
Income before extraordinary
item...................... 44,969 37,263 32,725 35,107 36,841
(Loss) on early
extinguishment of debt...... (3,315) -- -- (1,382) --
-------- -------- -------- --------- --------
Net income................. $ 41,654 $ 37,263 $ 32,725 $ 33,725 $ 36,841
======== ======== ======== ========= ========
Diluted Earnings per Common
Share
Income before extraordinary
item........................ $ 1.75 $ 1.42 $ 1.15 $ 1.32 $ .92
Loss on early extinguishment
of debt..................... (.13) -- -- (.05) --
-------- -------- -------- --------- --------
Net income................. $ 1.62 $ 1.42 $ 1.15 $ 1.27 $ .92
======== ======== ======== ========= ========
Cash dividends per share..... $ .04 $ .04 $ .04 $ .01 --
Weighted average diluted
shares outstanding.......... 25,708 26,173 28,473 26,639 40,000
-------- -------- -------- --------- --------
Other Financial Data
EBITDA(a).................... 133,427 118,172 104,919 110,738 89,409
Depreciation and
Amortization................ 25,208 24,624 22,249 18,634 16,057
Capital Expenditures......... 28,957 29,196 12,855 16,205 12,853
Interest Expense(b).......... 31,217 29,729 26,152 30,998 10,898
Ratios of Earnings to Fixed
Charges(c).................. 3.1 2.8 2.9 2.7 6.4
As of December 31
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- --------- --------
Balance Sheet Data
Working capital.............. $ 95,411 $ 48,719 $ 48,176 $ 36,674 $ 46,640
Property, plant and
equipment, net.............. 124,981 108,367 95,844 72,758 67,346
Total assets................. 596,184 410,879 363,236 263,407 187,728
Total debt................... 467,817 364,934 341,690 305,935 78,060
Shareholders' equity
(deficit)................... (33,853) (79,263) (76,195) (108,698) 46,797
- --------
(a) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation and amortization, non-cash provision for employee stock
ownership plan contribution and extraordinary losses due to write off of
previously capitalized debt issuance costs. EBITDA is used here because
the Company believes it is an indicator of the Company's ability to
service existing and future indebtedness. EBITDA should not be considered
as an alternative to net income as a measure of operating results or to
cash flows as a measure of liquidity in accordance with generally accepted
accounting principles. The Company's computation of EBITDA may not be
comparable to similarly titled measures of other companies.
(b) Pro forma after giving effect to the Offering, the interest expense for
the year ended December 31, 1998 would have been $37.2 million.
(c) The ratio of earnings to fixed charges has been calculated by dividing
income from continuing operations before income taxes plus fixed charges
by fixed charges. Fixed charges consist of interest expense on
indebtedness, amortization of debt expense and 33% of rental payments
under operating leases (an amount estimated by management of the interest
components of such rentals).
11
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully before tendering Old Notes in
exchange for Exchange Notes. The risk factors set forth below are generally
applicable to the Old Notes as well as the Exchange Notes.
High Leverage; Deficit in Stockholders' Equity; Restrictive Covenants
The Company has substantial debt. As of December 31, 1998, the total
indebtedness of the Company was approximately $467.8 million ($468.1 million,
after giving effect to the offering of the Notes and the application of the
proceeds therefrom). See "Capitalization."
As of December 31, 1998, the Company had a $33.9 million deficit in
stockholders' equity. On a pro forma basis, after giving effect to the offering
of the Notes and the application of the proceeds therefrom, total indebtedness
of the Company would have been $468.1 million, of which approximately $263.4
million would have been outstanding under the Credit Agreement, $75.0 million
would have been outstanding under the Notes and $100.0 million would have been
outstanding under the Existing Notes. As of December 31, 1998, after giving
effect to the offering of the Notes and the application of the proceeds
therefrom, the Company would have had the ability to incur up to approximately
$47.0 million of additional indebtedness under the Credit Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
The debt of the Company requires the dedication of a substantial portion of
the Company's future cash flow to the payment of principal and interest on
indebtedness, thereby reducing funds available for capital expenditures and
future business opportunities.
Indebtedness under the Credit Agreement is (i) guaranteed by all of the
Company's domestic subsidiaries; however, such guarantee is limited to $250
million in the aggregate so long as the Existing Notes are outstanding, and
(ii) secured by substantially all of the assets of the Company (including all
of the stock of the Company's domestic subsidiaries and sixty-five percent
(65%) of the stock of most of the Company's foreign subsidiaries) and
substantially all of the assets of the Company's subsidiaries. The Credit
Agreement contains covenants that, among other things, limit the payment of
dividends and the incurrence of additional debt and restricts mergers,
acquisitions and sales of assets (including stock of subsidiaries). In
addition, a "change in control" constitutes an event of default. Change in
control is defined to include (i) ownership of more than thirty-five percent
(35%) of the Common Stock by any person other than certain designated powers or
entities ("Designated Persons") (or a combination of Designated Persons) or
(ii) a combination of Designated Persons ceasing to own thirty-five percent
(35%) of the Common Stock. The Company is also required to maintain specified
financial ratios and meet certain other financial tests.
The indenture under which the Existing Notes were issued in 1995 (the
"Existing Notes Indenture") and the Indenture also contain covenants that,
among other things, limit the ability of the Company and certain of its
subsidiaries to incur indebtedness, pay dividends on and redeem capital stock,
create restrictions on investments in unrestricted subsidiaries, make
distributions from certain subsidiaries, use proceeds from the sale of assets
and subsidiary stock, enter into transactions with affiliates, create liens and
enter into sale/leaseback transactions. The Existing Notes Indenture and the
Indenture also restrict, subject to certain exceptions, the Company's ability
to consolidate and merge with or to transfer all or substantially all its
assets to, another person. In addition, upon the occurrence of a Change of
Control under the Existing Notes Indenture and the Indenture, each holder of
Notes and Existing Notes will have the right to require the Company to
repurchase all or a portion of such Notes or Existing Notes held by such
holder, at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest, if any, to the date of repurchase. There can be no assurance
that the Company will have the financial ability to repurchase the Notes or the
Existing Notes upon a Change of Control. In addition, the exercise of such
rights could trigger cross-default provisions in the Credit Agreement and lead
to the bankruptcy of the Company.
12
Although the Company believes that it will be able to maintain compliance
with its current financial tests there can be no assurance that it will be able
to do so. The restrictions imposed by such covenants may adversely affect the
Company's ability to make acquisitions or take advantage of favorable business
opportunities. Failure to comply with the terms of such covenants could result
in acceleration of the indebtedness represented by the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Description of the Notes" and "Description
of Certain Indebtedness."
Notes Represent Unsecured Claims; Structural Subordination
Although the Notes will and the Existing Notes do rank pari passu in right
of payment with indebtedness outstanding under the Credit Agreement, such debt
under the Credit Agreement is secured by substantially all of the assets of the
Company and its domestic subsidiaries. The Notes and Existing Notes are
unsecured and therefore do not have the benefit of such collateral. If an event
of default occurs under the Credit Agreement, the banks party thereto will have
preferential claims to those assets and may foreclose upon such collateral to
the exclusion of the holders of the Notes and Existing Notes, notwithstanding
the existence of an event of default with respect to the Notes and the Existing
Notes. Accordingly, in such an event, the Company's assets (to the extent
securing obligations under the Credit Agreement) would first be used to repay
in full amounts outstanding under the Credit Agreement.
The Notes will not be guaranteed by the Company's subsidiaries; however, the
Credit Facility is unconditionally guaranteed by all of its domestic
subsidiaries. The Notes along with the Existing Notes will be effectively
subordinated to all of the liabilities of the Company's subsidiaries, including
trade payables. At December 31, 1998, the total liabilities of the Company's
subsidiaries (including trade payables) were approximately $86.0 million
(exclusive of guarantees by such subsidiaries under the Credit Agreement and
intercompany obligations).
Highly Competitive Industry
The Company operates in a competitive marketplace and faces substantial
competition from a limited number of established competitors in the United
States and abroad, some of which may have greater financial resources than the
Company. Price competition is strong and, coupled with the existence of a
limited number of cost conscious purchasers, has historically limited the
Company's ability to increase prices. In addition to price, competition is
based on product performance and technological leadership, quality, reliability
of delivery and customer service and support. There can be no assurance that
competition in one or more of the Company's markets will not adversely affect
the Company and its results of operations.
International Operations
The Company conducts international operations through a variety of wholly-
owned subsidiaries, majority-owned subsidiaries and equity interests located in
North America, the United Kingdom, Canada, France, Australia, India and Italy.
The Company is also exploring the possibility of expansion into other
international markets as well. Any international operations established by the
Company will be subject to risks similar to those affecting its North American
operations in addition to a number of other risks, including lack of complete
operating control, lack of local business experience, foreign currency
fluctuations, trade barriers, exchange controls, governmental expropriation,
foreign taxation, difficulty in enforcing intellectual property rights,
language and other cultural barriers and political and economic instability. In
addition, various jurisdictions outside the United States have laws limiting
the right and ability of non-United States subsidiaries and affiliates to pay
dividends and remit earnings to affiliated companies unless specified
conditions exist.
The Company's financial performance on a U.S. dollar denominated basis can
be significantly affected by fluctuations in currency exchange rates. The
Company from time to time enters into agreements to reduce its foreign currency
exposure. These agreements have not been and are not expected to be material.
13
The Company's ability to expand sales of its products internationally, in
particular its locomotive and freight braking-system product lines, is limited
by the necessity of obtaining regulatory approval in new jurisdictions, as well
as by the additional expense of modifying products to comply with local
railroad equipment requirements. This limitation is particularly notable in
Western Europe.
Acquisition Strategy
An important component of the Company's business strategy is to continue to
grow by making additional acquisitions of complementary businesses. The Company
historically has financed its acquisitions through a combination of secured and
unsecured borrowings, augmented by internally generated cash flow. The
Company's future growth and financial success will be dependent in part upon a
number of factors relating to acquisitions including, among others, the
Company's ability to identify acceptable acquisition candidates, secure
advantageous financing and consummate the acquisition of such businesses on
terms that are favorable to the Company, attain customer retention levels at
acquired businesses that are advantageous to the Company, and promptly and
profitably integrate the acquired operations into the Company. There can be no
assurance that the Company will be successful with respect to such factors.
There can also be no assurance that the Company will adequately anticipate all
of the changing demands its growth will impose on its internal systems,
procedures and structure. Any failure to adequately anticipate and respond to
such changing demands could have a material adverse effect on the Company.
Railway Market Cyclicality
The railway industry has historically been subject to significant
fluctuations due to overall economic conditions and the level of use of
alternate methods of transportation. In economic downturns, railroads may defer
certain expenditures in order to conserve cash in the short term, and
reductions in freight traffic may reduce demand for the Company's replacement
products. There can be no assurance that economic conditions will remain
favorable or that there will not be significant fluctuations adversely
affecting the industry as a whole and, as a result, the Company.
Passenger Transit Rail Cyclicality
The passenger transit railroad industry is also cyclical. New passenger
transit car orders vary from year to year and are influenced greatly by major
replacement programs and by the construction or expansion of transit systems by
transit authorities. A substantial portion of the Company's net sales has been,
and the Company expects that a material portion of its future net sales may be,
derived from contracts with metropolitan transit and commuter rail authorities
and Amtrak. To the extent that future funding for proposed public projects is
curtailed or withdrawn altogether as a result of changes in political,
economic, fiscal or other conditions beyond the Company's control, such
projects may be delayed or cancelled, resulting in a potential loss of new
business to the Company.
Acceptance of New Products
The Company has dedicated significant resources to the development,
manufacture and marketing of new products. Decisions to develop and market new
transportation products are typically made without firm indications of customer
acceptance. Moreover, by their nature, new products may require alteration of
existing business methods or threaten to displace existing equipment in which
customers may have a substantial capital investment. There can be no assurance
that any new products developed by the Company will gain widespread acceptance
in the marketplace or that such products will be able to compete successfully
with other new products or services that may be introduced by competitors.
Environmental Compliance
The Company is subject to a variety of federal, state and local
environmental laws and regulations. Although the Company believes it is in
material compliance with all of the various regulations applicable to its
14
business, there can be no assurance that requirements will not change in the
future or that the Company will not incur significant costs to comply with such
requirements.
Asbestos Litigation
The Company acquired the North American operations of the railway products
group of American Standard, Inc. in 1990. There are various pending claims by
employees of third parties who allege they were exposed to asbestos while
handling American Standard products manufactured prior to the acquisition
(American Standard discontinued the use of asbestos in its products in 1980).
American Standard has agreed to indemnify the Company with respect to such
claims. Although the Company believes American Standard will indemnify it for
all such claims, there can be no assurance that American Standard will not
dispute its obligations or that no such claims will be made with respect to the
Company's products. The indemnity expires in the year 2000 in connection with
claims not initiated prior to the year 2000. The Company maintains insurance to
cover any claims initiated after the indemnity expiration date and claims
initiated prior to the year 2000 will continue to be covered by the indemnity.
Control by Current Stockholders
As of December 31, 1998, ownership of the Company's Common Stock was held in
the following approximate percentages: by management and the ESOP (58%), Vestar
Equity Partners, L.P. ("Vestar") (7%), Charlesbank Capital Partners, LLC f/k/a
Harvard Private Capital Holdings, Inc. ("Charlesbank") (7%), Shapiro Capital
Management Company, Inc. (6%), First Manhattan Co. (5%), American Industrial
Partners Capital ("AIP") (3%), and all others including public shareholders
(14%). A Stockholders Agreement exists among certain members of management,
Vestar, Charlesbank, AIP and the Company that provides for, among other things,
the composition of the Board of Directors as long as certain minimum stock
percentages are maintained.
Certain of these principal stockholders acting together may have sufficient
voting power to control the election of the Company's Board of Directors and to
determine the outcome of corporate actions requiring stockholder approval. Such
ownership of Common Stock may also have the effect of delaying, deferring or
preventing a change of control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. In addition, under
the stockholders agreement among the Company, Vestar, Charlesbank, AIP and the
Voting Trust, the Company, Vestar, Charlesbank, AIP and the Voting Trust agreed
to nomination procedures which will determine the composition of the Board of
Directors. Vestar, Charlesbank, AIP, the Voting Trust and certain other
stockholders have agreed to vote or cause to be voted all shares of Common
Stock owned by them (or as to which they control the voting) in favor of
persons nominated in accordance with such procedures. As a result, the Board
may be composed of persons selected by Charlesbank, AIP, Vestar and Mr.
Kassling.
Year 2000 Issue
The Company believes that its present remediation and replacement programs
will adequately address the Year 2000 issues with respect to its internal
systems in all material respects. However, with respect to its internal
systems, there can be no assurance that the remediation and replacement
programs that are currently operating will not experience minor disruptions. In
addition, there can be no assurance that the Company's vendors, suppliers and
other service providers will successfully resolve their own Year 2000 issues in
a manner which avoids significant impact to the Company. The Company has
received written assurances from some of its suppliers and customers and other
providers acknowledging the Year 2000 issues and stating their present
intention to be compliant. The Company has not received assurances from all of
its suppliers and other providers and there is no guarantee that one or more
key suppliers and other providers will not fail to become compliant in time to
avoid a disruption to the Company's business which would have a significant
adverse impact on the Company. Certain failures of the Company or its
suppliers, vendors and other service providers to completely overcome the Year
2000 issue could result in substantial and material impact on the Company's
business, operations and financial results.
15
The Company's forecasted costs and timing for completion of its Year 2000
programs are based on its best estimates, which in turn are based on numerous
assumptions of future events, including the continued availability and cost of
necessary personnel and other resources, third party modification plans, and
other factors. However, the Company cannot be certain that these estimates will
be achieved and actual results could differ materially from these estimates.
The Company's products are generally sold with a limited warranty for
defects. The Company has reviewed its products currently in use by its
customers or being sold and does not believe that there will be material
increases in warranty or liability claims arising out of Year 2000 non-
compliance. However, a material increase in such claims could have a material
adverse effect on the Company's business, operations or financial results.
Absence of Public Market; Restrictions on Resales
The Notes are new securities for which there presently is no established
market and none may develop. Although the Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Notes, the
Initial Purchasers are not obligated to do so and any such market making may be
discontinued at any time without notice, at the sole discretion of the Initial
Purchaser. In addition, such market making activity may be limited during the
pendency of the Exchange Offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. The Company
expects that the Exchange Notes will be eligible for trading through The Portal
Market upon issuance.
The Exchange Offer will not be conditioned upon any minimum or maximum
aggregate principal amount of Notes being tendered for exchange. No assurance
can be given as to the liquidity of the trading market for the Exchange Notes,
or, in the case of non-exchanging holders of Notes, the trading market for the
Notes following the Exchange Offer. See "Exchange and Registration Rights."
Failure To Follow Exchange Offer Procedures Could Adversely Affect Holders
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Exchange and Registration Rights Agreement will terminate. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
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." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
16
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Exchange and Registration
Rights Agreement. The Company will not receive any cash proceeds from the
issuance of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will receive Old
Notes in like principal amount, the form and terms of which are the same in all
material respects as the forms and terms of the Exchange Notes (which replace
the Old Notes), except as otherwise described herein. The Old Notes surrendered
in exchange for Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
increase or decrease in the indebtedness of the Company. As such, no effect has
been given to the Exchange Offer in the pro forma statements or capitalization
tables.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998 on a historical basis, and As Adjusted for the Offering. This
table should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and the notes thereto
incorporated by reference in this Prospectus.
As of December 31, 1998
---------------------------
As Adjusted for
Historical the Offering
---------- ---------------
Debt (including current portion):
Revolving credit notes(a)........................... $ 105,555 60,855
Term loan........................................... 202,500 202,500
9 3/8% Senior Notes due June 2005................... 100,000 100,000
Notes offered hereby, due June 2005................. -- 75,000
Pulse acquisition note.............................. 16,990 16,990
Unsecured credit facility........................... 30,000 --
Comet acquisition note payable...................... 6,000 6,000
Comet acquisition unsecured notes................... 4,200 4,200
Other............................................... 2,572 2,572
--------- ---------
Total Debt........................................ $ 467,817 $ 468,117
========= =========
Shareholders' Equity (Deficit):
Common stock........................................ 474 474
Additional paid-in capital.......................... 107,720 107,720
Less-Treasury Stock, at cost........................ (187,654) (187,654)
Less-Unearned ESOP Shares at cost................... (128,472) (128,472)
Retained Earnings................................... 182,291 182,291
Unamortized restricted stock award.................. (162) (162)
Cumulative translation adjustment................... (8,050) (8,050)
--------- ---------
Total Shareholders' Equity (Deficit).............. (33,853) (33,853)
========= =========
Total Capitalization.............................. 433,964 434,264
========= =========
- --------
(a) After giving effect to the offering of the Notes and the application of the
proceeds therefrom, the Company will have approximately $47.0 million of
availability, after adjusting for the outstanding letters of credit, under
its revolving credit facility.
17
SELECTED HISTORICAL FINANCIAL DATA
(Dollars in thousands)
The following table sets forth certain selected consolidated financial
information of the Company and has been derived from financial statements
audited by Arthur Andersen LLP, independent public accountants. This financial
information should be read in conjunction with, and is qualified by reference
to, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Prospectus.
Year Ended December 31
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- --------- --------
In thousands, except per share amounts
Income Statement Data
Net sales.................... $670,909 $564,441 $453,512 $ 424,959 $347,469
Cost of sales................ 451,730 378,323 300,163 278,901 229,544
-------- -------- -------- --------- --------
Gross profit............... 219,179 186,118 153,349 146,058 117,925
Operating expenses........... 114,513 96,143 73,631 56,756 44,287
-------- -------- -------- --------- --------
Income from operations..... 104,666 89,975 79,718 89,302 73,638
Interest expense and other,
net......................... 32,136 29,385 26,070 30,793 11,184
-------- -------- -------- --------- --------
Income before taxes and
extraordinary item........ 72,530 60,590 53,648 58,509 62,454
Income taxes................. 27,561 23,327 20,923 23,402 25,613
-------- -------- -------- --------- --------
Income before extraordinary
item...................... 44,969 37,263 32,725 35,107 36,841
(Loss) on early
extinguishment of debt...... (3,315) -- -- (1,382) --
-------- -------- -------- --------- --------
Net income................. $ 41,654 $ 37,263 $ 32,725 $ 33,725 $ 36,841
======== ======== ======== ========= ========
Diluted Earnings per Common
Share
Income before extraordinary
item........................ $ 1.75 $ 1.42 $ 1.15 $ 1.32 $ .92
Loss on early extinguishment
of debt..................... (.13) -- -- (.05) --
-------- -------- -------- --------- --------
Net income................. $ 1.62 $ 1.42 $ 1.15 $ 1.27 $ .92
======== ======== ======== ========= ========
Cash dividends per share..... $ .04 $ .04 $ .04 $ .01 --
Weighted average diluted
shares outstanding.......... 25,708 26,173 28,473 26,639 40,000
-------- -------- -------- --------- --------
Other Financial Data
EBITDA(a).................... 133,427 118,172 104,919 110,738 89,409
Depreciation and
Amortization................ 25,208 24,624 22,249 18,634 16,057
Capital Expenditures......... 28,957 29,196 12,855 16,205 12,853
Interest Expense(b).......... 31,217 29,729 26,152 30,998 10,898
Ratios of Earnings to Fixed
Charges(c).................. 3.1 2.8 2.9 2.7 6.4
As of December 31
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- --------- --------
Balance Sheet Data
Working capital.............. $ 95,411 $ 48,719 $ 48,176 $ 36,674 $ 46,640
Property, plant and
equipment, net.............. 124,981 108,367 95,844 72,758 67,346
Total assets................. 596,184 410,879 363,236 263,407 187,728
Total debt................... 467,817 364,934 341,690 305,935 78,060
Shareholders' equity
(deficit)................... (33,853) (79,263) (76,195) (108,698) 46,797
- --------
(a) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation and amortization, non-cash provision for employee stock
ownership plan contribution and extraordinary losses due to write off of
previously capitalized debt issuance costs. EBITDA is used here because
the Company believes it is an indicator of the Company's ability to
service existing and future indebtedness. EBITDA should not be considered
as an alternative to net income as a measure of operating results or to
cash flows as a measure of liquidity in accordance with generally accepted
accounting principles. The Company's computation of EBITDA may not be
comparable to similarly titled measures of other companies.
(b) Pro forma after giving effect to the Offering, the interest expense for
the year ended December 31, 1998 would have been $37.2 million.
(c) The ratio of earnings to fixed charges has been calculated by dividing
income from continuing operations before income taxes plus fixed charges
by fixed charges. Fixed charges consist of interest expense on
indebtedness, amortization of debt expense and 33% of rental payments
under operating leases (an amount estimated by management of the interest
components of such rentals).
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Westinghouse Air Brake Company was formed in 1990 through the acquisition of
the Railway Products Group of American Standard Inc. The Company is North
America's largest manufacturer of value-added equipment for locomotives,
railway freight cars and passenger transit vehicles. The Company's primary
manufacturing operations are in the United States and Canada and revenues have
historically been predominantly from North America. In recent years, the
proportion of international sales has increased significantly, in line with the
Company's strategy to expand its business outside North America.
The Company's customer base consists of freight transportation companies,
locomotive and freight car original equipment manufacturers, transit car
builders and public transit systems.
The Company's business is comprised of three principal business segments:
Railroad, Transit and Molded Products. See Note 17 to the "Notes to
Consolidated Financial Statements".
The Company's strategy for growth is focused on using technological
advancements to develop new products, expanding the range of aftermarket
products and services and penetrating international markets. In addition,
management continually evaluates acquisition opportunities that meet the
Company's criteria and complement the Company's operating strategies and
product offerings.
The Company has completed a number of strategic acquisitions since 1995. The
following is a summary of these acquisitions:
. In October 1998, the Company purchased RRE, the railroad electronics
business, from Rockwell Collins, Inc. ("Rockwell") for a total purchase
price of approximately $80.0 million.
. In October 1998, the Company purchased the air brake repair business of
Comet Industries, Inc. ("Comet") for a total purchase price of
approximately $13.2 million.
. In July 1998, the Company acquired the assets of Lokring Corporation
("Lokring") for a total purchase price of $5.1 million. The acquired
products include a fitting that connects non-welded joints.
. In April 1998, the Company completed the acquisition of the transit
coupler product line of Hadady Corporation ("Hadady") for a total
purchase price of $4.6 million, which included amounts for designs and
drawings.
. In April 1998, the Company acquired the railway repair business in the
United Kingdom of RFS (E) Limited ("RFS (E)") for a total purchase price
of approximately $10.0 million.
. In October 1997, the Company purchased the rail products business and
related assets of Sloan Valve Company ("Sloan") for $2.5 million. The
acquired products included slack adjusters, angle cocks and retainer
valves.
. During July 1997, the Company acquired 100% of the stock of HP s.r.l.
("HP") for a total purchase price of $5.8 million, which included the
assumption of $2.3 million in debt. HP is a leading supplier of door
controls for transit rail cars and buses in the Italian market.
. In May 1997, the Company purchased Stone Safety Services Corporation and
Stone U.K. Limited (collectively, "Stone"). Stone is one of the world's
leading suppliers of air conditioning equipment for the transit industry
with an established product base in North America, Europe and the Far
East. In connection with this acquisition, in June 1997, the Company
acquired the heavy rail air conditioning business of Thermo King
Corporation ("Thermo King"). The aggregate purchase price for these
acquisitions was approximately $7.7 million.
19
. In September 1996, the Company acquired the Vapor Group ("Vapor"), a
passenger transit door manufacturer in the United States and Europe, for
$63.9 million.
. In January 1996, the Company acquired Futuris Industrial Products Pty.
Ltd. ("Futuris") an Australian friction products manufacturer, for
approximately $15.0 million.
. In January 1995, the Company acquired Pulse Electronics ("Pulse"), a
privately held manufacturer of end-of-train monitors and other
electronic products for the railway industry for $54.9 million.
Also in March 1997, an agreement was reached with one of the Company's major
shareholders, Scandinavian Incentive Holding B.V. ("SIH"), whereby the Company
repurchased 4 million shares of its common stock held by SIH for $44 million,
or $11 per share. In conjunction with this transaction, SIH also sold its
remaining 6 million shares of the Company's Common Stock to Vestar Equity,
Charlesbank, AIP and certain members of senior management. The transactions are
collectively referred to as the "SIH Sale."
FISCAL YEAR 1998 COMPARED TO
FISCAL YEAR 1997
Summary Results of Operations
Year Ended
December 31
------------ Percent
1998 1997 Change
----- ----- -------
Dollars in
millions,
except per
share
Income before extraordinary item........................ $45.0 $37.3 20.6
Extraordinary item, net of tax.......................... 3.3 -- nm
Net income.............................................. 41.7 $37.3 11.8
Diluted earnings per share, before extraordinary item... 1.75 1.42 20.7
Diluted earnings per share.............................. 1.62 1.42 14.1
Net sales............................................... 670.9 564.4 18.9
Income from operations.................................. 104.7 90.0 16.3
Earnings before interest, taxes, depreciation and amor-
tization............................................... 129.0 114.9 12.3
Gross profit margin..................................... 32.7% 33.0% nm
- --------
nm-not meaningful
Income before extraordinary item for 1998 increased $7.7 million, or 20.6%,
compared with the same period a year ago. Because of the $3.3 million
extraordinary charge to write-off certain previously capitalized debt issuance
costs, net income increased only $4.4 million, compared to 1997. Diluted
earnings per share before extraordinary item increased 20.7% to $1.75 and
diluted earnings per share increased 14.1% to $1.62. Income from operations and
earnings before interest, taxes, depreciation and amortization increased in the
comparison primarily due to revenue growth and related gross profit.
A number of events have occurred over the comparative period that impacted
the Company's results of operations and financial condition including:
. The Company completed several acquisitions that complement and enhance
the mix of existing products and markets. Acquisitions completed during
this timeframe were RRE, Comet, Lokring, Hadady, RFS (E), Sloan, HP,
Stone and Thermo King. Aggregate incremental revenues from all of the
above acquisitions were $63.7 million in 1998.
. In June 1998, the Company refinanced its credit agreement and
subsequently amended the agreement in October 1998. This resulted in a
write off of previously deferred financing costs of approximately $3.3
million, net of tax ($.13 per share), which has been reported as an
extraordinary item.
. In March 1997, the Company repurchased 4 million shares of its common
stock held by a major shareholder for $44 million plus $2 million in
related fees.
20
Net Sales
The following table sets forth, for the period indicated, the Company's net
sales by business segment:
Year Ended
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
Railroad Group............................................ $ 388,797 $ 310,295
Transit Group............................................. 211,801 189,541
Molded Products Group..................................... 70,311 64,605
---------- ----------
Net sales............................................... $ 670,909 $ 564,441
========== ==========
Net sales for 1998 increased $106.5 million, or 18.9%, to $670.9 million.
This increase was primarily attributable to incremental revenue in 1998 of
approximately $43.2 million from the acquisitions referred to above within the
Railroad Group. Increased sales volumes in the Railroad Group also reflect a
strong OEM market for freight cars, with approximately 76,000 freight cars
delivered in 1998 compared to 50,000 in 1997. These increases were partially
offset by lower sales in the electronics portion of the Railroad Group, where
in the prior year period product sales benefited from a federal mandate that
certain monitoring equipment be installed in trains by July 1997. Incremental
revenue in 1998 for the acquisitions referred to above, of approximately $20.5
million, was the primary reason for the increase in revenues in the Transit
Group. The Company anticipates new freight car deliveries in 1999 to be
slightly lower than that of 1998, however, railroad OEM and aftermarket sales
are expected to be reasonably strong for the foreseeable future.
Gross Profit
Gross profit increased 17.8% to $219.2 million in 1998 compared to $186.1
million in 1997. Gross margin, as a percentage of sales, was 32.7% as compared
to 33.0%. Gross margin is dependent on a number of factors including sales
volume and product mix. Incremental revenue from recent acquisitions at lower
margins as compared to the Company's historical results, was the primary reason
for the lower margins in the period-to-period comparison. These lower margins
were partially offset by favorable margins on increased sales in the Railroad
and Molded Product Groups.
Operating Expenses
Year Ended
December 31
--------------------- Percent
1998 1997 Change
---------- ---------- -------
Dollars in thousands
Selling and marketing............................. $ 30,711 $ 25,364 21.1
General and administrative........................ 45,337 38,153 18.8
Engineering....................................... 30,436 24,386 24.8
Amortization...................................... 8,029 8,240 (2.6)
---------- ---------
Total........................................... $ 114,513 $ 96,143 19.1
========== =========
Total operating expenses as a percentage of net sales were 17.1% in 1998
compared with 17.0% in 1997. Total operating expenses increased in 1998 by
$18.4 million in the period-to-period comparison. Incremental expenses from
acquired businesses totaled $10.2 million or 55% of the increase. In addition,
higher operating expenses reflect costs associated with computer system
upgrades which includes Year 2000 compliant computer software of approximately
$3.5 million and additional engineering efforts associated with new product
development. The Company anticipates cost savings in 1999 from the
consolidation of several facilities and a related net reduction of employees as
recently acquired businesses are integrated into the Company's core operations.
21
Income from Operations
Operating income totaled $104.7 million in 1998 compared with $90.0 million
in 1997. Higher operating income results from higher sales volume and related
higher gross profit. As a percentage of revenue, operating income was 15.6% and
is substantially consistent with that of the prior year. Favorable volume
changes in the Railroad and the Molded Products Groups were partially offset by
lower profits, as a percentage of sales, in the Transit Group.
Interest and Other Expense
Interest expense increased $1.5 million to $31.2 million during 1998,
primarily due to financing costs of recent acquisitions, partially offset by
debt repayments.
Other expense for 1998 totaled $0.9 million primarily reflecting the effects
of changes in foreign currency exchange rates associated with a loan to a
wholly-owned subsidiary of the Company. The effect of subsequent changes in
exchange rates will be reflected in future periods.
Income Taxes
The provision for income taxes increased $4.2 million to $27.6 million in
1998 compared with 1997. The effective tax rate declined to 38% in 1998 from
38.5% a year ago, resulting from additional benefits through our Foreign Sales
Corporation and lower overall effective state tax rates.
FISCAL YEAR 1997 COMPARED TO
FISCAL YEAR 1996
Summary Results of Operations
Year Ended
December 31
---------------------- Percent
1997 1996 Change
---------- ---------- -------
Dollars in millions,
except per share
Net income.................................... $ 37.3 $ 32.7 14.1
Diluted earnings per share.................... 1.42 1.15 23.5
Net sales..................................... 564.4 453.5 24.5
Income from operations........................ 90.0 79.7 12.9
Earnings before interest, taxes, depreciation
and amortization............................. 114.9 102.0 12.6
Gross profit margin........................... 33.0% 33.8% nm
========== ==========
- --------
nm - not meaningful
Net income for 1997 increased $4.6 million, or 14.1% compared with 1997.
Diluted earnings per share increased 23.5% to $1.42 per diluted share. The
higher earnings per share reflects the benefits associated with acquisitions
and new products and the 4 million share repurchase. Income from operations and
earnings before interest, taxes, depreciation and amortization increased in the
comparison primarily due to revenue growth and related gross profit.
Net Sales
The following table sets forth, for the period indicated, the Company's net
sales by business segment:
Year Ended
December 31
---------------------
1997 1996
---------- ----------
Dollars in thousands
Railway Group............................................. $310,295 $294,021
Transit Group............................................. 189,541 100,902
Molded Products Group..................................... 58,589 64,605
---------- ----------
Net sales............................................... $564,441 $453,512
========== ==========
22
Net sales for the year ended December 31, 1997 increased $110.9 million, or
24.5%, to $564.4 million. The Transit Group acquisitions of Vapor, Stone,
Thermo King and HP contributed $85.5 million of the increase. In addition,
increased volumes in all groups favorably affected the comparison.
Gross Profit
Gross profit increased 21.4% to $186.1 million in 1997 compared to $153.3
million in 1996. Gross margin, as a percentage of sales, was 33.0% in 1997 and
33.8% in 1996. The effect of lower margins of the recently acquired businesses
was the primary factor for the change.
Operating Expenses
Year Ended
December 31
--------------------- Percent
1997 1996 Change
---------- ---------- -------
Dollars in thousands
Selling and marketing............................. $ 25,364 $ 18,643 36.1
General and administrative........................ 38,153 28,890 32.1
Engineering....................................... 24,386 18,244 33.7
Amortization...................................... 8,240 7,854 4.9
---------- ----------
Total........................................... $ 96,143 $ 73,631 30.6
========== ==========
Total operating expenses increased $22.5 million in the year-to-year
comparison primarily reflecting the effect of acquisitions completed in 1997
and 1996. Incremental expenses in 1997 from acquired businesses totaled $15.3
million. In addition, higher operating expenses reflect costs associated with
certain strategic initiatives including expanded international marketing
activities and additional engineering efforts associated with new product
development.
Income from Operations
Operating income totaled $90.0 million in 1997 compared with $79.7 million a
year ago. Higher operating income reflects higher sales volume and related
gross profit.
Interest Expense
Interest expense increased $3.6 million to $29.7 million during 1997,
primarily due to funding costs associated with repurchases of common stock and
acquisitions, partially offset by debt repayments.
Income Taxes
The provision for income taxes increased $2.4 million to $23.3 million in
1997, compared with $20.9 million in 1996. The effective tax rate declined to
38.5% in 1997 from 39.0% in 1996.
Liquidity and Capital Resources
Liquidity is provided primarily by operating cash flow and borrowings under
the Company's credit facilities. The Company's cash flow from operating
activities was approximately $42 million, $67 million and $59 million in 1998,
1997 and 1996, respectively. The decrease in operating cash flow from 1997 to
1998 is primarily related to an increase in working capital due to higher
accounts receivables and increased inventory levels which are associated with
increased sales growth and acquired businesses which have large working capital
requirements. These additional working capital requirements have resulted in
increased borrowings under the Company's credit facilities. The Company's
acquisitions of businesses have also resulted in increased borrowing.
23
Based on cash flow provided by operations during 1998, forecasted 1999
results and credit available under the credit agreement, the Company believes
it will be able to make 1999 planned capital expenditures and required debt
payments.
In 1998, the Company completed the Rockwell, Comet, Lokring, RFS(E) and
Hadady acquisitions for an aggregate purchase price of $112.9 million
consisting of debt and cash. In 1997, the Company completed the Stone, Thermo
King, Sloan and HP acquisitions for an aggregate purchase price of $16.0
million. In 1996, the Company acquired Vapor and Futuris for an aggregate
purchase price of $78.9 million. These transactions utilized borrowings for the
purchase price. Also, in 1995, the Company acquired Pulse for $54.9 million,
consisting of $20 million in bank borrowings, a $17.0 million note payable and
the Company's Common Stock valued at $17.9 million at the time of the
acquisition.
In March 1997, the SIH Sale occurred. The Company financed the 4 million
share repurchase that was part of the SIH Sale through borrowings under its
credit facility.
Gross capital expenditures were $29.0 million, $29.6 million and $13.2
million in 1998, 1997 and 1996, respectively. The majority of capital
expenditures reflect spending for replacement equipment and as well as
increased capacity and efficiency. The Company expects capital expenditures in
1999 to approximate $25 to $30 million.
The following table sets forth the Company's outstanding indebtedness:
Year Ended December 31
-----------------------
1998 1997
----------- -----------
Dollars in thousands
Credit Agreement
Revolving credit..................................... $ 105,555 $ 100,880
Term loan............................................ 202,500 145,500
9 3/8% Senior notes due June 5, 2005................... 100,000 100,000
Unsecured credit facility.............................. 30,000 --
Pulse note............................................. 16,990 16,990
Comet notes............................................ 10,200 --
Other.................................................. 2,572 1,564
----------- -----------
Total................................................ 467,817 364,934
Less-current portion................................. 30,579 32,600
----------- -----------
Long-term portion.................................... $ 437,238 $ 332,334
=========== ===========
Credit Agreement
In June 1998, the Company refinanced its credit facility with a consortium
of commercial banks and amended it in October 1998 in connection with the
Rockwell Acquisition (as amended, the "Credit Agreement"). The Credit Agreement
provides for an aggregate credit facility of $350 million, consisting of up to
$170 million of June 1998 term loans, up to $40 million of September 1998 term
loans, and up to $140 million of revolving loans. The Credit Agreement also
provides for swingline loans of up to an aggregate amount of $5 million, and
for the issuance of letters of credit in an aggregate face amount of up to $50
million. Swingline loans and the issuance of letters of credit will reduce the
amount of revolving loans, which may be incurred under the revolving credit
facility.
At December 31, 1998, the Company had available borrowing capacity, net of
letters of credit, of approximately $12 million. The Company repaid a portion
of its borrowings under the Credit Agreement in January 1999 with proceeds of
the offering of $75 million of 9 3/8% Senior Notes, as further described below,
resulting in increased borrowing capacity under that revolving loan facility of
$47 million.
24
Credit Agreement borrowings bear variable interest rates indexed to common
indexes such as LIBOR. The weighted-average contractual interest rate on Credit
Agreement borrowings was 6.71% on December 31, 1998. To reduce the impact of
interest rate changes on a portion of this variable-rate debt, the Company
entered into interest rate swaps which effectively convert a portion of the
debt from variable to fixed-rate borrowings during the term of the swap
contracts. On December 31 1998, the notional value of interest rate swaps
outstanding totaled $50 million and effectively changed the Company's interest
rate from a variable rate to a fixed rate of 7.09%. The interest rate swap
agreements mature in 2000 and 2001.
Principal repayments of term loan borrowings are due in semi-annual
installments until maturity in December 2003. See Note 5 to "Notes to
Consolidated Financial Statements".
The Credit Agreement limits the Company with respect to declaring or making
cash dividend payments and prohibits the Company from declaring or making other
distributions whether in cash, property, securities or a combination thereof,
with respect to any shares of the Company's capital stock subject to certain
exceptions, including an exception pursuant to which the Company will be
permitted to pay cash dividends on its Common Stock in any fiscal year in an
aggregate amount up to $15 million minus the aggregate amount of prepayments of
the Pulse note during such fiscal year so long as no default in the payment of
interest or fees has occurred thereunder. The Credit Agreement contains various
other covenants and restrictions including, without limitation, the following:
a limitation on the incurrence of additional indebtedness; a limitation on
mergers, consolidations and sales of assets and acquisitions (other than
mergers and consolidations with certain subsidiaries, sales of assets in the
ordinary course of business, and acquisitions for which the consideration paid
by the Company does not exceed $50 million individually or $150 million in the
aggregate); a limitation on liens; a limitation on sale and leasebacks; a
limitation on investments, loans and advances; a limitation on certain debt
payments; a limitation on capital expenditures; a minimum interest expense
coverage ratio; and a maximum leverage ratio. All debt incurred under the
Credit Agreement is secured by substantially all of the assets of the Company
and its domestic subsidiaries and is guaranteed by the Company's domestic
subsidiaries.
The Credit Agreement contains customary events of default, including payment
defaults, failure of representations to be true in any material respect,
covenant defaults, defaults with respect to other indebtedness of the Company,
bankruptcy, certain judgments against the Company, ERISA defaults and "change
of control" of the Company.
9 3/8% Senior Notes Due June 2005
In June 1995 the Company issued $100 million of 9 3/8% Senior Notes due June
2005 (the "Existing Notes"). In January 1999, the Company issued an additional
$75 million of 9 3/8% Senior Notes due June 2005 (the "Additional Notes"; the
Existing Notes and the Additional Notes are collectively, the "Notes"). See
"Subsequent Event" below.
The terms of the Existing Notes and the Additional Notes are substantially
the same, and the Existing Notes and the Additional Notes were issued pursuant
to indentures that are substantially the same. The Notes bear interest at the
rate of 9 3/8% and mature in June 2005. The net proceeds of the Existing Notes
were used to prepay term loans outstanding under the then existing credit
agreement. The net proceeds of the Additional Notes were used to repay the
unsecured credit facility and to reduce revolving credit borrowings.
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future indebtedness under (i)
capitalized lease obligations, (ii) the Credit Agreement, (iii) indebtedness of
the Company for money borrowed and (iv) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable unless, in the case of clause (iii) or (iv),
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 Notes.
The indentures pursuant to which the Notes were issued contain certain
restrictive covenants which, among other things, limit the ability of the
Company and certain of its subsidiaries to incur indebtedness, pay
25
dividends on and redeem capital stock, create restrictions on investments in
unrestricted subsidiaries, make distributions from certain subsidiaries, use
proceeds from the sale of assets and subsidiary stock, enter into transactions
with affiliates, create liens and enter into sale/leaseback transactions. The
Company's indenture also restricts, subject to certain exceptions, the
Company's ability to consolidate and merge with, or to transfer all or
substantially all of its assets to, another person.
Unsecured Credit Facility
In October 1998, the Company obtained a $30 million unsecured credit
facility from a group of commercial banks for the purpose of financing the
Rockwell Acquisition. At December 31, 1998, the interest rate on the note was
9.75% per annum. In January 1999, this facility was repaid with proceeds of the
Additional Note offering.
Pulse Note
As partial payment for the Pulse acquisition, the Company issued a $17
million note due January 31, 2004. Interest is payable semiannually and accrues
at 9.5% until February 1, 2001; and from February 1, 2001 until January 31,
2004, interest will accrue at the prime rate charged by Chase Manhattan Bank on
December 31, 2000 plus 1% (with a maximum adjustment of 2%).
Comet Notes
In connection with the Comet acquisition, the Company issued notes totaling
$12.2 million, of which unsecured notes totaling $6.2 million were delivered by
the Company and a note in the amount of $6 million was delivered by a
subsidiary of the Company and secured by the acquired assets. The notes bore
interest at the rate of 10% per annum and were scheduled to mature on October
8, 1999. These notes were repaid in January 1999. See "Subsequent Event" below.
ESOP
In connection with the establishment of the ESOP, the Company made a $140
million loan to the ESOP, which was used to purchase 9,336,000 shares of the
Company's outstanding common stock. The ESOP loan initially had a term of 50
years with interest at 8.5% and was collateralized by the shares purchased by
the ESOP. Company contributions to the ESOP will be used to repay the ESOP
loan's annual debt service requirements of approximately $12 million. The
Company is obligated to contribute amounts sufficient to repay the ESOP loan.
The ESOP uses such Company contributions to repay the ESOP loan. Approximately
187,000 shares were to be allocated annually to participants over a 50-year
period. These transactions occur simultaneously and, for accounting purposes,
offset each other. The net effect of the ESOP is that the Company's Common
Stock is allocated to employees in lieu of a retirement plan that was
previously a cash-based defined benefit plan and, accordingly, results in
reduced annual cash outlays by an estimated $3 to $4 million.
Subsequent Event
In January 1999, the Company issued the Additional Notes at a premium
resulting in an effective rate of 8.5%. As a result of the issuance and payoff
of the unsecured credit facility, the Company will write off previously
capitalized debt issuance costs of approximately $.02 per diluted share in the
first quarter of 1999.
Management believes that based upon current levels of operations and
forecasted earnings, cash flow from operations, together with borrowings under
the Credit Agreement, will be adequate to: (1) make payments of principal and
interest on debt, including the Notes, (2) make required contributions to the
ESOP, (3) permit anticipated capital expenditures, and (4) fund working capital
requirements and other cash needs for the foreseeable future, including 1999.
The issuance of the Additional Notes increased the Company's liquidity by
reducing its outstanding revolving credit borrowings and thereby increasing its
available borrowing capacity.
26
Nevertheless, the Company will remain leveraged to a significant extent and
its debt service obligations will continue to be substantial. The debt of the
Company requires the dedication of a substantial portion of future cash flows
to the payment of principal and interest on indebtedness, thereby reducing
funds available for capital expenditures and other, potential future business
opportunities that the Company believes are available. Cash flow and liquidity
will be sufficient to meet the Company's debt service requirements. If the
Company's sources of funds were to fail to satisfy the Company's cash
requirements, the Company may need to refinance its existing debt or obtain
additional financing. There is no assurance that such new financing
alternatives would be available, and, in any case, such new financing, if
available, would be expected to be more costly and burdensome than the debt
agreements currently in place. The Company intends in 1999 to reduce its
indebtedness through generating operating income and by reducing working
capital requirements and other measures.
Effects of Year 2000
The Company has information system improvement initiatives in process that
include both new computer hardware and software applications. The new system is
substantially operational and is year 2000 compliant. The estimated cost of the
project is expected to be in the $8 to $10 million range with the majority of
costs (approximately $8 million) previously incurred. The majority of the
expenditures incurred for hardware and purchased software related to this
project has been capitalized and are amortized over their estimated useful
lives. Other costs, such as training and advisory consulting, are expensed as
incurred. These expenditures are not expected to have a significant impact on
the Company's future results of operations or financial condition.
The Company has identified other equipment it uses in its operations that
have non-information system characteristics and have embedded technology
components, such as those items with internal clocks. The Company will need to
replace this type of equipment but does not believe a possible year 2000
failure will have a significant impact on the Company's operations. The
estimated cost of replacement equipment is not considered significant.
The Company has received written assurances from some of its suppliers and
customers and other providers acknowledging year 2000 issues and stating their
present intention to be compliant; however, not all customers, vendors and
providers have provided such assurances. The Company will evaluate on an
ongoing basis whether it is necessary and practical to establish contingency
plans with respect to year 2000 issues. However, if large scale systems
failures occur, it could have a significant adverse effect on the Company's
financial condition, future results of operations and liquidity.
The Company's products are generally sold with a limited warranty for
defects. The Company has reviewed its products currently in use by its
customers or being sold and does not believe that there will be material
increases in warranty or liability claims arising out of year 2000 non-
compliance. However, a material increase in such claims could have a material
adverse effect on the Company's financial condition, future results of
operations and liquidity.
Effects of Inflation; Seasonality
General price inflation has not had a material impact on the Company's
results of operations. Some of the Company's labor contracts contain negotiated
salary and benefit increases and others contain cost of living adjustment
clauses that would cause the Company's cost automatically to increase if
inflation were to become significant. The Company's business is not seasonal,
although the third quarter results generally tend to be slightly lower than
other quarters, reflecting vacation and down time at its major customers during
this period.
Conversion to the Euro Currency
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency (the "Euro"). The Company conducts
27
business in member countries. The transition period for the introduction of the
Euro is from January 1, 1999 through June 30, 2002. The Company is assessing
the issues involved with the introduction of the Euro; however, it does not
expect conversion to the Euro to have a material impact on its operations or
financial results.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This Statement establishes accounting and reporting
standards requiring that every derivative instrument be measured at its fair
value and the changes in fair value be recorded currently in earnings unless
specific hedge accounting criteria are met. Statement No. 133 is effective for
fiscal years beginning after June 15, 1999, and accordingly, the Company
anticipates adopting this standard January 1, 2000. Management continues to
evaluate the impact this standard will have on results of operations and
financial condition.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
In the ordinary course of business, WABCO is exposed to risks that increases
in interest rates may adversely affect funding costs associated with $308
million of variable-rate debt (including the effects of interest rate swaps),
which represents 66% of total long-term debt at December 31, 1998. Management
has entered into pay-fixed, receive-variable interest rate swap contracts that
partially mitigate the impact on variable-rate debt of interest rate increases
(see Note 5 to the "Notes to Consolidated Financial Statements" included
elsewhere in this report). At December 31, 1998, an instantaneous 100 basis
point increase in interest rates would reduce the Company's earnings by $2.2
million, assuming no additional intervention strategies by management.
In January 1999, the Company converted a portion of its variable-rate debt
through the issuance of $75 million Senior Notes. As of February 28, 1999,
variable-rate debt represents 52% (including the effects of interest rate
swaps) of total long-term debt.
Foreign Currency Exchange Risk
The Company routinely enters into several types of financial instruments for
the purpose of managing its exposure to foreign currency exchange rate
fluctuations in countries in which the Company has significant operations. As
of December 31, 1998, the Company had no significant instruments outstanding.
WABCO is also subject to certain risks associated with changes in foreign
currency exchange rates to the extent its operations are conducted in
currencies other than the U.S. dollar. At December 31, 1998, approximately 72%
of WABCO's net sales are in the United States, 11% in Canada and 17% in other
international locations, primarily Europe.
28
BUSINESS
General
Westinghouse Air Brake Company is North America's largest manufacturer of
value-added equipment for locomotives, railway freight cars and passenger
transit vehicles. We believe that we maintain a market share in North America
in excess of 50% for our primary braking related equipment and a significant
market share in North America for our other principal products. We also sell
our products in Europe, Africa, Australia, South America and Asia. Our major
products are intended to enhance safety, improve productivity and reduce
maintenance costs for our customers. Our major product offerings include
electronic controls and monitors, air brakes, couplers, door controls, draft
gears and brake shoes. We aggressively pursue technological advances with
respect to both new product development and product enhancements.
All references to "we", "our", "us", the "Company" and "WABCO" refer to
Westinghouse Air Brake Company, a Delaware corporation, and its subsidiaries.
Industry Overview
Rail traffic, in terms of both freight and passengers, is a key factor
underlying the demand for the Company's products. Government investment in
public rail transportation also plays a significant role. Additionally,
railroads continuously seek to increase the efficiency and productivity of
their rail operations in order to improve profitability. We design an array of
products to meet this goal and believe that through our products and service
offerings, we are well positioned to contribute to and benefit from the
railroad industry's drive to improve efficiency and productivity. For example,
our end of train device, automated single car tester and electro-pneumatic
brake all provide significant cost saving opportunities for our customers.
Demand for North American locomotive and freight car products remain strong
due to:
. continued growth in revenue ton-miles in the United States (defined as
weight times distance traveled by Class 1 railroads), of 1,376 billion
in 1998 as compared to 1,067 billion in 1992;
. continued strong delivery of new freight cars:
> aging freight car fleet, with an average age of 17.8 years in 1998
with approximately 50% over 17 years old; and
> the desire of railroads to gain efficiency improvements from larger,
more efficient aluminum cars;
. aging locomotive fleet, with more than 52% of the fleet over 17 years
old; and
. newer AC locomotives, which are more powerful and efficient than DC
locomotives.
Demand for passenger transit original equipment manufacturer ("OEM") and
aftermarket products is driven by:
. replacement building and/or expansion programs by transit authorities;
these programs are funded in part by federal and state governments,
including the recently authorized Intermodal Surface Transportation and
Efficiency Act (providing up to $42 billion to be made available,
subject to appropriations, for transit-related infrastructure between
1998 and 2003); and
. aging United States passenger transit car fleet, with an average age of
21.6 years in 1997 as compared to 19.3 years in 1995.
Business Segments and Products
Historically, approximately half of our net sales in 1998 were derived from
products sold directly to North American OEMs of locomotives, railway freight
cars and passenger transit vehicles. The balance of our net sales were
generated from the sale of replacement parts, repair services and upgrade work
purchased by operators of rail vehicles such as railroads, transit authorities,
utilities and leasing companies (collectively,
29
"end-users" or the "aftermarket"). We believe that our substantial installed
base of OEM products is a significant competitive advantage in providing
products and services in the aftermarket in that end-users will likely purchase
our high quality replacement products especially when they are safety and
performance related. We believe that we are less adversely affected than our
competitors by fluctuations in domestic demand for new railroad vehicles
because of our substantial aftermarket and international sales.
Through our business segments, we also provide outsourced value-added
services to the railroad and passenger transit aftermarkets, operating 15
service and upgrade sites in North America and the United Kingdom. Our service
and upgrade centers enable us to capitalize on the increased outsourcing of
repair business by railroads and transit authorities. Our acquisition in April
1998 of RFS(E), Ltd., a United Kingdom refurbisher of locomotives and freight
cars, and the October 1998 acquisition of the railroad service center business
of Comet Industries, Inc., have significantly increased our repair and service
offerings.
Our products and services are delivered through three principal business
segments. Within each group, our new product development programs provide us
with an array of product upgrades that strengthen our OEM and aftermarket
sales. Our products and services, by business group, include:
Railroad Group--Includes products geared to the production of freight cars
and locomotives, including braking control equipment and train coupler systems.
Revenues are derived from OEM and aftermarket sales and from repairs and
services. Revenues from these products, as a percentage of total consolidated
revenues, have decreased from 65% in 1996 to 58% in 1998. Specific product
lines within the Railroad Group are:
. Freight Car--We manufacture, sell and service air brake equipment, brake
valves, draft gears, hand brakes and slack adjusters for freight cars.
Net sales for typical freight cars can vary considerably based upon the
type and purpose of the freight platform with articulated or intermodal
cars generally having the highest WABCO product content. The Company's
traditional freight products include the ABDX Freight Brake Valve, the
Mark Series draft gears, hand brakes and slack adjusters, and SAC-1(TM)
Articulated Coupler.
. Locomotive--We manufacture, sell and service air brake equipment,
compressors, air dryers, slack adjusters, brake cylinders, and
monitoring and control equipment. Historically, our most significant
locomotive products have been the 26-C and 30-A pneumatic control
equipment and air-cooled compressors.
. Electronics--We manufacture, sell and service high-quality electronics
for the railroads in the form of on-board systems and braking for
locomotives and freight cars. We are an industry leader in insulating or
"hardening" electronic components to protect them from severe
conditions, including extreme temperatures and high/shock vibration
environments. Our new product development effort has focused on
electronic technology for brakes and controls, and over the past several
years, we introduced a number of significant new products including the
EPIC(R) Electronic Brake, PowerLink(TM), compressor aftercoolers, Train
Trax(TM), Trainlink(TM), Train Sentry III(R), Fuellink(TM) and
Armadillo(TM). Our acquisition of RRE in October 1998 significantly
strengthened our capabilities by expanding our freight electronic air
brake capability and broadening our electronics product line to display
and positioning systems, data communications and monitoring products,
all in line with the railroads' desire to increase productivity and
safety by the application of electronic equipment.
Transit Group--Includes products for passenger transit vehicles (typically
subways, rail and busses). Revenues are derived from OEM and aftermarket sales
as well as from repairs and services. Revenues from these products, as a
percentage of total consolidated revenues, increased to 32% in 1998 from 22% in
1996.
We manufacture, sell and service electronic brake equipment, pneumatic
control equipment, air compressors, tread brakes and disc brakes, couplers,
collection equipment, overhead electrification, monitoring systems, wheels,
climate control and door equipment and other components for passenger transit
vehicles. In 1997, we received contracts valued at $150 million to provide
equipment for 1,080 passenger transit cars for
30
the Metropolitan Transportation Authority/New York City Transit (the "MTA").
We expect deliveries to commence in the second half of 1999.
Substantially all of our principal passenger transit products are
engineered to customer specifications. Consequently, there is less
standardization among these products than there is with the Railroad Group
products. Because the market for OEM orders has been at a cyclical low during
the past several years, we believe the OEM market presents an opportunity for
improved growth during the next several years.
Molded Products Group--We manufacture and sell brake shoes, disc brake pads
and other rubber products. Many rubber components produced by this group are
used in the manufacturing process by our other business groups. Molded
Products Group revenues represent, as a percentage of total consolidated
revenues, slightly over 10% for the last three years. Approximately 90% of
Molded Products Group's revenues are derived from aftermarket sales.
For additional information on our business segments, see Note 17 to the
"Notes to Consolidated Financial Statements" included elsewhere in this
Prospectus.
Strategy
We are committed to enhancing our position as a producer of value-added
equipment for the rail industry and will continue to seek ways to increase our
content per rail vehicle. Building on our leading market share, strong
aftermarket presence and technological leadership, we are pursuing a strategy
involving five key elements:
Expand Technology-Driven New Product Development and Product Lines
. We plan to continue to emphasize research and development to create new and
improved products to increase our market share and profitability.
. We are focusing on technological advances, especially in the areas of
electronics, braking products and other on-board systems as a means of new
product growth.
Increase Repair and Upgrade Services
. By continuing to leverage our broad product offering and our large
installed product base, we intend to expand our presence in the repair and
upgrade services market.
. We believe our services are more cost effective than, and we offer product
upgrades not available in, most independent repair shops.
. To capitalize on the growing aftermarket, we are developing and marketing
retrofit and upgrade products, which serve as a platform for offering
additional installation, replacement parts and repair services to
customers.
Grow International Presence
. We believe that international sales represent a significant opportunity for
further growth.
. Our net sales outside of the United States and Canada comprised
approximately 17% of our net sales for the year ended December 31, 1998,
compared to 4% in 1995 (See Note 17 to "Notes to Consolidated Financial
Statements"). We intend to increase our existing international sales by:
. acquisitions,
. direct sales of products through our subsidiaries and licensees; and
. forming joint ventures with railway suppliers having a strong
presence in their local markets.
31
Pursue Strategic Acquisitions
. We intend to pursue strategic acquisitions that expand our product lines,
increase our aftermarket business, increase international sales and increase
our technical capabilities.
. An integral component of our acquisition strategy is to realize revenue
growth and cost savings through the integration of the acquired business.
Further Improve Manufacturing Efficiency and Quality
We intend to retain what we consider to be a leading position as a low cost
producer in the industry while maintaining world-class product quality,
technology and customer responsiveness. We are dedicated to continuous
improvement across all phases of our business through:
. our proven Kaizen employee-directed initiatives (a Japanese-developed
team concept used to continuously improve quality, lead time and
productivity and to reduce costs); and
. our total Quality Improvement Program (an ongoing program to
continuously improve the manufacturing process by encouraging feedback
from work "teams", continuing worker training, statistical engineering,
monitoring systems and evaluation of the process); and
. the WABCO Performance System model to identify lean manufacturing'
principles and roadmap to drive customer satisfaction and enterprise
value to world class levels.
These efforts enable us to streamline processes, improve product quality and
customer satisfaction, reduce product cycle times and respond more rapidly to
market developments. We believe our management and employees are appropriately
incentivized to carry out our strategy. Management owns approximately 31% of
our Common Stock and our employees own Common Stock through an Employee Stock
Ownership Plan ("ESOP").
Backlog
As of December 31, 1998, the Company had a total backlog of firm orders with
an aggregate sales price of approximately $460.9 million, compared to $376.3
million as of December 31, 1997. Of the December 31, 1998 amount, $325.0
million was attributable to passenger transit products, including products for
cars deliverable to the MTA, and the balance was attributable to railway and
other products. Other than the transit market, backlog is not a significant
component of the Company's business, and management believes it is not an
important indicator of future business performance. Because of the Company's
quick turnaround time, the Company's locomotive and freight customers tend to
order products from the Company on an as-needed basis. With respect to OEM
passenger transit products, there is a longer lead time for car deliveries and,
accordingly, the Company carries a larger backlog of orders. The Company's
contracts are subject to standard industry cancellation provisions, including
cancellations on short notice or upon completion of designated stages,
including, without limitation, contracts relating to the MTA. Substantial
scope-of-work adjustments are common. For these and other reasons, work in the
Company's backlog may be delayed or cancelled and backlog should not be relied
upon as an indicator of the Company's future performance.
Engineering and Development
In furtherance of its strategy of using technology to develop new products,
the Company is actively engaged in a variety of engineering and development
activities. For the fiscal years ended December 31, 1998, 1997 and 1996, the
Company incurred costs of approximately $30.4 million, $24.4 million, and $18.2
million, respectively, on product development and improvement activities
(exclusive of manufacturing support). Such expenditures represented 4.5%, 4.3%,
and 4.0% of net sales for the same periods, respectively. From time to time,
the Company conducts specific research projects in conjunction with
universities, customers and other railroad product suppliers.
32
The Company's engineering and development program is largely focused upon
new braking technologies, with an emphasis on the application of electronics to
traditional pneumatic equipment. Electronic actuation of braking has long been
a part of the Company's transit product line but interchangeability,
connectivity and durability have presented problems to the industry in
establishing electronics in freight railway applications. Efforts are under way
to develop the major components of both hard-wired and radio-activated braking
equipment.
Intellectual Property
The Company has numerous U.S. patents, patent applications pending and
trademarks as well as foreign patents and trademarks throughout the world. The
Company also relies on a combination of trade secrets and other intellectual
property laws, nondisclosure agreements and other protective measures to
establish and protect its proprietary rights in its intellectual property.
Certain trademarks, among them the name WABCO(R), were acquired or licensed
by the Company from American Standard Inc. in 1990 pursuant to its acquisition
of the North American operations of the Railway Products Group of American
Standard (the "1990 Acquisition").
The Company is a party, as licensor and licensee, to a variety of license
agreements. The Company does not believe that any single agreement, other than
the SAB License discussed in the following paragraph, is of material importance
to its business as a whole.
The Company and SAB WABCO Holdings B.V. ("SAB WABCO") entered into a license
agreement (the "SAB License") on December 31, 1993, pursuant to which SAB WABCO
granted the Company a license to the intellectual property and know-how related
to the manufacturing and marketing of certain disc brakes, tread brakes and low
noise and resilient wheel products. SAB WABCO is a Swedish corporation that was
a former affiliate of the Company, both having been owned by the same parent
prior to 1990. The Company is authorized to manufacture and sell the licensed
products in North America (including to OEM manufacturers located outside North
America if such licensed products are incorporated into a final product to be
sold in North America). SAB WABCO has a right of first refusal to supply the
Company with bought-in components of the licensed products on commercially
competitive terms. To the extent SAB WABCO files additional patent or trademark
applications, or develops additional know-how in connection with the licensed
products, such additional intellectual property and know-how are also subject
to the SAB License. The Company may, at its expense, request the service of SAB
WABCO in manufacturing, installing, testing and maintaining the licensed
products and providing customer support. SAB WABCO is entitled to a free,
nonexclusive license of the use of any improvements to the licensed products
developed by the Company. If any such improvements are patented by the Company,
SAB WABCO has the right to request the transfer of such patents upon payment of
reasonable compensation therefor; in such cases, the Company is entitled to a
free, nonexclusive license to use the patented product. The Company is required
to pay a lump sum fee for certain licensed products as well as royalties based
on specified percentages of sales. The license expires December 31, 2003, but
may be renewed for additional one-year terms.
In connection with the Company's recapitalization in January, 1995, the
Company and SAB WABCO agreed (i) to use their best efforts to negotiate an
agreement to distribute each other's products, (ii) to explore the feasibility
of a joint venture to expand into regions where neither is currently
represented, (iii) that the SAB License will be amended to include additional
disc brake and tread brake technology, (iv) that SAB WABCO will in the future
grant to the Company a license for the manufacture and sale of electronic brake
equipment that it designs, (v) that SAB WABCO will grant to the Company the
right to purchase SAB WABCO's option on 40% of the shares in SAB WABCO de
Brasil, and (vi) that the Company will have a right of first refusal to
purchase SAB WABCO if prior to December 31, 1999 the current owner decides to
sell more than 50% of its interest in SAB WABCO to a third party, subject to
certain exceptions. There is no assurance that the Company and SAB WABCO will
reach agreement on issues relating to future cooperation or that the Company
will be able to acquire SAB WABCO. Accordingly, the Company and SAB WABCO could
be competitors in international markets.
33
Customers
A few customers within each business segment represent a significant portion
of the Company's net sales, however, no one customer represented more than 10%
of the Company's consolidated revenues in 1998. The loss of a few key customers
within the Company's Railroad and Transit Group could have an adverse effect on
the Company's financial condition, results of operations and liquidity.
Competition
The Company operates in a competitive marketplace. Price competition is
strong and the existence of cost conscious purchasers of a limited number has
historically limited WABCO's ability to increase prices. In addition to price,
competition is based on product performance and technological leadership,
quality, reliability of delivery and customer service and support. The
Company's principal competitors vary to some extent across its principal
product lines. However, within North America, New York Air Brake Company, a
subsidiary of the German air brake producer Knorr-Bremse AG (collectively,
"NYAB/Knorr"), is the Company's principal overall OEM competitor. The Company's
competition for locomotive, freight and passenger transit service and repair
business is primarily from the railroads' and passenger transit authorities'
in-house operations and NYAB/Knorr.
Employees
As of December 31, 1998, we employed approximately 4,300 employees,
approximately 1,200 of whom were unionized. The majority of employees subject
to collective bargaining agreements are within North America and these
agreements are generally effective through 2001 and 2002.
The majority of non-union employees in the United States (approximately
2,000 employees) participate in the ESOP.
Regulation
In the course of its operations, the Company is subject to various
regulations, agencies and entities. In the United States, these include
principally the Federal Railroad Administration ("FRA") and the Association of
American Railroads ("AAR").
The FRA administers and enforces federal laws and regulations relating to
railroad safety. These regulations govern equipment and safety standards for
freight cars and other rail equipment used in interstate commerce.
The AAR promulgates a wide variety of rules and regulations governing safety
and design of equipment, relationships among railroads with respect to railcars
in interchange and other matters. The AAR also certifies railcar builders and
component manufacturers that provide equipment for use on railroads in the
United States. New products generally must undergo AAR testing and approval
processes.
As a result of these regulations and regulations in other countries in which
the Company derives its revenues, we must maintain certain certifications as a
component manufacturer and for products we sell.
34
Properties
The following table provides certain summary information with respect to the
principal facilities owned or leased by the Company. The Company believes that
its facilities and equipment are in good condition and that, together with
scheduled capital improvements, they are adequate for its present and
immediately projected needs. The Greensburg, PA, Germantown, MD, Niles, IL and
Chicago, IL properties are subject to mortgages to secure the Company's
indebtedness under the Credit Agreement. The Company's corporate headquarters
are located in the Wilmerding, PA site.
Approximate
Own/ Square
Location Primary Use Primary Segment Lease Feet
-------- --------------------- --------------------- ----- -----------
Domestic
Wilmerding, PA.......... Manufacturing/Service Railroad Group Own 850,000(1)
Chicago, IL............. Manufacturing Railroad Group Own 111,500
Germantown, MD.......... Manufacturing/Service Railroad Group Own 80,000
Kansas City, MO......... Service Center Railroad Group Lease 55,891
Bossier City, LA........ Service Center Railroad Group Lease 40,000
Carson City, NV......... Service Center Railroad Group Lease 22,000
Columbia, SC............ Service Center Railroad Group Lease 12,250
Chicago, IL............. Service Center Railroad Group Lease 19,200
Niles, IL............... Manufacturing Transit Group Own 355,300
Spartanburg, SC......... Manufacturing/Service Transit Group Lease 183,600
Plattsburgh, NY......... Manufacturing Transit Group Lease 64,000
Elmsford , NY........... Service Center Transit Group Lease 28,000
Sun Valley , CA......... Service Center Transit Group Lease 4,000
Atlanta, GA............. Service Center Transit Group Lease 1,200
Laurinburg, NC.......... Manufacturing Molded Products Group Own 105,000
Greensburg, PA.......... Manufacturing Molded Products Group Own 97,830
Ball Ground, GA......... Manufacturing Molded Products Group Lease 30,000
International
Doncaster, UK........... Manufacturing/Service Railroad Group Own 330,000
Stoney Creek, Ontario... Manufacturing/Service Railroad Group Own 189,170
Wallaceburg, Ontario.... Foundry Railroad Group Own 127,555
Burlington, Ontario..... Manufacturing Railroad Group Own 46,209
Burlington, Ontario..... Manufacturing Railroad Group Own 28,165
Winnipeg, Manitoba...... Service Center Railroad Group Lease 20,000
Montreal, Quebec........ Manufacturing Transit Group Own 106,000
Sassuolo, Italy......... Manufacturing Transit Group Lease 30,000
Burton on Trent, UK..... Manufacturing Transit Group Lease 18,000
Etobicoke, Ontario...... Service Center Transit Group Lease 3,800
Wetherill Park, NSW..... Manufacturing Molded Products Group Lease 73,141
Schweighouse, France.... Manufacturing Molded Products Group Lease 30,000
Tottenham, VIC.......... Manufacturing Molded Products Group Lease 26,910
- --------
(1) Approximately 250,000 square feet are currently used in connection with the
Company's operations. The balance of the space is subleased.
The above information does not include certain facilities scheduled to be
closed during 1999. Leases on the above facilities are long-term and generally
include options to renew.
35
Environmental Matters
We are subject to a variety of environmental laws and regulations governing
discharges to air and water, the handling, storage and disposal of hazardous or
solid waste materials and the remediation of contamination associated with
releases of hazardous substances. The Company believes its operations currently
comply in all material respects with all of the various environmental laws and
regulations applicable to our business; however, there can be no assurance that
environmental requirements will not change in the future or that we will not
incur significant costs to comply with such requirements.
Under the terms of the purchase agreement and related documents for the 1990
Acquisition, American Standard indemnified the Company for certain items
including environmental claims. American Standard has indemnified the Company
for any claims, losses, costs and expenses arising from (i) claims made in
connection with any of the environmental matters disclosed by American Standard
to the Company at the time of the 1990 Acquisition, (ii) any pollution or
threat to human health or the environment related to American Standard's (or
any previous owner's or operator's) ownership or operation of the properties
acquired by WABCO in the 1990 Acquisition, which pollution or threat was caused
or arises out of conditions existing prior to the 1990 Acquisition (limited to
environmental laws in effect as of December 31, 1991), and (iii) any material
claim ("Environmental Claim") alleging potential liability for the release of
pollutants or the violation of any federal, state or local laws or regulations
relating to pollution or protection of human health or the environment, for
which American Standard has retained liability. Such indemnity covers
investigatory costs only if the investigation is undertaken pursuant to a
larger Environmental Claim and to the extent of American Standard's pro-rata
liability for such larger Environmental Claim. American Standard has no
obligation to indemnify for investigatory costs incurred by the Company
independently or otherwise unrelated to an indemnifiable event. American
Standard's indemnification obligations are limited to aggregate amounts in
excess of $500,000. The Company has exceeded this deductible.
In addition, American Standard's indemnification obligation with respect to
friction product related claims only extends to 50% of the amount claimed, up
to a maximum of $14 million (provided liability is asserted directly and solely
against the Company's friction products subsidiary, RFPC).
The indemnification obligations with respect to third party claims survive
until 2000, except those claims which are timely asserted continue until
resolved. If American Standard should be unable to meet its obligations under
this indemnity, the Company will be responsible for such items. In the opinion
of management, American Standard has the present ability to meet its
indemnification obligations.
The Company, through RFPC, has been named, along with other parties, as a
potentially responsible party under the North Carolina Inactive Sites Response
Act because of an alleged release or threat of release of hazardous substances
at the "Old James Landfill" site in Laurinburg, NC. The Company believes that
any cleanup costs for which it may be held responsible are covered by (i) the
American Standard indemnity discussed above and (ii) an insurance policy for
environmental claims provided by Manville Corporation, the former 50% owner of
RFPC, in connection with the Company's 1992 acquisition of Manville
Corporation's interest in RFPC. Pursuant to the terms of the purchase agreement
for the acquisition of Manville Corporation's interest in RFPC, Rocky Mountain
International Insurance, Ltd., an affiliate of Manville Corporation, provided
an insurance policy to cover any claims, losses, costs and expenses relating
to, among other things, environmental liabilities arising from conditions
existing at the former Manville site used by RFPC prior to the acquisition
(limited to environmental laws in effect as of July 1992).
This insurance policy is the sole remedy for the Company with respect to
covered claims. The insurance policy survives until July 2002. Active claims
for conditions existing prior to July 1992 will continue to be covered beyond
July 2002. The aggregate limit of coverage under the insurance policy provided
by Manville Corporation is $12.5 million. The Company has submitted claims and
has received recoveries under the policy for costs of clean up imposed on or
incurred by the Company in connection with the "Old James Landfill", and Rocky
Mountain has acknowledged coverage under the policy, subject to the stated
policy exclusions. In
36
addition to the insurance policy provided by Manville Corporation, American
Standard's indemnification obligations described above cover 50% of RFPC-
related claims. In January 1998, the Company discovered petroleum contaminated
soils in the vicinity of the oil-water separator at the Laurinburg facility.
The Company has filed a notice of claim requesting coverage under the insurance
policy for clean up costs associated with removal of the contaminated soils,
which were less than $30,000.
The Company believes that the indemnification agreements and insurance
policy referred to above are adequate to cover any potential liabilities during
their respective terms arising in connection with the above-described
environmental conditions. None of the insurance or indemnification agreements
is currently the subject of any dispute.
Legal Proceedings
There are various pending lawsuits and claims arising out of the conduct of
the Company's business. These include claims by employees of third parties who
allege they were exposed to asbestos while handling American Standard products
manufactured prior to the 1990 Acquisition. American Standard discontinued the
use of asbestos in its products in 1980. American Standard has indemnified the
Company against these claims and is defending them. Under the terms of the
purchase agreement and related documents for the 1990 Acquisition, American
Standard has indemnified the Company for any claims, losses, costs and expenses
arising from, among other things, product liability claims by third parties,
intellectual property infringement actions and any other claims or proceedings,
in each case to the extent they related to events occurring, products sold or
services rendered prior to the 1990 Acquisition and affect the properties
acquired by the Company. American Standard's indemnification obligations are
limited to aggregate amounts in excess of $500,000 and, as described in Item 1,
this deductible has already been exceeded. In addition, American Standard's
indemnification obligation with respect to RFPC-related claims only extends to
50% of the amount claimed, up to a maximum of $14 million (provided liability
is asserted directly and solely against RFPC). The indemnification obligations
with respect to third party claims survive until 2000. An insurance policy
provided by Manville Corporation, the former 50% owner of RFPC, covers the
other 50% of RFPC related claims up to a maximum of $12.5 million.
On February 12, 1999, GE Harris Railway Electronics, LLC and GE Harris
Railway Electronic Services, LLC (collectively, "GE Harris") brought suit
against the Company for alleged patent infringement and unfair competition
related to a communications system installed in one of the Company's products.
GE Harris is seeking to prohibit the Company from future infringement and is
seeking an unspecified amount of money damages to recover, in part, royalties.
While this lawsuit is in the earliest stages, the Company believes the
technology developed by the Company does not infringe on the GE Harris patents.
The Company plans to contest the infringement claims vigorously, in order to
present alternative product lines to customers in the rail industry.
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the ordinary course of business. As of the
date hereof, the Company is involved in no litigation that the Company believes
will have a material adverse effect on its financial condition, results of
operations, or liquidity. The Company historically has not been required to pay
any material liability claims.
37
MANAGEMENT
Executive Officers and Directors
The following table provides information concerning the executive officers
and directors of the Company as of April 1, 1999.
Name Age Position
- ---- --- --------
William E. Kassling........ 55 Director, Chairman of the Board and Chief
Executive Officer
Emilio A. Fernandez........ 54 Director and Vice Chairman
Gregory T.H. Davies........ 52 Director, President and Chief Operating Officer
Robert J. Brooks........... 54 Director, Chief Financial Officer and Chief
Accounting Officer
Kevin P. Conner............ 41 Vice President--Human Resources
Alvaro Garcia-Tunon........ 46 Vice President--Treasurer
Timothy J. Logan........... 46 Vice President--International
John M. Meister............ 51 Executive Vice President and General Manager,
Transit Product Group
George A. Socher........... 50 Vice President and Corporate Controller
Kim G. Davis............... 45 Director
James C. Huntington, Jr.... 71 Director
James P. Kelley............ 44 Director
James V. Napier............ 62 Director
William E. Kassling has been a director, Chairman and Chief Executive
Officer of the Company since the 1990 Acquisition. Mr. Kassling was also
President of WABCO from 1990 through February 1998. From 1984 until 1990 he
headed the Railway Products Group of American Standard Inc. Between 1980 and
1984 he headed American Standard's Building Specialties Group and between 1978
and 1980 he headed Business Planning for American Standard. Mr. Kassling is a
director of Aearo Corporation, Scientific Atlanta, Inc. and Commercial
Intertech, Inc.
Emilio A. Fernandez was named Vice Chairman in March 1998. He has been a
Director and was Executive Vice President of the Company since the Company's
January 1995 acquisition of Pulse Electronics, Inc. which he co-founded in
1975. From 1996 to February 1998 he was Executive Vice President--Integrated
Railway Systems. Mr. Fernandez is a director of PMI, Inc., a private
corporation.
Gregory T. H. Davies joined the Company in March 1998 as President and Chief
Operating Officer and in February 1999 became a director. Mr. Davies was
formerly with Danaher Corporation since 1988, where he was Vice President and
Group Executive responsible for its Jacobs Vehicle Systems, Delta Consolidated
Industries and A.L. Hyde Corporation operating units. Prior to that, he held
executive positions at Cummins Engine Company and Ford Motor Company.
Robert J. Brooks has been a director and Chief Financial Officer of the
Company since the 1990 Acquisition. From 1986 until 1990 he served as worldwide
Vice President, Finance for the Railway Products Group of American Standard.
Mr. Brooks is a director of Crucible Materials Corp.
Kevin P. Conner has been Vice President of Human Resources of the Company
since the 1990 Acquisition. From 1986 until 1990, Mr. Conner was Vice President
of Human Resources of the Railway Products Group of American Standard.
Alvaro Garcia-Tunon has been Vice President and Treasurer of the Company
since August 1995. From 1990 until August 1995 Mr. Garcia-Tunon was Vice
President of Business Development of Pulse Electronics, Inc.
38
Timothy J. Logan has been Vice President, International since August 1996.
Previously, from 1987 until August 1996, Mr. Logan was Vice President,
International Operations for Ajax Magnethermic Corporation and from 1983 until
1987 he was President of Ajax Magnethermic Canada, Ltd.
John M. Meister has been Vice President and General Manager of the Company's
Passenger Transit Unit since the 1990 Acquisition. In 1997, he was appointed to
the newly created position of Executive Vice President and General Manager,
Transit Products Group. From 1985 until 1990 he was General Manager of the
passenger transit business unit for the Railway Products Group of American
Standard.
George A. Socher has been Vice President and Corporate Controller of the
Company since July 1995. From 1994 until June 1995, Mr. Socher was Corporate
Controller and Chief Accounting Officer of Sulcus Computer Corp. From 1988
until 1994 he was Corporate Controller of Stuart Medical Inc.
The executive officers are elected annually by the Board of Directors of the
Company at an organizational meeting, which is held immediately after each
Annual Meeting of Stockholders.
Kim G. Davis has served as a director since 1997. Mr. Davis has served as
the Managing Director of Charlesbank Capital Partners, LLC, formerly known as
Harvard Private Capital Holdings, Inc., since 1998. Mr. Davis was a private
investor from 1994 to 1998, and was a partner of Kohlberg & Co. from prior to
1993 until 1994.
James C. Huntington, Jr. has served as a director since 1995. Mr. Huntington
has been an independent businessman since prior to 1993. He was formerly Senior
Vice President of American Standard, Inc.
James P. Kelley has served as director since 1990. Mr. Kelley has served as
the Managing Director of Vestar Capital Partners, Inc., a private equity
investment firm since prior to 1993. Mr. Kelley also serves as a Director of
LaPetite Academy, Inc. and Celestial Seasonings, Inc.
James V. Napier has served as a director since 1995. Mr. Napier has served
as the Chairman of Scientific Atlanta, Inc. since July 1994, and served as
Chairman and interim Chief Executive Officer of Scientific Atlanta, Inc. from
November 1993 to July 1994. Mr. Napier served as Chairman and Chief Executive
Officer of Commercial Tel. Group from prior to 1993 to November 1993. Mr.
Napier also serves as a director of Engelhard Corporation, Vulcan Materials
Company, HBO and Company, Personnel Group of America, Inc. and Intelligent
Systems, Inc.
39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of December 31, 1998, certain information
concerning each person believed to be the beneficial owner of more than five
percent (5%) of common stock of the Company, as well as certain information
concerning the beneficial ownership of common stock by each named director,
executive officer and all directors and executive officers as a group believed
to be a beneficial owner of common stock of the Company.
U.S. Trust Company, N.A. ............................. 9,297,409(1) 27.43
as trustee for Westinghouse Air Brake
Company Employee Stock Ownership
Plan and Trust
515 S. Flower Street
Suite 2700
Los Angeles, CA 90071
William E. Kassling................................... 3,551,424(2) 10.48
RAC Voting Trust...................................... 3,498,819(3) 10.40
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
James P. Kelley....................................... 2,545,548(4)(5) 7.51
Kim G. Davis.......................................... 2,406,000(5)(6) 7.10
Charlesbank Capital Partners, LLC..................... 2,400,000 7.08
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
Vestar Equity Partners, L.P. ......................... 2,400,000 7.08
c/o Vestar Capital Partners, Inc.
Seventeenth Street Plaza
1225 17th Street, Suite 1660
Denver, Colorado 80202
Shapiro Capital Management Company, Inc. ............. 2,139,500 6.31
3060 Peachtree Road,
N.W. Atlanta, GA 30305
First Manhattan Co ................................... 1,753,950 5.17
437 Madison Avenue
New York, NY 10022
Emilio A. Fernandez................................... 665,072(7) 1.96
John M. Meister....................................... 455,216(8) 1.34
Robert J. Brooks...................................... 381,589(9) 1.13
Gregory T.H. Davies................................... 59,192(5) *
James C. Huntington, Jr............................... 18,000(5) *
James V. Napier....................................... 12,500(5)(10) *
All directors and executive officers as a group (13 10,405,106(11) 30.70
persons).............................................
40
- --------
(1) Under the terms of the Westinghouse Air Brake Company Employee Stock
Ownership Plan and Trust, U.S. Trust Company, N.A., as sole trustee for
the ESOP (the "ESOP Trustee"), is required to vote the shares held by the
ESOP in accordance with the instructions from the ESOP participants for
all shares allocated to such participants' accounts. Shares not allocated
to the account of any employee are voted by the ESOP Trustee in the same
proportion as the votes for which participant instructions are given.
Allocated shares for which the ESOP Trustee does not receive instructions
are voted in the manner directed by the ESOP Committee, an administrative
committee comprised of persons appointed by the Board of Directors of the
Company (currently Messrs. Kassling, Brooks and Kevin P. Conner). As of
December 31, 1998, 771,189 shares were allocated (including accrued
amounts) to participants' accounts, and 8,564,811 shares were not
allocated.
(2) Includes 52,105 shares beneficially owned by William E. Kassling, of which
6,500 shares are deposited in the Voting Trust. Also includes 1,443,336
shares beneficially owned by Davideco, a Pennsylvania business trust,
which are all deposited in the Voting Trust. Also includes 500 shares
beneficially owned by Mr. Kassling's son, beneficial ownership of which
shares is disclaimed, and 3,498,819 shares held of record by the Voting
Trust, of which Mr. Kassling, Robert J. Brooks and Kevin P. Conner, an
executive officer of the Company, are trustees, beneficial ownership of
which shares is disclaimed. See note 2 for further discussion on the
Voting Trust.
(3) Pursuant to the Second Amended Westinghouse Air Brake Company Voting
Trust/Disposition Agreement dated as of December 13, 1995 (the "Amended
Voting Trust Agreement"), certain employees of the Company have delivered
their shares of Common Stock of the Company to the trustees of the Voting
Trust. The current trustees are Messrs. Kassling, Brooks and Conner. The
trustees of the Voting Trust have sole voting power with respect to all
shares reported as beneficially owned by the Voting Trust. The Amended
Voting Trust Agreement expires January 1, 2000 and can be terminated by an
affirmative vote of two-thirds of the shares held by the Voting Trust or
by the unanimous vote of the trustees.
(4) Includes 105,548 shares beneficially owned by James P. Kelley. Also
includes 40,000 shares beneficially owned by Vestar Capital Partners,
Inc., of which Mr. Kelley is a Managing Director, beneficial ownership of
which shares is disclaimed. Also includes 2,400,000 shares beneficially
owned by Vestar Equity Partners, L.P., beneficial ownership of which
shares is disclaimed. Vestar Associates, L.P. is the sole general partner
of Vestar Equity Partners, L.P., and Vestar Associates Corporation is the
sole general partner of Vestar Associates, L.P. Mr. Kelley is Managing
Director of Vestar Associates Corporation.
(5) Includes options that are exercisable within 60 days as of the Record
Date.
(6) Includes 2,400,000 shares beneficially owned by Charlesbank Capital
Partners, LLC, formerly known as Harvard Private Capital Holdings, Inc.,
of which Kim G. Davis is a Managing Director, beneficial ownership of
which shares is disclaimed.
(7) Includes 395,476 shares beneficially owned by Emilio A. Fernandez. Also
includes 257,175 shares beneficially owned by Mr. Fernandez's wife and
12,421 shares beneficially owned by his son, beneficial ownership of which
shares is disclaimed.
(8) Includes 255,216 shares beneficially owned by John M. Meister, of which
250,000 shares are deposited in the Voting Trust. Also includes 200,000
shares held in trust for Mr. Meister's children, beneficial ownership of
which shares is disclaimed. Mr. Meister is trustee of such trust.
(9) Includes 21,589 shares beneficially owned by Robert J. Brooks, of which
9,300 shares are deposited in the Voting Trust. Also includes 360,000
shares beneficially owned by Suebro, Inc., a Delaware holding company,
which are all deposited in the Voting Trust. Does not include 3,498,819
shares held of record by the Voting Trust. Such shares are included in the
reported holdings of William E. Kassling.
(10) Includes 7,000 shares beneficially owned by James V. Napier and 500 shares
held in Mr. Napier's Keogh account.
(11) Includes notes 2, 4-10.
* Less than 1%
41
DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Agreement
The Credit Agreement provides for an aggregate credit facility of $350
million, consisting of up to $170 million of June 1998 term loans, up to $40
million of September 1998 term loans, and up to $140 million of revolving
loans. In addition, the Credit Agreement provides for swingline loans of up to
an aggregate amount of $5 million, and for the issuance of letters of credit in
an aggregate face amount of up to $50 million. Swingline loans and the issuance
of letters of credit will reduce the amount of revolving loans that may be
incurred under the revolving credit facility.
As of December 31, 1998, $162.5 million of June 1998 term loans, $40.0
million of the September 1998 term loans and $105.6 million of the revolving
loans were outstanding (plus $24.5 million of outstanding letters of credit).
The Company used the June 1998 term loans to refinance term loans originally
made in 1995 which were used to purchase shares of Common Stock from existing
stockholders, make a $140 million loan to the Company's ESOP which was used to
fund purchases of Common Stock from the Voting Trust established by the
Company's management shareholders, pay the fees and expenses incurred in
connection with such share purchase, ESOP loan and the acquisition of Pulse
Electronics, and repay a portion of the seller note issued in connection with
the acquisition of Pulse. The September 1998 term loans were used to finance a
portion of the Rockwell Acquisition. The revolving loans were used to repay the
outstanding revolving loans under the 1995 revolving Credit Facility and to
finance a portion of the Rockwell Acquisition. The balance of the revolving
loans may be used by the Company for general corporate purposes and the making
of certain acquisitions. As of December 31, 1998, the Company had approximately
$12.0 million of revolving loans availability.
The net proceeds of this Offering will be used to repay a $30 million
unsecured credit facility the proceeds of which were used to finance a portion
of the Rockwell Acquisition. The balance of the proceeds will be used to reduce
revolving credit borrowings under the Credit Agreement. See "Use of Proceeds."
The following summary sets forth the principal terms of the Credit
Agreement:
The June 1998 term loans under the Credit Agreement will be due in semi-
annual payments commencing on December 31, 1998 with the final payment due June
30, 2003, and the September 1998 term loans will be due in semi-annual payments
commencing on June 30, 2000 with the final payment due June 30, 2003. Revolving
loans will be due December 31, 2003. The Company's scheduled debt payments
under the Credit Agreement for the periods ending December 31, 1999, 2000,
2001, 2002 and 2003 will be $20.0 million, $32.5 million, $40.0 million, $50.0
million, and $60.0 million, respectively. For either term loans or revolving
loans, the Company can choose from the following interest rate options: (a) the
Alternate Base Rate, which is the greater of (i) Chase Manhattan Bank's prime
rate, (ii) the Base CD Rate plus 1% and (iii) the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers plus .50 of 1%, plus an applicable
margin ranging from 0% to .50% based on the Company's Leverage Ratio, or (b)
the Adjusted LIBO Rate, which is the London interbank overseas rate for dollar
deposits, as adjusted for statutory reserve requirements, plus an applicable
margin ranging from .625% to 1.50% based on the Company's Leverage Ratio.
Swingline loans are subject exclusively to the Alternate Base Rate. Interest is
payable periodically. In addition, the Company will be required to pay certain
fees to the administrative agents and participating lending institutions,
including a commitment fee (ranging from .25% to .375%) on the unborrowed
amount of the revolving credit commitment based upon the Company's Leverage
Ratio and fees relating to the issuance of letters of credit under the Credit
Agreement.
In addition to the scheduled principal payments described above, the Credit
Agreement requires principal prepayments equal to (i) 100% of the Net Cash
Proceeds (as described below) of any Prepayment Event (as described below)
(other than a Prepayment Event arising under clause (iii) in the description
below, in which case the Credit Agreement requires principal prepayments equal
to 50% of the Net Proceeds therefrom) and (ii) 50% of Excess Cash Flow (as
described below) for each fiscal year if the Leverage Ratio exceeds 3.25 to
1.00.
42
The following is a general description of the definitions in the Credit
Agreement of certain terms used above. "Prepayment Event" means (i) any sale,
transfer or other disposition of any business units, assets or other properties
of the Company, (ii) the issuance or incurrence of any indebtedness or debt
securities by the Company or (iii) the issuance or sale of any equity
securities by the Company, other than the sale, transfer or other disposition
of used or surplus equipment in the ordinary course of business (except for
sales, transfers or other dispositions in excess of $3 million in any year),
sales of inventory in the ordinary course, the receipt of insurance or
condemnation proceeds (except for receipt of proceeds in excess of $3 million
in any year), the receipt of condemnation or insurance proceeds in respect of
Mortgaged Properties, and the receipt of Net Cash Proceeds in an aggregate
amount not in excess of $150 million in respect to any events described in
clause (iii) above. "Net Cash Proceeds" means the gross cash proceeds to the
Company of any Prepayment Event, less taxes, reserves and customary fees,
commissions and expenses. "Excess Cash Flow" means, for any period, EBITDA for
such period minus capital expenditures, increases in net working capital,
decreases in long-term reserves, income taxes added back to net income to
determine EBITDA, Cash Interest Expense (as described below), scheduled debt
amortization payments and certain other amounts for such period plus decreases
in net working capital for such period and increases in long-term reserves for
such period. "Interest Expense Coverage Ratio" means, for any period, the ratio
of EBITDA to Cash Interest Expense for such period. "Cash Interest Expense"
means, for any period, the gross interest expense of the Company for such
period less gross interest income of the Company for such period. "Leverage
Ratio" means, as of any day, the ratio of (i) the sum of the aggregate amount
of all loans under the Credit Agreement and all other indebtedness of the
Company on such day to (ii) EBITDA for the 12-month period ending on such day.
The Credit Agreement limits the Company with respect to declaring or making
cash dividend payments and prohibits the Company from declaring or making other
distributions whether in cash, property, securities or a combination thereof,
with respect to any shares of the Company's capital stock subject to certain
exceptions, including an exception pursuant to which the Company will be
permitted to pay cash dividends on its Common Stock in any fiscal year in an
aggregate amount up to $15 million over the aggregate amount of prepayments of
the Pulse seller note and the unsecured credit facility loans being repaid with
the proceeds hereof during such fiscal year so long as no default in the
payment of interest or fees has occurred thereunder. The Credit Agreement
contains various other covenants and restrictions including, without
limitation, the following: a limitation on the incurrence of additional
indebtedness; a limitation on mergers, consolidations and sales of assets and
acquisitions (other than mergers and consolidations with certain subsidiaries,
sales of assets in the ordinary course of business, and acquisitions for which
the consideration paid by the Company does not exceed $50 million individually
or $150 million in the aggregate); a limitation on liens; a limitation on sale
and leasebacks; a limitation on investments, loans and advances; a limitation
on certain debt payments; a limitation on capital expenditures; a minimum
interest expense coverage ratio; and a maximum leverage ratio. All debt
incurred under the Credit Agreement will be secured by substantially all of the
assets of the Company and its domestic subsidiaries and is guaranteed by the
Company's domestic subsidiaries.
The Credit Agreement contains customary events of default, including payment
defaults, failure of representations to be true in any material respect,
covenant defaults, defaults with respect to other indebtedness of the Company,
bankruptcy, certain judgments against the Company, ERISA defaults and "change
of control" of the Company. See "Risk Factors--High Leverage; Deficit in
Stockholders' Equity; Restrictive Covenants." The occurrence of an event of
default will give the lenders under the Credit Agreement the right to terminate
the commitment to make additional loans and declare the outstanding loans to be
due and payable, as well as the right to exercise foreclosure on the collateral
granted to the lenders under the Credit Agreement and related security
documents.
Existing Notes
In June 1995 the Company issued $100 million of 9 3/8% Senior Notes due
2005. The proceeds of the notes were used to prepay term loans outstanding
under the Company's then existing credit agreement. The terms of the Existing
Notes the same in all material respects as the Notes described herein. The
Existing Notes were
43
issued pursuant to the Existing Notes Indenture, which is substantially the
same as the Indenture pursuant to which the Notes are being issued, subject to
certain differences to reflect the manner of sale.
Pulse Note
As partial payment for the Pulse acquisition, the Company issued a $17.0
million note due January 31, 2004. Interest is payable semiannually and accrues
until February 1, 1998 at the per annum rate of 9.5%; from February 1, 1998
until January 31, 2001, interest will accrue at the prime rate charged by Chase
Manhattan Bank on December 31, 1997 plus 1%; and from February 1, 2001 until
January 31, 2004, interest will accrue at the prime rate charged by Chase
Manhattan Bank on December 31, 2000 plus 1%.
DESCRIPTION OF THE EXCHANGE NOTES
Generally
The Old Notes were and the Exchange Notes offered hereby will be issued
under an indenture (the "Indenture"), dated as of January 12, 1999 by and among
the Company and The Bank of New York, as Trustee (the "Trustee"). References to
the Notes include the Exchange Notes unless the context otherwise requires.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of a
Shelf Registration Statement, the Indenture will be subject to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of the material provisions of the Indenture (a copy of the form of
which may be obtained upon request to the Company or the Initial Purchasers)
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act, and to all of the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the Trust Indenture Act, as
in effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "Certain
Definitions." For purposes of this section, references to the "Company" include
only WABCO and not its subsidiaries.
On January 12, 1999, the Company issued $75 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain
transfer restrictions and registration and other rights relating to the
exchange of the Old Notes for Exchange Notes. The Trustee will authenticate and
deliver Exchange Notes for original issue only in exchange for a like principal
amount of Old Notes. Any Old Notes that remain outstanding after the
consummation of the Exchange Offer, together with the Exchange Notes, will be
treated as a single class of securities under the Indenture. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Exchange Notes shall be deemed to mean, at any time after the
Exchange Offer is consummated, such percentage in aggregate principal amount of
the Old Notes and Exchange Notes then outstanding.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Indebtedness (defined below) of the Company
to the extent set forth in the Indenture. The Notes will not be guaranteed by
the Company's subsidiaries, however, the Credit Facility is unconditionally
guaranteed by all of its domestic subsidiaries. So long as the Existing Notes
remain outstanding, this guarantee is limited to $250 million in the aggregate.
See "Risk Factors--Notes Represents Unsecured Claims; Structural
Subordination."
Optional Redemption
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after June 15, 2000, and prior to maturity, 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 or after June 15 of the years set forth
below:
44
Redemption
Year Price
---- ----------
2000............................................................ 104.688%
2001............................................................ 102.344%
2002 and thereafter............................................. 100.000%
In the case of any redemption of Notes or Existing Notes, the Company will
also redeem Existing Notes or Notes, as the case may be, on a pro rata basis.
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.
Ranking
The Notes will be senior unsecured obligations of the Company, will rank
pari passu in right of payment with all existing and future Senior Indebtedness
and will be senior in right of payment to all existing and future Subordinated
Indebtedness of the Company.
The Notes will be effectively subordinated to liabilities of the Company's
subsidiaries, including trade payables. See "Risk Factors--Notes Represent
Unsecured Claims; Structural Subordination."
The Indenture limits the amount of Indebtedness that may be incurred by the
Company and its subsidiaries which may rank pari passu in right of payment with
the Notes or which may be secured. See "Description of Certain Indebtedness."
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
Affiliate Transactions" and "Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
shares representing five percent (5%) 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 Voting 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.
"Agent" means any Registrar or Paying Agent or authenticating agent or co-
registrar.
"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, other than permitted Sale/Leaseback
45
Transactions, 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 Subsidiary to a Wholly-Owned Subsidiary and (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"); provided, that the receipt of any
insurance proceeds in connection with any casualty shall not be included within
the meaning of "Asset Disposition" except to the extent in excess of $3,000,000
in the aggregate in any fiscal year; provided, however, that to the extent that
the Company shall have reinvested on the date of any required Excess Proceeds
Offer (or certified to the Trustee that it intends to reinvest within 180 days
of such Excess Proceeds Offer) any of such excess proceeds in equipment,
vehicles or other assets used in the Company's principal lines of business, the
resultant Excess Proceeds Offer shall be reduced by the amount so reinvested or
to be reinvested.
"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 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.
"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 capitalized 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.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 180 days or less from the date of acquisition issued or directly
and fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); (ii) certificates of
deposit or acceptances with a maturity of 180 days or less from the date of
acquisition of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $300,000,000 and a Keefe Bank Watch (or successor) Rating of B (or
subsequent equivalent rating) or better; (iii) commercial paper with a maturity
of 180 days or less from the date of acquisition issued by a corporation that
is not an Affiliate of the
46
Company organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 (or subsequent equivalent rating)
by Standard & Poor's Corporation and its successors or at least P-1 (or
subsequent equivalent rating) by Moody's Investors Service, Inc. and its
successors; and (iv) repurchase agreements and reverse repurchase agreements
with terms of more than 30 days relating to obligations of the types described
in clause (i) above entered into with a financial institution of the type
described in clause (ii) above, provided that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" (as such term is used in Sections 13 (d) and 14 (d) of the
Exchange Act), other than (a) any Designated Person or (b) combination of
Designated Persons, 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 thirty-five percent (35%) of the total voting power of
the Voting Stock of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors of the
Company 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
Company then in office; (iii) the Company conveys, transfers or leases all or
substantially all its assets to any person or group, in one transaction or a
series of transactions other than any conveyance, transfer or lease between the
Company and a Wholly-Owned Subsidiary or (iv) the stockholders of the Company
shall approve any plan or proposal for the liquidation or dissolution of the
Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Existing Notes Issue Date, including, without limitation, all
series and classes of such common stock.
"Company" means Westinghouse Air Brake Company, a Delaware corporation,
until a successor replaces it in accordance with the covenant described in
"Certain Covenants--Merger and Consolidation," and thereafter means the
successor.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the four most recent fiscal
quarters for which the Company has filed financial statements with the SEC
pursuant to the requirements of the Exchange Act prior to the date of such
determination 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 has 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, except that, in making such
calculation, Indebtedness Incurred under a revolving credit or similar
arrangement to finance seasonal fluctuations in working capital needs shall be
computed on the average daily balance of such Indebtedness during such period
unless such Indebtedness is projected in the reasonable judgment of senior
management of the Company to remain outstanding for a period in excess of 12
months from the date of Incurrence of such Indebtedness, in which case such
Indebtedness will be assumed to have been Incurred on the first day of such
coverage period, (2) if since the beginning of such period the
47
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), (3) 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 causing 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 (4) 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 (2) or (3) 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 Protection Agreement applicable to such Indebtedness
if such Interest Rate Protection Agreement has a remaining term in excess of 12
months).
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its consolidated Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and
between Restricted Subsidiaries and (ii) all current maturities of long-term
Indebtedness, all as determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus (x)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost (excluding debt issuance cost relating to the Notes), (iii)
capitalized interest, (iv) non-cash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (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 and (ix) interest actually paid by the
Company or any of its consolidated Restricted Subsidiaries under any Guarantee
of Indebtedness of any Person and minus (y) to the extent included in such
total interest expense, any amortization by the Company and its consolidated
Restricted Subsidiaries of (i) capitalized interest or (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing.
48
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Restricted Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations 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 during 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 Person
(other than an Unrestricted Subsidiary) 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) the net
income of any Restricted Subsidiary to the extent that such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions, directly or indirectly, to the
Company, except that 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 (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Restricted 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 (but not 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.
"Consolidated Net Tangible Assets" as of any date of determination means the
total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet
of the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom, to the extent otherwise included, the
amounts of: (i) Consolidated Current Liabilities; (ii) minority interests in
consolidated Subsidiaries held by Persons other than the Company or a
Restricted Subsidiary; (iii) excess of cost over fair value of assets of
businesses acquired, as determined in good faith by the Board of Directors;
(iv) any revaluation or other write-up in book value of assets subsequent to
the Existing Notes Issue Date as a result of a change in the method of
valuation in accordance with GAAP consistently applied; (v) unamortized debt
discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items (if included
in total assets); (vi) treasury stock (if included in total assets); (vii)
Unallocated ESOP Shares; and (viii) cash set apart and held in a sinking or
other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, as of the end of the most
recent fiscal quarter for which the Company has filed financial statements with
the SEC pursuant to the requirements of the Exchange Act, prior to the taking
of any action for the purpose of which the determination is being made, 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 (to the extent otherwise
included) (A) any accumulated deficit, (B) any amounts attributable to
Disqualified Stock, (C) Unallocated ESOP Shares, (D) treasury stock and (E) any
cumulative translation adjustment.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall having meanings correlative
thereto.
"Credit Agreement" means the Credit Agreement dated as of January 31, 1995,
as amended and restated as of February 15, 1995, among the Company, the
financial institutions named therein, Chemical Bank, as
49
Swingline Lender, Issuing Bank, Administrative Agent and Collateral Agent,
Chemical Bank Delaware, as Issuing Bank, The Bank of New York and Credit
Suisse, as Co-Administrative Agents, and The Bank of New York, as Documentation
Agent, as the same may be amended or modified from time to time, and any
agreement evidencing any refunding, replacement, refinancing or renewal, in
whole or in part, of the Credit Agreement.
"Default" means any event, which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Person" means Incentive AB, a corporation organized under the
laws of the Kingdom of Sweden, or any of its subsidiaries, Vestar or Vestar
Capital or any of their respective Controlled Affiliates, the ESOP, the Pulse
Shareholders and any of their respective Affiliates, the Voting Trust and any
person or entity holding a beneficial interest in the Voting Trust or the
Capital Stock of the Company held by the Voting Trust on the Existing Notes
Issue Date (or, in the case of any such person or entity, their permitted
transferees).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes.
"EBITDA" for any period means Consolidated Net Income plus the following to
the extent deducted in calculating such Consolidated Net Income: (a) all income
tax expense of the Company, (b) Consolidated Interest Expense, (c) depreciation
expense, (d) amortization expense and (e) other noncash charges (including any
charges resulting from the write-up of inventory) deducted in determining
Consolidated Net Income (and not already excluded from the definition of the
term "Consolidated Net Income"), in each case for such period.
"ESOP" means collectively, the Westinghouse Air Brake Company Employee Stock
Ownership Plan effective January 1, 1995 and the Westinghouse Air Brake Company
Employee Stock Ownership Trust established effective January 1, 1995 pursuant
to the Westinghouse Air Brake Company Employee Stock Ownership Trust Agreement
between the Company and U.S. Trust Company of California, N.A., as such plan
(the "Plan") and trust (the "Trust") may be amended, modified or supplemented
from time to time.
"ESOP Loan" means the loan made by the Company to the ESOP in an aggregate
principal amount equal to $140,040,000 pursuant to the ESOP Loan Agreement,
dated as of January 31, 1995, between the Company and the Trust, as such loan
may be amended, modified, extended, renewed, replaced or refinanced from time
to time without increase in such aggregate principal amount.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Notes" means the $100 million aggregate principal amount of the
Company's 9 3/8% Senior Notes due 2005 issued pursuant to the Existing Notes
Indenture.
"Existing Notes Indenture" means the Indenture dated as of June 20, 1995
between the Company and The Bank of New York, as trustee.
"Existing Notes Issue Date" means June 20, 1995.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under compulsion to
complete the transaction. The Fair Market Value of any asset or assets shall be
determined by the Board of Directors of the Company, acting in good faith, and
shall be evidenced by a resolution of such Board of Directors delivered to the
Trustee.
50
"Foreign Subsidiary" means a corporation that is not incorporated under the
laws of the United States or any political subdivision thereof and whose
business is primarily conducted outside of the United States.
"Fully Traded Common Stock" means common stock issued by any corporation
whose common stock is listed on either The New York Stock Exchange or The
American Stock Exchange or included for trading privileges in the National
Market System of the National Association of Securities Dealers Automated
Quotation System; provided, however, that (a) either such common stock is
freely tradable under the Securities Act upon issuance or the holder thereof
has contractual registration rights that will permit the sale of such common
stock pursuant to an effective registration statement not later than nine
months after issuance to the Company or one of its Subsidiaries and (b) such
common stock is also so listed or included for trading privileges.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any 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.
"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.
"Indebtedness" of any Person means, 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 (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 third Business Day following receipt by such Person of a demand
for reimbursement 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 (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
51
responsible or liable, directly or indirectly, as Guarantor or otherwise; and
(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 and
assets or the amount of the obligation so secured.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Restricted Subsidiary 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 such Person) or other extension
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 in 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 Notes are originally issued.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.
"Legal Holiday" means Saturday, Sunday or a day on which banking
institutions in New York, New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed.
"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, Cash
Equivalents and Fully Traded Common Stock received therefrom (including any
cash payments, Cash Equivalents and Fully Traded Common Stock received by way
of deferred payment of principal pursuant to a note or installment receivable
or otherwise, 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 all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition, and in
each case net of 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, and net of all distributions and other
52
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of 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.
"Officer" means the Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Chief Financial Officer, the Treasurer, Controller,
Secretary or any Vice-President of the Company or any other obligor upon the
securities.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Vice Chairman, the President or any Vice President and
by the Chief Financial Officer, Treasurer or the Secretary of such Person.
"Opinion of Counsel" means an opinion in writing signed by legal counsel who
is reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or to the Trustee.
"Permitted 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, in the case of investments in excess of $100,000 in
any one bank or trust company, 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, (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-l"
(or higher) according to Moody's Investors Service, Inc. or "A-l" (or higher)
according to Standard and Poor's Corporation, 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 Corporation or "A" by Moody's Investors
Service, Inc.
"Permitted Liens" means, with respect to any Person, (a) Liens existing on
the date of the Indenture, including Liens securing borrowings up to the amount
of the commitments under the Credit Agreement on the Existing Notes Issue Date
and other obligations under or expressly permitted by the Credit Agreement; (b)
Liens subsequently created, whether under the Credit Agreement or otherwise;
provided that such Liens, together with any Liens under clause (a) that secure
Indebtedness under the Credit Agreement, do not secure Indebtedness with a
principal amount that is greater than the amount of the commitments under the
Credit Agreement on the Existing Notes Issue Date except to the extent such
Liens are permitted under any of clauses (c) through (t) of this definition of
Permitted Liens; (c) Liens securing borrowings of up to $60 million permitted
pursuant to paragraph (b)(6) of the covenant described under "Certain
Covenants--Limitation on Indebtedness"; (d) Liens on property at the time such
Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that the Liens may not extend to
any other property owned by such Person or
53
any of its Subsidiaries; (e) Liens securing Purchase Money Indebtedness; (f)
additional Liens for any purpose of up to fifteen percent (15%) of the
Company's Consolidated Net Tangible Assets; (g) pledges or deposits by such
Person under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of
such Person or deposits of cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (h) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for
review; (i) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate
proceedings; (j) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
(and reimbursement obligations thereunder) do not constitute Indebtedness; (k)
survey exceptions, encumbrances, easements or reservations of, or rights of
others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the
business of such Person or to the ownership of its properties which were not
Incurred in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (l) Liens securing
Indebtedness incurred to finance the construction, purchase or lease of, or
repairs, improvements or additions to, property of such Person; provided,
however, that the Lien may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries at the time the Lien is Incurred,
and the Indebtedness secured by the Lien may not be Incurred more than 180 days
after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject
to the Lien; (m) Liens on inventory and receivables and the products and
proceeds thereof; (n) Liens on property or shares of stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that any such Lien may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries; (o) Liens securing Indebtedness
or other obligations of a Subsidiary of such Person owing to such Person or a
Wholly-Owned Subsidiary of such Person (other than an Unrestricted Subsidiary);
(p) Liens Incurred by another Person on assets that are the subject of a
Capital Lease Obligation to which such Person or a Subsidiary of such Person is
a party; provided, however, that any such Lien may not secure Indebtedness of
such Person or any of its Restricted Subsidiaries (except by virtue of clause
(vii) of the definition of "Indebtedness") and may not extend to any other
property owned by such Person or any Subsidiary of such Person; (q) Liens
securing Interest Rate Protection Agreements so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing the Interest Rate Protection Agreement; (r) Liens
to secure any Refinancing (or successive Refinancings) as a whole, or in part,
of any Indebtedness secured by any Lien referred to in the foregoing clauses
(a), (c), (l) and (n); provided, however, that (x) such new Lien shall be
limited to all or part of the same property that secured the original Lien
(plus improvements on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased (other than by an amount necessary to pay
fees and expenses, including premiums, related to the Refinancing of such
Indebtedness); (s) Liens incurred in connection with any Sale/Leaseback
Transaction permitted pursuant to the covenant described under "Certain
Covenants--Limitation on Sale/Leaseback Transactions" securing borrowings of up
to $10 million; and (t) Liens with respect to any Indebtedness Incurred by any
Restricted Subsidiary pursuant to clause (7) of the covenant described under
"Certain Covenants--Limitation on Indebtedness and Capital Stock of Restricted
Subsidiaries;" provided that such Lien shall only be a "Permitted Lien" so long
as such Indebtedness requires a restriction on distributions referred to under
clause (7) of the covenant described under "Certain Covenants--Limitation on
Restrictions on Distributions from Restricted Subsidiaries."
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
54
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"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.
"Pulse Shareholders" means Emilio A. Fernandez, Jr., Eric A. Fernandez,
Ofelia B. Fernandez, Emily A. Fernandez, Angel P. Bezos, Michelle R. Bezos,
Jennifer A. Bezos, David R. Bezos, Jose M. Llosa and Ronald L. Woltz.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations,
including borrowings, in each case where the maturity of such Indebtedness does
not exceed the anticipated useful life of the asset being financed, and (ii)
Incurred to finance the acquisition or construction by any Subsidiary of such
asset, including additions and improvements; provided, however, that any Lien
arising in connection with any such Indebtedness shall be limited to the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; and provided further, however, that the principal amount of such
Indebtedness does not exceed the lesser of eighty-five percent (85%) of the
cost or eighty-five percent (85%) of the fair market value of the asset being
financed (such fair market value as determined in good faith by the Board of
Directors, as evidenced by a resolution).
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue
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 date
of the Existing Notes Indenture or Incurred in compliance with the Indenture;
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, (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 accreted
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 and (iv) such Refinancing
Indebtedness is subordinated in right of payment to the Notes at least to the
extent that the Indebtedness to be Refinanced is subordinated in right of
payment to the Notes.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the date of
the Existing Notes Indenture.
"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) or rights
to acquire its Capital Stock (other than Disqualified Stock) and dividends or
distributions payable solely to the Company or a Restricted Subsidiary, and
other than pro rata dividends or other distributions made by a Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
55
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 or of any Restricted Subsidiary held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Wholly-Owned 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) any principal payment on, or purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Indebtedness (other than the purchase,
repurchase or other acquisition of Indebtedness 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 (other than (x) a Permitted Investment
or (y) any Investment made to acquire a Restricted Subsidiary).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"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 leases it back from such Person, other
than leases for a term of not more than 12 months or between the Company and a
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the date of the Existing Notes Indenture or thereafter Incurred
and (ii) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of the Company for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable
unless, 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 Notes; provided, however, that Senior Indebtedness
shall not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for federal, state, local or other taxes owed or owing by the
Company, (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 the Company
(and any accrued and unpaid interest in respect thereof) which is expressly
subordinate in right of payment to any other Indebtedness or other obligation
of the Company or (5) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of the Indenture.
"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 Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Existing Notes Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes 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 fifty percent (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.
56
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the applicable provisions hereof, and thereafter
means such successor serving hereunder.
"Unallocated ESOP Shares" means shares of Common Stock of the Company which
are held by the ESOP but have not yet been allocated to participants' accounts.
"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 entitled "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 board resolution 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.
"Vestar" means Vestar WABCO Investors, L.P., a Delaware limited partnership.
"Vestar Capital" means Vestar Capital Partners, Inc., a Delaware
corporation.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Voting Trust" shall mean the RAC Voting Trust, established pursuant to the
RAC Voting Trust/Disposition Agreement, dated as of January 9, 1990, as amended
as of February 28, 1990, March 9, 1990 and amended pursuant to that certain
Amended WABCO Voting Trust/Disposition Agreement dated as of January 31, 1995,
by and between the individuals named therein and the voting trustees (as such
agreement may be further amended or modified from time to time).
"Wholly-Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by
other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary) is owned by
the Company or one or more Wholly-Owned Subsidiaries.
Certain Covenants
The Indenture contains covenants including, among others, the covenants
described below.
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur any Indebtedness unless (i) the
Consolidated Coverage Ratio at the date of such Incurrence exceeds 2.5 to 1.0;
and (ii) no Default or Event of Default shall have occurred and be continuing
at the time or as a consequence of the Incurrence of such Indebtedness.
57
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to the
Credit Agreement so long as the aggregate principal amount of such Indebtedness
outstanding at any time shall not exceed $250 million; (2) Subordinated
Indebtedness owed to and held by a Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-
Owned Subsidiary or any subsequent transfer of such Subordinated Indebtedness
(other than to another Wholly-Owned Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Subordinated Indebtedness by the Company;
(3) the Notes and the Existing Notes; (4) Indebtedness outstanding on the date
of the Existing Notes Indenture (other than Indebtedness described in clause
(1), (2) or (3) of this covenant); (5) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or
(4) or this clause (5) of this covenant; (6) additional Indebtedness in an
aggregate principal amount outstanding at any time not exceeding $60 million
Incurred pursuant to the Credit Agreement or any replacement thereof; (7)
Indebtedness in an aggregate principal amount which, together with all other
Indebtedness of the Company then outstanding (other than Indebtedness permitted
by clauses (1) through (5) above of this covenant) does not exceed $80 million
(less the aggregate amount of any Indebtedness Incurred pursuant to clause (6)
of this covenant); and (8) Indebtedness arising out of Capital Lease
Obligations, Purchase Money Indebtedness and Sale/Leaseback Transactions
permitted pursuant to the covenant described under "Limitation on
Sale/Leaseback Transactions" in an aggregate principal amount outstanding at
any one time not exceeding $20 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 Indebtedness
unless such Indebtedness shall be subordinated to the Notes to at least the
same extent as such Subordinated Indebtedness.
Limitation on Indebtedness and Capital Stock of Restricted Subsidiaries. The
Company shall not permit any Restricted Subsidiary to Incur, directly or
indirectly, any Indebtedness or Capital Stock except: (1) Indebtedness or
Capital Stock issued to and held by the Company or a Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of such
Indebtedness or Capital Stock (other than to the Company or a Wholly-Owned
Subsidiary) shall be deemed, in each case, to constitute the issuance of such
Indebtedness or Capital Stock by the issuer thereof; (2) Indebtedness or
Capital Stock of a Subsidiary Incurred and outstanding on or prior to the date
on which such Subsidiary was acquired by the Company (other than Indebtedness
or Capital Stock Incurred in connection with, 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 Subsidiary became a
Subsidiary or was acquired by the Company) and Refinancing Indebtedness
Incurred in respect thereof; provided, however, that such Refinancing
Indebtedness shall only be permitted under this clause (2) to the extent
Incurred by the Subsidiary that originally Incurred such Indebtedness; (3)
Indebtedness or Capital Stock issued and outstanding on or prior to the date of
the Existing Notes Indenture (other than Indebtedness described in clauses (1)
or (2) of this covenant); (4) Purchase Money Indebtedness; provided, however,
that the aggregate amount of Purchase Money Indebtedness outstanding after
giving pro forma effect to any Incurrence of Purchase Money Indebtedness may
not exceed $30 million unless, after giving effect to the Incurrence of such
Purchase Money Indebtedness, 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"; (5) Indebtedness Incurred by any Restricted
Subsidiary that is a Foreign Subsidiary; provided, however, that any such
Indebtedness Incurred by such Restricted Subsidiary shall not exceed twenty
percent (20%) of the Consolidated Net Tangible Assets of such Restricted
Subsidiary; (6) Refinancing Indebtedness Incurred in respect of Indebtedness or
Capital Stock referred to in clauses (3) or (4) or this clause (6); and (7)
Indebtedness Incurred by any Restricted Subsidiary that is a Foreign Subsidiary
for the purpose of acquiring a Restricted Subsidiary that is a Foreign
Subsidiary; provided, the principal amount of such Indebtedness may not exceed
the purchase price for such Subsidiary; provided further, that after giving
effect to the Incurrence of such Indebtedness, the Company would be able to
58
Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "Limitation on Indebtedness."
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 or Event of Default shall have occurred and
be continuing (or would result therefrom); or (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
Existing Notes Issue Date would exceed the sum of (A) fifty percent (50%) of
the Consolidated Net Income accrued during the period (treated as one
accounting period) from April 1, 1995 to the end of the most recent fiscal
quarter ending prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus one hundred percent (100%) of
such deficit); and (B) the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (excluding Disqualified Stock
and including Capital Stock issued upon conversions of convertible debt or upon
exercise of options or warrants) subsequent to the Existing Notes Issue Date
(excluding an issuance or sale to a Subsidiary of the Company and excluding an
issuance or sale to the ESOP). As of September 30, 1998, the Company would have
been able to make a Restricted Payment of $15.1 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
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; (ii) the Company and its Restricted
Subsidiaries from making loans or advancements to, or investments in, any Joint
Venture in an aggregate amount not exceeding $15 million plus the lesser of (i)
any amounts received as repayment of any such loan, advancement or investment
and (ii) the initial amount thereof; (iii) the declaration or payment of
dividends on Common Stock of the Company following a public offering of its
Common Stock of up to six percent (6%) per annum of the Net Cash Proceeds
received by the Company in such public offering; (iv) the Company and its
Restricted Subsidiaries from making any contribution to the ESOP or refinancing
the ESOP Loan; (v) any purchase or redemption of Capital Stock or Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or the ESOP); provided, however, that (A) such purchase or
redemption 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; (vi) any
purchase or redemption of Subordinated Indebtedness 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 or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (vii) loans and advances to employees of the Company or
any of its Restricted Subsidiaries for travel, entertainment and relocation
expenses in the ordinary course of business in an aggregate amount outstanding
at any one time not to exceed $5 million; (viii) the redemption of up to
4,000,000 shares of Common Stock from Scandinavian Incentive Holdings, B.V. on
or prior to April 30, 1997 at an aggregate price that, together with Restricted
Payments otherwise permitted under clause (a) above, would not exceed
$44,000,000; provided, however, that Restricted Payments made pursuant to this
clause (viii) shall be included in the calculation of Restricted Payments for
all purposes under clause (3) of paragraph (a) above; and (ix) up to an
aggregate amount of $2,000,000 of additional Restricted Payments from and after
March 21, 1997 until such time as the Company has the authority under paragraph
(a) above to make such Restricted Payments; provided, however, that Restricted
Payments made pursuant to this clause (ix) shall be included in the calculation
of Restricted Payments for all purposes under clause 3 of paragraph (a) above.
For purposes of performing the calculation specified in clause (a)(3) above,
amounts paid in respect of clauses (i) and (iii) of this paragraph (b) shall be
counted as Restricted Payments and amounts paid in respect of clauses (ii),
(iv) and
59
(v) of this paragraph (b) shall not be counted as a Restricted Payments. Any
sale or transfer of property by an Unrestricted Subsidiary to the Company or a
Restricted Subsidiary with the intention of taking back a lease of that
property will be considered a loan to that Unrestricted Subsidiary for this
purpose.
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 (i) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any Restricted Subsidiary,
(ii) to make any loans or advances to the Company or any Restricted Subsidiary,
(iii) to transfer any of its property or assets to the Company or any
Restricted Subsidiary or (iv) to make payments in respect of any Indebtedness
owed to the Company or any Restricted Subsidiary, except: (1) any such
encumbrance or restriction pursuant to an agreement in effect at or entered
into on the Existing Notes Issue Date; (2) any such 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; (3) any such encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or contained in any amendment
to an agreement referred to in clause (1) or (2) of this covenant; 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 any such encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such agreements; (4) any
such encumbrance or restriction consisting of customary nonassignment
provisions in leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease or the property leased
thereunder; (5) in the case of clause (iii) above, encumbrances and
restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (6) any such encumbrance or 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; (7) any
such encumbrance or restriction with respect to any Restricted Subsidiary that
is a Foreign Subsidiary pursuant to an agreement relating to Indebtedness
permitted to be Incurred pursuant to clause (7) of the covenant described under
"Limitation on Indebtedness and Capital Stock of Restricted Subsidiaries;" and
(8) restrictions imposed by applicable law.
Limitation on Sales of Assets. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the Fair Market Value thereof; (ii) at least seventy-five percent (75%) of the
consideration received by the Company or such Restricted Subsidiary, as the
case may be, consists of cash or Cash Equivalents or Fully Traded Common Stock;
provided, however, that the amount of any Senior Indebtedness of the Company or
such Restricted Subsidiary that is assumed by the transferee in any such
transaction shall be deemed to be cash for purposes of this provision (a) and
(iii) the Net Available Cash received by the Company or such Restricted
Subsidiary, as the case may be, from such Asset Disposition is applied in
accordance with the following paragraphs.
In the event and to the extent that the Company makes one or more Asset
Dispositions on or after the Existing Notes Issue Date in any period of 12
consecutive months with respect to assets the Fair Market Value of which
exceeds $20 million as of the beginning of such 12-month period, then the
Company shall (i) within 365 days after the date the Net Available Cash so
received from such Asset Dispositions exceeds $20 million (such excess being
referred to as "Excess Net Available Cash") and to the extent the Company
elects (or is required by the terms of any Indebtedness) (A) apply an amount
equal to such Excess Net Available Cash to repay Senior Indebtedness or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A),
60
in Additional Assets and (ii) apply such Excess Net Available Cash (to the
extent not applied pursuant to clause (i)) as provided in the following
paragraphs of this covenant. The amount of such Excess Net Available Cash
required to be applied during the applicable period and not applied as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate principal
amount of Notes equal to the Excess Proceeds (rounded down to the nearest
multiple of $1,000) on such date, at a purchase price equal to one hundred
percent (100%) of the principal amount of such Notes, plus, in each case,
accrued interest (if any) to the date of purchase (the "Excess Proceeds
Payment").
If any Excess Net Available Cash is used to repay either Notes or Existing
Notes, the Company will make an offer to repurchase Existing Notes or Notes, as
the case may be, on a pro rata basis.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other applicable laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under this covenant and the Company is required to repurchase Notes as
described above. To the extent that the provisions of any applicable laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable laws and regulations and shall not be deemed to have
breached its obligations under this covenant by virtue thereof.
(b) In the event of the transfer of substantially all (but not all) the
property and assets of the Company as an entirety to a Person in a transaction
permitted under "Merger and Consolidation," the Successor Company (as defined
therein) shall be deemed to have sold the properties and assets of the Company
not so transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Disposition and the Successor Company shall be deemed to have received
Net Available Cash in an amount equal to the fair market value (as determined
in good faith by the Board of Directors) of the properties and assets not so
transferred or sold.
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 or series of transactions (including the purchase, sale, lease or
exchange of any property, employee compensation arrangements or the rendering
of any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless the terms thereof are no less favorable to the Company or such
Restricted Subsidiary than those which could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate.
In addition, the Company shall not, and shall not permit any Restricted
Subsidiary to, enter into any Affiliate Transaction unless: (i) with respect to
such Affiliate Transaction involving the aggregate value, remuneration or other
consideration of more than $1 million but less than or equal to $5 million, the
Company has obtained approval of a majority of the Board of Directors of the
Company (including a majority of the disinterested directors); and (ii) with
respect to such Affiliate Transaction involving the aggregate value,
remuneration or other consideration of more than $5 million, the Company has
delivered to the Trustee an opinion of a nationally recognized investment
banking firm to the effect that such Affiliate Transaction is fair to the
Company or such Restricted Subsidiary, as the case may be, from a financial
point of view.
(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, 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) any Affiliate Transaction between the
Company and a Wholly-Owned
61
Subsidiary or between Wholly-Owned Subsidiaries; and (v) any transaction
entered into by the Company or any Restricted Subsidiary with the Plan.
Change of Control. (a) Upon the occurrence of a Change of Control, each
Holder shall have the right to require that the Company repurchase such
Holder'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), in accordance with
the terms contemplated in paragraph (b) below.
(b) Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder'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
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by
the Company, consistent with this covenant, that a Holder must follow in order
to have its Notes purchased.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other applicable laws
or regulations in connection with the purchase of Notes pursuant to this
covenant. To the extent that the provisions of any applicable laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable laws and regulations and shall not be deemed to have
breached its obligations under this covenant by virtue thereof.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. In addition, the Company may be
prohibited under the terms of its other financing instruments from repurchasing
the Notes upon a Change of Control. Finally, there can be no assurance that the
Company will have the financial ability to purchase the Notes upon a Change of
Control.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Existing Notes Issue Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Notes shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to create a Lien on such property
without equally and ratably securing the Notes pursuant to the covenant
described under "Limitation on Liens" or (ii) the net proceeds of such sale are
at least equal to the fair value (as determined by the Board of Directors) of
such property and the Company or such Restricted Subsidiary shall apply or
cause to be applied an amount in cash equal to the net proceeds of such sale to
the retirement, within 30 days of the effective date of such Sale/Leaseback
Transaction, of Senior Indebtedness of the Company (including the Notes) or
Indebtedness or Preferred Stock of a Restricted Subsidiary.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease 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 to the Indenture, executed and delivered to the
62
Trustee, in form reasonably satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Subsidiary as a result of such
transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction, the Consolidated Coverage Ratio of the Successor Company is at
least 1:1; provided, however, that, if the Consolidated Coverage Ratio of the
Company before giving effect to such transaction is within a range set forth in
column (A) below, then the Consolidated Coverage Ratio of the Successor Company
shall be at least equal to the lesser of (1) the ratio determined by
multiplying the relevant percentage set forth in column (B) below by the
Consolidated Coverage Ratio prior to such transaction and (2) the relevant
ratio set forth in column (C) below:
(A) (B) (C)
----------------- --- -----------
1.11:1 to 1.99:1 90% 1.50:1
2.00:1 to 2.99:1 80% 2.10:1
3.00:1 to 3.99:1 70% 2.40:1
4.00:1 or greater 60% 2.50:1; and
(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 prior to such transaction.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officer's Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with the Indenture.
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.
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15 (d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and
Noteholders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act.
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest 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 for 30 days after
notice with its obligations under "Certain Covenants" and its other agreements
contained in the Indenture (except in the case of a default with respect to the
covenants described under "Certain Covenants--Change of Control" and "Certain
Covenants--Merger and Consolidation," which will constitute Events of Default
with notice but without passage of time), (iv) Indebtedness of the Company is
accelerated by the holders thereof because of a default and the total amount of
such Indebtedness accelerated exceeds $5 million (or its foreign currency
equivalent) with respect to any individual Indebtedness or, together with all
Indebtedness unpaid or accelerated, aggregates $10 million (or its foreign
currency equivalent) (the "cross acceleration provision"); (v) certain events
of bankruptcy, insolvency or reorganization of the Company (the "bankruptcy
provisions") or (vi) any judgment or decree for the payment of money in excess
of $5 million (or its foreign currency equivalent) (to the extent not covered
by insurance) with respect to any individual judgment or decree or aggregating
$10 million (or its foreign currency equivalent) is rendered against the
Company or any Restricted Subsidiary and is not discharged within a period of
60 days following such judgment (the "judgment default provision").
63
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least twenty-five percent (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. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Notes will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least twenty-five percent (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, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
in good faith 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 at least a majority in aggregate principal amount of the
Notes then outstanding and any past default or compliance with any provisions
may be waived with the consent of the holders of a majority in principal amount
of the Notes then outstanding, subject to certain exceptions. However, without
the consent of each affected holder of an outstanding Note, no amendment may,
among other things, (i) reduce the principal amount of Notes whose holders must
consent to an amendment, (ii) reduce the rate of or change the time for payment
of interest on any Note, (iii) reduce the principal of, any installment of
interest on or any premium with respect to any Note, change the Stated Maturity
of any Note or change the periods during which any Note may be redeemed as
described under "Optional Redemption" above, (iv) make any Note payable in
currency other than that stated in the Note, (v) impair the right of any holder
of the Notes to receive payment of principal of and interest on 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 or (vi) reduce the percentage
in principal amount of outstanding Notes the consent of the holders of which is
necessary to amend the Indenture, to waive compliance with certain provisions
of the Indenture or to waive certain defaults.
64
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, 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, to secure the Notes, to provide for a replacement
trustee, to add to the covenants and agreements of the Company for the benefit
of the holders of the Notes or to surrender any right or power conferred upon
the Company, or to make any change that does not adversely affect the legal
rights of any holder of the Notes.
After an amendment, supplemental indenture or waiver under the Indenture
becomes effective, the Company is required to mail to holders of the Notes
affected thereby a copy of such amendment, supplemental indenture or waiver and
a notice briefly describing such amendment, supplemental indenture or waiver.
However, the failure to give such notice, or any defect therein, will not
impair or affect the validity of the amendment, supplemental indenture or
waiver.
Transfer
The Old Notes were issued in registered form and are transferable only upon
the surrender of the Old 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 Indenture will cease to be of further effect as to all outstanding Notes
(except as to (i) rights of registration of transfer and exchange and the
Company's right of optional redemption; (ii) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes; (iii) rights of holders of
the Notes to receive payments of principal and interest on the Notes; (iv)
rights, obligations and immunities of the Trustee under the Indenture; and (v)
rights of the holders of the Notes as beneficiaries of the Indenture with
respect to the property so deposited with the Trustee payable to all or any of
them), if (a) the Company will have paid or caused to be paid the principal of
and interest on the Notes as and when the same will have become due and payable
or (b) all outstanding Notes (except lost, stolen or destroyed Notes which have
been replaced or paid) have been delivered to the Trustee for cancellation or
(c)(1) the Notes not previously delivered to the Trustee for cancellation will
have become due and payable or are by their terms to become due and payable
within one year or are to be called for redemption under arrangements
satisfactory to the Trustee upon delivery of notice and (2) the Company will
have irrevocably deposited with the Trustee, as trust funds, cash, in an amount
sufficient to pay principal of and interest on the outstanding Notes, to
maturity or redemption, as the case may be. Such trust may only be established
if such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument pursuant to which the Company is
party or by which it is bound and the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions related to such defeasance have been complied with.
The Indenture will also cease to be in effect (except as described in (i)-
(v) in the immediately preceding paragraph) and the Indebtedness on all
outstanding Notes will be discharged on the 123rd day after the irrevocable
deposit by the Company with the Trustee, in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of the Notes,
of cash, U.S. Government Obligations, or a combination thereof, in an amount
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay the principal of and interest on the Notes then outstanding
in accordance with the terms of the Indenture and the Notes. Such a trust may
only be established if (i) such deposit will not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound; (ii) the Company has
delivered to the Trustee an Opinion of Counsel stating that (a) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (b) since the date of the Indenture there has been a change in the
applicable federal income tax law, in either case to the effect that, based
thereon
65
such opinion shall confirm that, the holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred; (iii) the
Company has delivered to the Trustee an Opinion of Counsel to the effect that
after the 123rd day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and (iv) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions related to the defeasance have been complied
with.
The Company may also be released from its obligations under "Certain
Covenants" and shall cease to be subject to clauses (iii), (iv) and (vi) of the
first paragraph under "Defaults," with respect to the Notes outstanding on the
123rd day after the irrevocable deposit by the Company with the Trustee, in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Notes, cash, U.S. Government Obligations, or a
combination thereof, in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of and
interest on the Notes then outstanding in accordance with the terms of the
Indenture and the Notes ("covenant defeasance"). Such covenant defeasance may
only be effected if (i) such deposit will not result in a breach or violation
of, or constitute a default under, any agreement or instrument to which the
Company is a party or by which it is bound; (ii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel to the effect that
the holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and covenant defeasance and
will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and covenant
defeasance had not occurred; (iii) the Company has delivered to the Trustee an
Opinion of Counsel to the effect that after the 123rd day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (iv) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions related to the covenant defeasance have been complied with.
Following such covenant defeasance, the Company may omit to comply with and
will have no liability in respect of any term, condition or limitation set
forth in such sections of the Indenture, whether directly or indirectly by
reason of any reference elsewhere in the Indenture to such sections or by
reason of any reference in such sections to any other provisions in the
Indenture or in any other document, and such omission will not constitute an
Event of Default.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder will be treated as the owner of it for all purposes.
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.
BOOK-ENTRY; DELIVERY AND FORM
The Old Notes offered and sold in connection with the Initial Offering were
sold solely to "qualified institutional buyers," as defined in Rule 144A under
the Securities Act ("QIBs"), pursuant to Rule 144A and
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in offshore transactions to persons other than "U.S. persons," as defined in
Regulation S under the Securities Act ("Non-U.S. Persons"), in reliance on
Regulation S. Following the Initial Offering of the Old Notes, the Old Notes
may have been sold to QIBs pursuant to Rule 144A, Non-U.S. Persons in reliance
on Regulation S and pursuant to other exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act, as described
under "Transfer Restrictions," including sales to institutional "accredited
investors," as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act ("Institutional Accredited Investors"), that are not QIBs.
The Global Notes
Rule 144A Global Note. The Old Notes offered and sold to QIBs pursuant to
Rule 144A were issued in the form of one or more registered notes in global
form, without interest coupons (collectively, the "Rule 144A Global Note"). The
Rule 144A Global Note was deposited on the date of the closing of the sale of
the Old Notes (the "Closing Date") with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC,
but remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee.
Regulation S Global Notes. The Old Notes offered and sold in the Initial
Offering in offshore transactions to Non-U.S. Persons in reliance on Regulation
S will be issued in the form of one or more registered notes in global form,
without interest coupons (collectively, the "Regulation S Global Note"). The
Regulation S Global Note was deposited upon issuance with, or on behalf of, a
custodian for DTC in the manner described in the preceding paragraph for credit
to the respective accounts of the purchasers (or to such other accounts as they
may have directed) at Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System ("Euroclear"), or Cedel Bank,
societe anonyme ("Cedel").
Investors may hold their interests in the Regulation S Global Note directly
through Euroclear or Cedel, if they are participants in such systems, or
indirectly through organizations which are participants in such systems.
Investors may also hold such interests through organizations other than
Euroclear or Cedel that are participants in the DTC system. Euroclear and Cedel
hold such interests in the Regulation S Global Note on behalf of their
participants through customers' securities accounts in their respective names
on the books of their respective depositories. Such depositories, in turn, hold
such interests in the Regulation S Global Note in customers' securities
accounts in the depositories' names on the books of DTC.
Institutional Accredited Investor Global Note. In connection with the sale
of the Old Notes to an Institutional Accredited Investor in the Initial
Offering, beneficial interests in any of the Global Notes (as defined below)
may have been exchanged for interests in a separate note in registered form,
without interest coupons (the "Institutional Accredited Investor Global Note"),
which were deposited on the Closing Date with, or on behalf of, a custodian for
DTC in the manner described in the preceding paragraphs.
Except as set forth below, the Rule 144A Global Note, the Regulation S
Global Note and the Institutional Accredited Investor Global Note
(collectively, the "Global Notes") may be transferred, in whole and not in
part, solely to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for Notes in
physical, certificated form ("Certificated Notes") except in the limited
circumstances described below.
The Old Notes are subject to certain restrictions on transfer and bear a
restrictive legend as set forth under "Transfer Restrictions."
All interests in the Global Notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems.
67
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
the Company nor the Initial Purchaser take any responsibility for these
operations or procedures, and investors are urged to contact the relevant
system or its participants directly to discuss these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member of
the Federal Reserve System, (iv) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (v) a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes to the accounts of its Participants,
thereby eliminating the need for physical transfer and delivery of
certificates. DTC's Participants include securities brokers and dealers
(including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Investors who are not Participants may beneficially own securities
held by or on behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of each Global Note, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Note and
(ii) ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of Participants) and the records of Participants and the
Indirect Participants (with respect to the interests of persons other than
Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through such Participants, the ability of a person having an
interest in Notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event that the Company requests any action of holders
of Notes, or a holder that is an owner of a beneficial interest in a Global
Note desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participants would authorize holders owning through such Participants to
take such action or would otherwise act upon the instruction of such holders.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of Notes
by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such Notes.
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Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payment thereon and for any and all other purposes whatsoever. Accordingly,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to owners of beneficial interests in
a Global Note (including principal, premium, if any, liquidated damages, if
any, and interest). Payments by the Participants and the Indirect Participants
to the owners of beneficial interests in a Global Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. Cash received in Euroclear or Cedel as a result of
sales of interest in a Global Note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Issuer nor the Trustee will have any responsibility for
the performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of
69
the Notes represented by the Global Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of such person or
persons (or the nominee of any thereof) and cause the same to be delivered
thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
EXCHANGE AND REGISTRATION RIGHTS
In connection with the issuance of the Original Notes, the Company entered
into the Exchange and Registration Rights Agreement with the Initial Purchaser
of the Original Notes.
The following description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement. The Company will provide a copy of the Exchange and Registration
Rights Agreement to prospective purchasers of Notes identified to the Company
by an Initial Purchaser upon request.
The Company and the Initial Purchaser entered into the Exchange and
Registration Rights Agreement concurrently with the issuance of the Old Notes.
Pursuant to the Exchange and Registration Rights Agreement, the Company agreed
to (i) file with the Commission on or prior to 105 days after the date of
issuance of the Old Notes (the "Issue Date") a registration statement on Form
S-1 or Form S-4, if the use of such form is then available (the "Exchange Offer
Registration Statement") relating to this registered exchange offer (the
"Exchange Offer") for the Old Notes under the Securities Act and (ii) use its
reasonable best efforts to cause the Exchange Offer Registration Statement to
be declared effective under the Securities Act within 150 days after the Issue
Date. As soon as practicable after the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the holders of Transfer
Restricted Securities (as defined below) who are not prohibited by any law or
policy of the Commission from participating in the Exchange Offer the
opportunity to exchange their Transfer Restricted Securities for an issue of a
second series of notes (the "Exchange Notes") that are identical in all
material respects to the Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) and that would be registered under
the Securities Act. The Company will keep the Exchange Offer open for not less
than 30 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 Notes.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated hereby, (ii) any Securities validly tendered
pursuant to the Exchange Offer are not exchanged for Exchange Securities within
180 days after the Issue Date, (iii) any Initial Purchaser so requests with
respect to Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer, (iv) any applicable law or interpretations do not permit any
holder of Notes to participate in the Exchange Offer, (v) any holder of Notes
that participates in the Exchange Offer does not receive freely transferable
Exchange Notes in exchange for tendered Notes, or (vi) the Company so elects,
then the Company will file with the Commission a shelf registration statement
(the "Shelf Registration Statement") to cover resales of Transfer Restricted
Securities by such holders who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
For purposes of the foregoing, "Transfer Restricted Securities" means each Note
until (i) the date on which such Note has been exchanged for a freely
transferable Exchange Note in the Exchange Offer; (ii) the date on which such
Note has been effectively registered under the Securities Act and disposed of
in accordance with the Shelf Registration Statement or (iii) the date on which
such Note is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
70
The Company has agreed to use its reasonable best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each, a "Registration Statement") declared effective by the
Commission as promptly as practicable after the filing thereof. Unless the
Exchange Offer would not be permitted by a policy of the Commission, the
Company will commence the Exchange Offer and will use its reasonable best
efforts to consummate the Exchange Offer as promptly as practicable, but in any
event prior to 180 days after the Issue Date. If applicable, the Company will
use its reasonable best efforts to keep the Shelf Registration Statement
effective for a period ending on the earliest of (i) two years from the Issue
Date or such shorter period that will terminate when all the transfer
restricted Securities covered by the Registration Statement have been sold
pursuant thereto and (ii) the date on which the Securities become eligible for
resale without volume restrictions pursuant to Rule 144.
If (i) the Registration Statement was not filed with the Commission on or
prior to 90 days after the Issue Date; (ii) the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is not
declared effective within 150 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in
law or the applicable interpretations of the Commission's staff, if later,
within 45 days after publication of the change in law or interpretation); (iii)
the Exchange Offer is not consummated on or prior to 180 days after the Issue
Date or (iv) the Shelf Registration Statement is filed and declared effective
within 150 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 45 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred
to in clauses (i) through (iv), a "Registration Default"), the Company would
have been, or will be, obligated to pay liquidated damages to each holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the Notes constituting Transfer Restricted Securities held
by such holder until the applicable Registration Statement was filed, the
Exchange Offer Registration Statement is declared effective and the Exchange
Offer is consummated or the Shelf Registration Statement is declared effective
or again becomes effective, as the case may be. All accrued liquidated damages
shall be paid to holders in the same manner as interest payments on the Notes
on semi-annual payment dates which correspond to interest payment dates for the
Notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Exchange and Registration Rights Agreement in order to have
their Transfer Restricted Securities included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were originally sold by the Company on January 12, 1999 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers and in
offshore transactions to persons other than U.S. persons pursuant to Rule 144.
As a condition to the Purchase Agreement, the Company and the Initial Purchaser
entered into the Exchange and Registration Rights Agreement on the date of the
Initial Offering (the "Issue Date"). Certain terms of the Exchange and
Registration Rights Agreement are summarized as follows:
(a) The Company has agreed to file with the Securities and Exchange
Commission (the "SEC" or "Commission"), on or before the Filing Date, an
offer to exchange (the "Exchange Offer") any and all of the Registrable
Securities for a like aggregate principal amount of senior subordinated
debt securities of the Company which are identical to the Notes (the
"Exchange Notes") (and which are entitled to the
71
benefits of a trust indenture which is identical to the Indenture (other
than such changes as are necessary to comply with any requirements of the
SEC to effect or maintain the qualification of such trust indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"))
and which has been qualified under the Trust Indenture Act), except that
the Exchange Notes shall have been registered pursuant to an effective
Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer will be registered under the
Securities Act on the appropriate form (the "Exchange Offer Registration
Statement") and will comply with all applicable tender offer rules and
regulations under the Exchange Act. The Company agrees to use its best
efforts to (i) cause the Exchange Offer Registration Statement to become
effective and commence the Exchange Offer on or prior to the Effectiveness
Date, (ii) keep the Exchange Offer open until the Expiration Date and (iii)
exchange Exchange Notes for all Notes validly tendered and not withdrawn
pursuant to the Exchange Offer on or prior to the fifth day following the
Expiration Date.
The Company has agreed to use its best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be
lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for at least 180 days (or such shorter
time as such persons must comply with such requirements in order to resell
the Exchange Notes) (the "Applicable Period").
(b) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or
prior to the Effectiveness Date, (iii) the Exchange Offer is not, for any
reason, consummated on or prior to the fifth day after the Expiration Date,
(iv) any Holder of Private Exchange Notes so requests, or (v) in the case
of any Holder that participates in the Exchange Offer, such Holder does not
receive Exchange Notes on the date of the exchange that may be sold without
restriction under Federal securities laws (the occurrence of any such
event, a "Shelf Registration Event"), then, in the case of each of clauses
(i) through (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and thereafter
the Company shall file an Initial Shelf Registration Statement pursuant to
the terms of the Exchange and Registration Rights Agreement.
Shelf Registration
If a Shelf Registration Event has occurred (and whether or not an Exchange
Offer Registration Statement has been filed with the SEC or has become
effective, or the Exchange Offer has been consummated), then:
(a) Initial Shelf Registration Statement. The Company shall promptly
prepare and file with the SEC a Registration Statement for an offering to
be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Securities (the "Initial Shelf Registration Statement"). The
Company shall file with the SEC the Initial Shelf Registration Statement on
or prior to the Filing Date. The Initial Shelf Registration Statement shall
be on Form S-1 or another appropriate form if available, permitting
registration of such Registrable Securities for resale by such holders in
the manner designated by them (including, without limitation, in one or
more underwritten offerings). The Company shall not permit any securities
other than the Registrable Securities to be included in the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement. The
Company shall use its best efforts to cause the Initial Shelf Registration
Statement to be declared effective under the Securities Act on or prior to
the Effectiveness Date, and to keep the Initial Shelf Registration
Statement continuously effective under the Securities Act until the date
which is 24 months from the Closing Date or such shorter period ending when
(i) all Registrable Securities covered by the Initial Shelf Registration
Statement have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration Statement or (ii) a Subsequent Shelf
Registration Statement covering all of the Registrable Securities has been
declared effective under the Securities Act (such 24 month or shorter
period, the "Effectiveness Period").
(b) Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the
72
Company shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof, and in any event the Company
shall within 45 days of such cessation of effectiveness amend the Shelf
Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration
Statement"). If a Subsequent Shelf Registration Statement is filed, the
Company shall use its best efforts to cause the Subsequent Shelf
Registration Statement to be declared effective as soon as reasonably
practicable after such filing and to keep such Registration Statement
continuously effective until the end of the Effectiveness Period. As used
herein the term "Shelf Registration Statement" means the Initial Shelf
Registration Statement and any Subsequent Shelf Registration Statement.
(c) Supplements and Amendments. The Company shall promptly supplement
and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement
or by any underwriter of such Registrable Securities.
Additional Interest
The Company agrees to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect and shall not be
duplicative):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the
applicable Filing Date (unless, with respect to the Exchange Offer
Registration Statement, a Shelf Event described in clause (i) of paragraph
(b) of "--Purpose and Effect of Exchange Offer" above shall have occurred
prior to the Filing Date), Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes;
(ii) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the SEC on or
prior to the Effectiveness Date (unless, with respect to the Exchange Offer
Registration Statement, a Shelf Event described in clause (i) of paragraph
(b) of "--Purpose and Effect of Exchange Offer" above shall have occurred),
Additional Interest shall accrue on the Old Notes over and above the stated
interest in an amount equal to $0.192 per week (or any part thereof) per
$1,000 principal amount of Old Notes; and
(iii) if (A) the Company has not exchanged Exchange Notes for all Old
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the fifth day after the Expiration Date,
or (B) the Exchange Offer Registration Statement ceases to be effective at
any time prior to the Expiration Date, or (C) if applicable, any Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes
commencing on the (x) sixth day after the Expiration Date, in the case of
(A) above, or (y) the day the Exchange Offer Registration Statement ceases
to be effective in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above;
provided, however, that (1) upon the filing of the Exchange Offer
Registration Statement or a Shelf Registration Statement as required
hereunder (in the case of clause (i) of this paragraph), (2) upon the
effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement as required hereunder (in the case of clause (ii) of
this paragraph) or (3) upon the exchange of Exchange Notes for all Old
Notes validly tendered and not withdrawn (in the case of clause (iii)(A) of
this paragraph), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(B) of this paragraph), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) of this paragraph), or upon the effectiveness of a
Subsequent Shelf
73
Registration Statement (in the case of clause (iii)(C) of this paragraph),
Additional Interest on the Old Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue (but
any accrued amount shall be payable).
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Exchange and Registration Rights Agreement, which requires the
Company to use its best efforts to effect the Exchange Offer.
The Company is making the Exchange Offer in reliance upon the position of
the staff of the Commission 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 on these interpretations by the
staff of the Commission, the Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than (i) any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser who
acquired the Original Notes directly from the Company solely in order to resell
pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act, or (iii) a broker-dealer who acquired the Original
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Notes are acquired in the ordinary course of
such holder's business and such holder is not participating and has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Notes. Any holder who
tenders Original Notes in the Exchange Offer for the purpose of participating
in a distribution of the Notes could not rely on such interpretations by the
staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless such sale is made pursuant to an exemption from such
requirements.
Holders of Original Notes not tendered will not have only limited continuing
registration rights and the Original Notes not exchanged will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
markets for the Original Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISION WHETHER
TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
ORIGINAL NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
Period for Tendering Original 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 Original Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As
74
used herein, the term "Expiration Date" means the earlier of (i) 5:00 p.m., New
York City time, on [ ], 1999 or (ii) the date when all Original Notes have
been tendered; provided, however, that if the Company, in its sole discretion,
has extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended; provided further that in no event will the Exchange Offer be extended
beyond [ ], 1999. The Company may extend the Exchange Offer at any time
and from time to time by giving oral or written notice to the Paying Agent and
by timely public announcement. Without limiting the manner in which the Company
may choose to make any public announcement and subject to applicable law, the
Company shall have no obligation to publish, advertise or otherwise communicate
any such public announcement other than by issuing a release to an appropriate
news agency. During any extension of the Exchange Offer, all Original Notes
previously tendered pursuant to the Exchange Offer will remain subject to the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations thereunder.
As of the date of this Prospectus, $75,000,000 aggregate principal amount of
the Original Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about [ ], 1999, to all holders of
Original Notes known to the Company. The Company's obligation to accept
Original Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "--Conditions" below.
The terms of the Exchange Notes and the Original Notes are identical in all
material respects (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) and would be registered under the Securities
Act. The Original Notes were, and the Notes will be, issued under the Indenture
and both the Original Notes and the Notes are entitled to the benefits of the
Indenture.
Original Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Original
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 Original 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 amendment,
nonacceptance or termination to the holders of the Original Notes as promptly
as practicable. Any amendment to the Exchange Offer will not limit the right of
holders to withdraw tendered Original Notes prior to the Expiration Date. See
"--Withdrawal of Tenders."
Procedures For Tendering Original Notes
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Old Notes being tendered and any required
signature guarantees and any other documents required by the Letter of
Transmittal, to the Exchange Agent at its address set forth below on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
75
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 INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a "book-
entry transfer facility") whose name appears on a security listing as the owner
of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for the
Old Notes, the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes 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 the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter or
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal
and any other required documents), the Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed
Delivery") which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter or facsimile transmission to similar effect (as provided
above) from an Eligible Institution is received by the Exchange Agent.
Issuances of
76
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old 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 Old Notes not properly tendered or not to accept any
particular Old 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 Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(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 Old 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 Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old 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 appear on the Old Notes.
If the Letter of Transmittal or any Old 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.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, or if it is an affiliate
it will comply with the registration and prospectus requirements of the
Securities Act to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old 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 and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free
77
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or
the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or transfer ownership of such Old Notes on
the account books maintained by a book-entry transfer facility. The Transferor
further agrees that acceptance of any tendered Old Notes by the Company and the
issuance of Exchange Notes in exchange therefor shall constitute performance in
full by the Company of certain of its obligations under the Registration Rights
Agreement. All authority conferred by the Transferor will survive the death or
incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
The Transferor certifies that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes. Each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each Transferor which is
a broker-dealer receiving Exchange Notes for its own account must acknowledge
that it will deliver a prospectus in connection with any resale of such
Exchange Notes. 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 Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company will, for a period of 90
days after the Expiration Date, make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale.
Withdrawal Of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate
number(s) and principal amount of such Old Notes, or, in the case of Old Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering Original Notes" at any time prior to the Expiration
Date.
78
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determine in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
Exchange Agent
The Bank 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 one of the addresses set forth below:
BY HAND/OVERNIGHT COURIER: BY MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, Floor 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Nathalie Simon,
Attention: Nathalie Simon, Reorganization
Reorganization Section
Section
BY FACSIMILE:
(212) 815-6339
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES SET
FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
79
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The Exchange Notes will be recorded at the carrying value of the Old 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 by the
Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
Consequences Of Failure To Exchange
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States.
Resale Of The Exchange Notes
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating 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.
80
As contemplated by these no-action letters and the Exchange and Registration
Rights Agreement, each holder accepting the Exchange Offer is required to
represent to the Company in the Letter of Transmittal that (i) the Exchange
Notes are to be acquired by the holder or the person receiving such Exchange
Notes, whether or not such person is the holder, in the ordinary course of
business, (ii) the holder or any such other person (other than a broker-dealer
referred to in the next sentence) is not engaging and does not intend to
engage, in the distribution of the Exchange Notes, (iii) the holder or any such
other person has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iv) neither the holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Notes it must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences of the purchase, ownership and disposition of the
Notes. This discussion is based on provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion applies only to those persons who acquire the Notes for
cash and is limited to investors who hold the Notes as capital assets.
Furthermore, this discussion does not address all aspects of United States
federal income taxation that may be applicable to investors in light of their
particular circumstances, or to investors subject to special treatment under
United States federal income tax law (including, without limitation, certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities, persons who have acquired Notes as part of a straddle, hedge,
conversion transaction or other integrated investment, persons whose functional
currency is not the United States dollar, persons owning Notes through
partnerships or other pass-through entities, or former citizens or residents of
the United States).
Except as the context otherwise requires, reference in this Section to the
Notes shall apply to both the Old Notes and the Exchange Notes received
therefor (See "Exchange and Registration Rights").
Each prospective investor should consult its tax advisor as to the
particular tax consequences to such purchaser of the purchase, ownership and
disposition of the notes, including the applicability of any federal estate or
gift tax laws or any state, local or foreign tax laws, any changes in
applicable tax laws and any pending or proposed legislation or regulations.
United States Taxation of United States Holders
As used herein, (A) the term "United States Holder" means a beneficial owner
of a Note that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source and (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States Fiduciaries have the authority to control all
substantial decisions of such trust and (B) the term "Non-U.S. Holder" means a
beneficial owner of a Note that is not a United States Holder.
81
Payments of Interest
Stated interest payable on the Notes generally will be included in the gross
income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
Market Discount
If a United States Holder purchases a Note for an amount that is less than
its "stated redemption price at maturity" (which, in the case of the Notes,
will be their principal amount), the amount of the difference will be treated
as "market discount" for the federal income tax purposes, unless such
difference is less than a specified de minimus amount. Under the market
discount rules, a United States Holder is required to treat any principal
payment on, or any gain on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the accrued market discount
which has not previously been included in income at the time of such payment or
disposition. In addition, such a United States Holder may be required to defer
until maturity of the Notes or its earlier disposition in a taxable transaction
the deduction of all or a portion of the interest expense of any indebtedness
incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the
United States Holder elects to accrue the market discount on a constant
interest method. A United States Holder of a Note may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations
acquired during or after the first taxable year to which the election applies
and may not be revoked without the consent of the Internal Revenue Service (the
"IRS").
Bond Premium
If a United States Holder purchases a Note (in the Offering or at any time
thereafter) for an amount that exceeds the sum of all amounts payable on the
instrument after the purchase date (other than qualified stated interest), the
Note has "bond premium." A United States Holder may elect to amortize such bond
premium over the remaining term of such Note (or if it results in a smaller
amount of amortizable bond premium, until an earlier call date) using a
constant yield method.
If bond premium is amortized, the amount of interest that must be included
in the United States Holder's income for each period ending on an interest
payment date or at the stated maturity, as the case may be, will be reduced by
the portion of premium allocable to such period based on the Note's yield to
maturity. If such an election to amortize bond premium is not made, a United
States Holder must include the full amount of each interest payment in income
in accordance with its regular method of accounting and will receive a tax
benefit from the premium only in computing such United States Holder's gain or
loss upon the sale or other disposition or payment of the principal amount of
the Note.
An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includable in the United
States Holder's gross income, held at the beginning of the United States
Holder's first taxable year to which the election applies or which election
applies or that there are thereafter acquired and may be revoked only with the
consent of the IRS.
Solely for purpose of applying the foregoing rules on bond premium, if an
issuer of a note has an option to redeem the note prior to maturity, it will be
assumed that the issuer will exercise the option in a manner that maximizes the
yield to maturity on the note (the "Deemed Exercise Rule"). If the Deemed
Exercise Rule applies, the amount of amortizable bond premium with respect to
the Notes will be determined as if the Notes matured on the deemed exercise
date (as opposed to the stated maturity date). If the Deemed Exercise Rule
applies and the optional redemption does not occur by the date that it was
deemed to occur, the Notes will be
82
treated (solely for purposes of computing amortizable bond premium) as if the
Notes were retired on the deemed exercise date and immediately reissued for
their adjusted acquisition price on such date. The adjusted acquisition price
is the amount the Holder paid for the Notes less any previously amortized bond
premium.
Disposition of the Notes
A United States Holder's adjusted tax basis in a Note generally will equal
the purchase price paid therefor, increased by market discount previously
included in income by such U.S. Holder and reduced by any amortized premium on
the Note. Upon the sale, exchange, retirement at maturity or other disposition
of a Note (collectively, a "disposition"), a United States Holder generally
will recognize gain or loss equal to the difference between the amount realized
by such holder (except to the extent such amount is attributable to accrued
interest, which will be treated as ordinary interest income) and such holder's
adjusted tax basis in the Note. Such gain or loss generally will be capital
gain or loss, except to the extent that the market discount rules otherwise
provide. Under current law, net capital gain of individuals for property held
for more than one year is generally subject to a maximum Federal tax rate of
twenty percent (20%). The deductibility of capital losses is subject to
limitation.
The exchange of a Note for an Exchange Note pursuant to the Exchange Offer
will not constitute a "significant modification" of the Note for United States
federal income tax purposes and, accordingly, the Exchange Note received will
be treated as a continuation of the Note in the hands of such holder. As a
result, (i) a Holder will not recognize taxable gain or loss as a result of
exchanging Notes for Exchange Notes pursuant to the Exchange Offer, (ii) the
holding period of the Exchange Notes will include the holding period of the
Notes exchanged therefor and (iii) the adjusted tax basis of the Exchange Notes
immediately after the exchange will be the same as the adjusted tax basis
immediately prior to the exchange of the Notes exchanged therefor.
United States Taxation of Non-U.S. Holders
Payments of Interest
In general, under the "portfolio interest" exception payments of interest
received or accrued by a Non-U.S. Holder will not be subject to United States
federal withholding tax, provided that, (i)(a) the Non-U.S., Holder does not
actually or constructively own ten percent (10%) or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (b) the
Non-U.S. Holder is not a controlled foreign corporation that is related to the
Company actually or constructively through stock ownership, and (c) the
beneficial owner of the Note, under penalties of perjury, provides the Company
or its agent with the beneficial owner's name and address and certifies, under
penalties of perjury, that it is not a United States Holder, or otherwise
satisfies applicable certification requirements, (ii) the interest received on
the Note is effectively connected with the conduct by the Non-U.S. Holder of a
trade or business within the United States and the Non-U.S. Holder complies
with certain reporting requirements; or (iii) the Non-U.S. Holder is entitled
to the benefits of an income tax treaty under which the interest is exempt from
United States withholding tax and the Non-U.S. Holder complies with certain
reporting requirements. Payments of interest not exempt from United States
federal withholding tax as described above will be subject to such withholding
tax at the rate of thirty percent (30%) (subject to reduction under an
applicable income tax treaty).
Disposition of the Notes
A Non-U.S. Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain
realized on the disposition of a Note, unless (i) the gain is effectively
connected with a United States trade or business conducted by the Non-U.S.
Holder or (ii) the Non-U.S. Holder is an individual who is present in the
United States for 183 or more days during the taxable year of the disposition
and certain other requirements are satisfied. In addition, an exchange of a
Note for an Exchange
83
Note pursuant to the Exchange Offer will not constitute a taxable exchange of
the Note for Non-U.S. Holders. See "United States Taxation of United States
Holders--Disposition of the Notes."
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect to
the Notes (including proceeds from the disposition of the Notes) are
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to United States federal income taxation on a net basis with respect to such
holder's ownership of the Notes), such Non-U.S. Holder will generally be
subject to the rules described above under "United States Taxation of United
States Holders" (subject to any modification provided under an applicable
income tax treaty). Such Non-U.S. Holder may also be subject to the "branch
profits tax" if such holder is a non-U.S. corporation.
Backup Withholding and Information Reporting
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of thirty-one percent (31%) on payments of principal,
premium and interest on, and the proceeds of the disposition of, the Notes. In
general, backup withholding will be imposed only if the United States Holder
(i) fails to furnish its taxpayer identification number ("TIN"), which, for an
individual, would be his or her Social Security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to report
payments of interest or dividends or (iv) under certain circumstances, fails to
certify, under penalty of perjury, that it has furnished a correct TIN and has
been notified by the IRS that it is subject to backup withholding tax for
failure to report interest or dividend payments. In addition, such payments of
principal and interest to United States Holders will generally be subject to
information reporting. United States Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
Backup withholding and other information reporting generally will not apply
to payments made to a Non-U.S. Holder of a Note who provides the requisite
certification or otherwise establishes an exemption from backup withholding.
Payments by a United Stares office of a broker of the proceeds of a disposition
of the Notes generally will be subject to backup withholding at a rate of
thirty-one percent (31%) unless the Non-U.S. Holder certifies it is a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption.
The amount of any backup withholding imposed on a payment to a holder of a
Note will be allowed as a credit against such holder's United States federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
Recently Issued Treasury Regulations
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1999. The new Treasury regulations generally would not alter
the treatment of Non-U.S. Holders described above. The new Treasury regulations
would alter the procedures for claiming the benefits of an income tax treaty
and may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of a Note.
Prospective investors should consult their tax advisors concerning the effect,
if any, of such new Treasury regulations on an investment in the Notes.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Exchange Notes will not be
84
considered to differ materially in kind or extent from the Old Notes. Rather,
the Exchange Notes received by a holder will be treated as a continuation of
the Old Notes in the hands of such holder. As a result, there will be no
federal income tax consequences to holders exchanging Old Notes for Exchange
Notes pursuant to the Exchange Offer.
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 Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. A broker-dealer may not participate in the Exchange
Offer with respect to Old Notes acquired other than as a result of market-
making activities or other trading activities. To the extent any such broker-
dealer participates in the Exchange Offer and so notifies the Company, or
causes the Company to be so notified in writing, the Company has agreed for a
period of 90 days after the date of this Prospectus, it will make this
Prospectus, as amended or supplemented, available to such broker-dealer for use
in connection with any such resale, and 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. In
addition, until [ ], 1999 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at prevailing market prices at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers or 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 commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer
of Exchange Notes, and acknowledges and agrees that, upon receipt of notice
from the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not
misleading or which may impose upon the Company disclosure obligations that may
have a material adverse effect on the Company (which notice the Company agrees
to deliver promptly to such broker-dealer), such broker-dealer will suspend use
of the Prospectus until the Company has notified such broker-dealer that
delivery of the Prospectus may resume and has furnished copies of any amendment
or supplement to the Prospectus to such broker-dealer.
85
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Reed Smith Shaw & McClay LLP, Pittsburgh, Pennsylvania.
EXPERTS
The consolidated financial statements and schedules incorporated in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and have been so incorporated in reliance upon
the authority of said firm as experts in giving said reports.
86
WESTINGHOUSE AIR BRAKE COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this Prospectus:
Page
----
Financial Statements of WABCO
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheet as of December 31, 1998 and 1997.............. F-3
Consolidated Statement of Operations for the three years ended December
31, 1998, 1997 and 1996................................................. F-4
Consolidated Statement of Cash Flows for the three years ended December
31, 1998, 1997 and 1996................................................. F-5
Consolidated Statement of Shareholders' Equity for the three years ended
December 31, 1998, 1997 and 1996........................................ F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statement Schedules
Report of Independent Public Accountants................................. F-24
Schedule II--Valuation and Qualifying Accounts........................... F-25
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Westinghouse Air Brake Company:
We have audited the accompanying consolidated balance sheet of Westinghouse
Air Brake Company (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Westinghouse Air Brake
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
February 17, 1999
F-2
WESTINGHOUSE AIR BRAKE COMPANY
CONSOLIDATED BALANCE SHEET
December 31
----------------------
1998 1997
---------- ----------
Dollars in thousands,
except par value
Assets
Current Assets
Cash................................................. $ 3,323 $ 836
Accounts receivable.................................. 132,901 91,438
Inventories.......................................... 103,560 69,297
Deferred taxes....................................... 13,006 11,169
Other................................................ 10,171 7,759
---------- ----------
Total current assets............................... 262,961 180,499
Property, plant and equipment.......................... 214,461 186,534
Accumulated depreciation............................... (89,480) (78,167)
---------- ----------
Property, plant and equipment, net................. 124,981 108,367
Other Assets
Prepaid pension costs................................ 5,724 5,061
Goodwill............................................. 151,658 66,599
Other intangibles.................................... 46,021 42,466
Other noncurrent assets.............................. 4,839 7,887
---------- ----------
Total other assets................................. 208,242 122,013
---------- ----------
Total Assets..................................... $ 596,184 $ 410,879
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt.................... $ 30,579 $ 32,600
Accounts payable..................................... 62,974 37,582
Accrued income taxes................................. 8,352 488
Customer deposits.................................... 20,426 21,210
Accrued compensation................................. 12,769 13,080
Accrued warranty..................................... 12,657 12,851
Accrued interest..................................... 1,616 3,038
Other accrued liabilities............................ 18,177 10,931
---------- ----------
Total current liabilities.......................... 167,550 131,780
Long-term debt......................................... 437,238 332,334
Reserve for postretirement benefits.................... 16,238 14,860
Accrued pension costs.................................. 3,631 4,700
Deferred income taxes.................................. 3,463 5,561
Other long-term liabilities............................ 1,917 907
---------- ----------
Total liabilities.................................. 630,037 490,142
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, no
shares issued....................................... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized: 47,426,600 shares issued................ 474 474
Additional paid-in capital........................... 107,720 105,522
Treasury stock, at cost, 13,532,092 and 13,743,924
shares.............................................. (187,654) (190,657)
Unearned ESOP shares, at cost, 8,564,811 and
8,751,531 shares.................................... (128,472) (131,273)
Retained earnings...................................... 182,291 141,617
Unamortized restricted stock award..................... (162) --
Accumulated other comprehensive income (loss).......... (8,050) (4,946)
---------- ----------
Total shareholders' equity......................... (33,853) (79,263)
---------- ----------
Liabilities and Shareholders' Equity............. $ 596,184 $ 410,879
========== ==========
The accompanying notes are an integral part of this statement.
F-3
WESTINGHOUSE AIR BRAKE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended
December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
In thousands, except per share data
Net sales............................... $ 670,909 $ 564,441 $ 453,512
Cost of sales........................... 451,730 378,323 300,163
----------- ----------- -----------
Gross profit........................ 219,179 186,118 153,349
Selling and marketing expenses.......... 30,711 25,364 18,643
General and administrative expenses..... 45,337 38,153 28,890
Engineering expenses.................... 30,436 24,386 18,244
Amortization expense.................... 8,029 8,240 7,854
----------- ----------- -----------
Total operating expenses............ 114,513 96,143 73,631
Income from operations.............. 104,666 89,975 79,718
Other income and expenses
Interest expense...................... 31,217 29,729 26,152
Other expense (income), net........... 919 (344) (82)
----------- ----------- -----------
Income before income taxes and
extraordinary item................. 72,530 60,590 53,648
Income taxes............................ 27,561 23,327 20,923
----------- ----------- -----------
Income before extraordinary item.... 44,969 37,263 32,725
Loss on early extinguishment of debt,
net of tax............................. 3,315 -- --
----------- ----------- -----------
Net income.......................... $ 41,654 $ 37,263 $ 32,725
=========== =========== ===========
Earnings Per Common Share
Basic
Income before extraordinary item.... $ 1.79 $ 1.45 $ 1.15
Extraordinary item.................. (.13) -- --
----------- ----------- -----------
Net income.......................... $ 1.66 $ 1.45 $ 1.15
=========== =========== ===========
Diluted
Income before extraordinary item.... $ 1.75 $ 1.42 $ 1.15
Extraordinary item.................. (.13) -- --
----------- ----------- -----------
Net income.......................... $ 1.62 $ 1.42 $ 1.15
=========== =========== ===========
Weighted Average Shares Outstanding
Basic............................... 25,081 25,693 28,473
Diluted............................. 25,708 26,173 28,473
=========== =========== ===========
The accompanying notes are an integral part of this statement.
F-4
WESTINGHOUSE AIR BRAKE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
December 31
-----------------------------
1998 1997 1996
--------- -------- --------
Dollars in thousands
Operating Activities
Net income..................................... $ 41,654 $ 37,263 $ 32,725
Adjustments to reconcile net income to cash
provided by operations
Extraordinary loss on extinguishment of debt.. 3,315
Depreciation and amortization................. 25,208 24,624 22,249
Provision for ESOP contribution............... 4,472 3,229 2,870
Deferred income taxes......................... (3,935) (3,506) 2,456
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable.......................... (26,161) (6,623) (9,868)
Inventories.................................. (16,957) 1,817 8,100
Accounts payable............................. 20,385 5,900 (6,574)
Accrued income taxes......................... 12,025 (1,349) (411)
Accrued liabilities and customer deposits.... (11,856) 5,522 9,740
Other assets and liabilities................. (6,083) 97 (2,376)
--------- -------- --------
Net cash provided by operating activities... 42,067 66,974 58,911
Investing Activities
Purchase of property, plant and equipment,
net........................................... (28,957) (29,196) (12,855)
Acquisitions of businesses, net of cash
acquired...................................... (112,514) (13,492) (78,890)
--------- -------- --------
Net cash used for investing activities...... (141,471) (42,688) (91,745)
Financing Activities
Proceeds from term debt obligations............ 64,500 65,000
Repayments of term debt........................ (7,500) (18,200) (26,300)
Net proceeds from (repayments of) revolving
credit arrangements........................... 4,675 39,880 (2,935)
Proceeds from other borrowings 43,208
Repayments of other borrowings................. (2,000) (555) (10)
Debt issuance fees............................. (2,251) (2,068) (492)
Purchase of treasury stock..................... (44,000) (1,629)
Cash dividends................................. (980) (1,009) (1,127)
Proceeds from exercise of stock options and
employee stock purchases...................... 2,546 3,513
--------- -------- --------
Net cash provided by (used for) financing
activities................................. 102,198 (22,439) 32,507
Effect of changes in currency exchange rates.... (307) (1,629) 735
--------- -------- --------
Increase in cash.............................. 2,487 218 408
Cash, beginning of year...................... 836 618 210
--------- -------- --------
Cash, end of year............................ $ 3,323 $ 836 $ 618
========= ======== ========
Supplemental Cash Flow Disclosures
Interest paid during the year.................. $ 32,639 $ 30,223 $ 25,624
Income taxes paid during the year.............. 19,471 28,182 20,452
========= ======== ========
The accompanying notes are an integral part of this statement.
F-5
WESTINGHOUSE AIR BRAKE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
Additional Unallocated Unamortized Other
Comprehensive Common Paid-in Treasury ESOP Retained Restricted Comprehensive
Income Stock Capital Stock Shares Earnings Stock Award Income (Loss)
------------- ------ ---------- --------- ----------- -------- ----------- -------------
In thousands, except share data
Balance, December 31,
1995................... $474 $104,776 $(147,702) $(137,239) $ 73,765 $ -- $(2,772)
Cash dividends ($.04 per
share)................. (1,127)
Purchase of treasury
stock.................. (1,629)
Allocation of ESOP
shares................. (455) 3,325
Net income.............. $32,725 32,725
Translation adjustment.. (336) (336)
------- ---- -------- --------- --------- -------- ----- -------
$32,389
=======
Balance, December 31,
1996................... 474 104,321 (149,331) (133,914) 105,363 -- (3,108)
Cash dividends ($.04 per
share)................. (1,009)
Purchase of treasury
stock.................. (44,000)
Stock issued under
option, benefit and
other plans............ 839 2,674
Allocation of ESOP
shares................. 362 2,641
Net income.............. $37,263 37,263
Translation adjustment.. (1,838) (1,838)
------- ---- -------- --------- --------- -------- ----- -------
$35,425
=======
Balance, December 31,
1997................... 474 105,522 (190,657) (131,273) 141,617 -- (4,946)
Cash dividends ($.04 per
share)................. (980)
Stock issued under
option, benefit and
other plans............ 1,162 3,003 (162)
Allocation of ESOP
shares................. 1,036 2,801
Net income.............. $41,654 41,654
Translation adjustment.. (3,104) (3,104)
------- ---- -------- --------- --------- -------- ----- -------
$38,550
=======
Balance, December 31,
1998................... $474 $107,720 $(187,654) $(128,472) $182,291 $(162) $(8,050)
==== ======== ========= ========= ======== ===== =======
The accompanying notes are an integral part of this statement.
F-6
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Westinghouse Air Brake Company (the Company) is North America's largest
manufacturer of value-added equipment for locomotives, railway freight cars and
passenger transit vehicles. The Company's products, which are sold to both the
original equipment manufacturer market and the aftermarket, are intended to
enhance safety, improve productivity and reduce maintenance costs for its
customers. The Company's products include electronic controls and monitors, air
brakes, couplers, door controls, draft gears and brake shoes. The Company's
primary manufacturing operations are in the United States and Canada, and the
Company's revenues have been primarily from North America. The Company's
customer base consists of railroad transportation companies, locomotive and
freight car original equipment manufacturers, railroads and transit car
builders and public transit systems.
A portion of the Company's Railroad Group's operations and revenue base is
generally dependent on the capital replacement cycles for locomotives and
freight cars of the large North American-based railroad companies. The
Company's passenger transit operations are dependent on the budgeting and
expenditure appropriation process of federal, state and local governmental
units for mass transit needs established by public policy.
2. Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. Such
statements have been prepared in accordance with generally accepted accounting
principles. All intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified, where
necessary, to conform to the current year presentation.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from the
estimates.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method. Inventory costs include
material, labor and overhead. The components of inventory, net of reserves,
were:
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
Raw materials.............................................. $ 47,853 $ 27,395
Work-in-process............................................ 29,965 26,640
Finished goods............................................. 25,742 15,262
---------- ---------
Total inventory.......................................... $ 103,560 $ 69,297
========== =========
Property, Plant and Equipment Property, plant and equipment additions are
stated at cost. Expenditures for renewals and betterments are capitalized.
Expenditures for ordinary maintenance and repairs are expensed as incurred. The
Company provides for book depreciation principally on the straight-line method
over the following estimated useful lives of plant and equipment.
Years
--------
Land improvements...................................................... 10 to 20
Buildings.............................................................. 20 to 40
Machinery and equipment................................................ 4 to 15
Accelerated depreciation methods are utilized for income tax purposes.
Intangible Assets Goodwill is amortized on a straight-line basis over 40
years. Other intangibles are amortized on a straight-line basis over their
estimated economic lives. Goodwill and other intangible assets, including
patents and tradenames, are periodically reviewed for impairment based on an
assessment of future operations (see Note 4).
Revenue Recognition Revenue is recognized when products have been shipped to
the respective customers and the price for the product has been determined. The
percentage of completion method of accounting for revenues on long-term sales
contracts is applied on a relatively small amount of contracts when
appropriate. Sales returns are
F-7
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
infrequent and not material in relation to the Company's net sales.
Stock-Based Compensation The Company accounts for stock-based compensation,
including stock options and employee stock purchases, under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." See Note 11 for related pro forma
disclosures.
Research and Development Research and development costs are charged to
expense as incurred. Such costs totaled $30.4 million, $24.4 million and $18.2
million in 1998, 1997 and 1996, respectively.
Warranty Costs Warranty costs are accrued based on management's estimates of
repair or upgrade costs per unit and historical experience. In recent years,
the Company has introduced several new products. The Company does not have the
same level of historical warranty experience for these new products as it does
for its continuing products. Therefore, warranty reserves have been established
for these new products based upon management's estimates. Actual future results
may vary from such estimates. Warranty expense was $6.2 million, $9.9 million
and $5.5 million for 1998, 1997 and 1996, respectively. Warranty reserves were
$12.7 million and $12.9 million at December 31, 1998 and 1997, respectively.
Financial Derivatives The Company periodically enters into interest rate
swap agreements to reduce the impact of interest rate changes on its variable
rate borrowings. Interest rate swaps are agreements with a counterparty to
exchange periodic interest payments (such as pay fixed, receive variable)
calculated on a notional principal amount. The interest rate differential to be
paid or received is accrued to interest expense (see Note 5). In addition, the
Company periodically enters into foreign currency exchange forward and options
contracts to mitigate the effects of fluctuations in foreign exchange rates in
countries where it has significant operations.
Income Taxes Income taxes are accounted for under the liability method.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The provision for income taxes includes
federal, state and foreign income taxes (see Note 8).
Foreign Currency Translation The financial statements of the Company's
foreign subsidiaries are translated into U.S. currency under the guidelines set
forth in SFAS No. 52, "Foreign Currency Translation." The effects of currency
exchange rate changes on intercompany transactions of a long-term investment
nature are accumulated and carried as a component of shareholders' equity. The
effects of currency exchange rate changes on intercompany transactions that are
non U.S. dollar amounts are charged or credited to earnings.
Earnings Per Share Basic earnings per common share are computed by dividing
net income applicable to common shareholders by the weighted-average number of
shares of common stock outstanding during the year. Diluted earnings per common
share are computed by dividing net income applicable to common shareholders by
the weighted average number of shares of common stock outstanding adjusted for
the assumed conversion of all dilutive securities (such as employee stock
options) (See Note 11).
Other Comprehensive Income In 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which established standards for reporting and displaying comprehensive
income and its components in financial statements. Comprehensive income is
defined as net income and all other nonowner changes in shareholders' equity.
The Company's accumulated other comprehensive income (loss) consists entirely
of foreign currency translation adjustments.
Significant Customers and Concentrations of Credit Risk The Company's trade
receivables are primarily from rail and transit industry original equipment
manufacturers, railroad carriers and
F-8
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
commercial companies that utilize rail cars in their operations, such as
utility and chemical companies. No one customer accounted for more than 10% of
the Company's sales in 1998, 1997 or 1996. The allowance for doubtful accounts
was $2.9 million and $2.0 million as of December 31, 1998 and 1997,
respectively.
Employees As of December 31, 1998, approximately 28% of the Company's
workforce is covered by collective bargaining agreements. These agreements are
generally effective through 2001 and 2002.
Recent Accounting Pronouncements In June 1998, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative instrument
be measured at its fair value and the changes in fair value be recorded
currently in earnings unless specific hedge accounting criteria are met.
Statement No. 133 is effective for fiscal years beginning after June 15, 1999,
and accordingly, the Company anticipates adopting this standard January 1,
2000. Management continues to evaluate the impact this standard will have on
results of operations and financial condition.
3. Acquisitions
On October 5, 1998, the Company purchased the railway electronics business
(Rockwell Railroad Electronics) (RRE) of Rockwell Collins, Inc., a wholly-owned
subsidiary of Rockwell International Corporation, for approximately $80 million
in cash. The purchase was initially financed by obtaining additional term debt
of $40 million through an amendment to the Company's existing credit facility,
an unsecured bank loan of $30 million and additional borrowings under the
Company's revolving credit agreement. RRE is a leading manufacturer and
supplier of mobile electronics (display and positioning systems), data
communications, and electronic braking systems for the railroad industry and
its operations are in the United States. Revenues of the acquired business for
its fiscal year ended September 30, 1998 were approximately $46 million. The
acquisition was accounted for under the purchase accounting method and,
accordingly, its results are included in WABCO's consolidated financial
statements since the date of acquisition.
The excess of the purchase price over the fair value of the net assets
acquired was approximately $63 million and was allocated to goodwill. This
amount is based upon an independent appraisal and may decrease as a result of
adjustments to purchase price.
The following unaudited pro forma results of operations, including the
effects of pro forma adjustments related to the acquisition of RRE have been
prepared as if this transaction had occurred at the beginning of 1997:
Year ended December 31
-----------------------
1998 1997
----------- -----------
Dollars in thousands,
except per share
(Unaudited)
Net sales.............................................. $ 707,840 $ 597,948
Income before extraordinary income..................... 41,414 32,575
Net income............................................. 38,099 32,575
Diluted earnings per share
As reported.......................................... 1.62 1.42
Pro forma............................................ 1.48 1.24
=========== ===========
The pro forma financial information above does not purport to present what
the Company's results of operations would have been if the acquisition of RRE
had actually occurred on January 1, 1997, or to project the Company's results
of operations for any future period, and does not reflect anticipated cost
savings through the combination of these operations.
In the past three years, the Company also completed the following
acquisitions:
i) The October 1998 acquisition of the United States railway service
center business of Comet Industries, Inc., for $13.2 million, financed
through the issuance of $12.2 million of promissory notes. Annual revenue
for its most recent fiscal year was approximately $20 million.
F-9
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ii) On July 30, 1998, purchased assets and assumed certain liabilities
of U.S.-based Lokring Corporation, for $5.1 million in cash. Lokring
develops, manufactures and markets patented non-welded connectors and
sealing products for railroad and other industries. Annual sales in 1997
were approximately $10 million.
iii) Acquired in April 1998, 100% of the stock of RFS (E) Limited
("RFS(E)") of England, for approximately $10.0 million including the
assumption of certain debt. RFS(E) is a leading provider of vehicle
overhaul, conversion and maintenance services to Britain's railway
industry. Annual revenue for its most recent fiscal year was approximately
$27.5 million.
iv) Acquired in April 1998, the transit coupler product line of Hadady
Corporation located in the United States for $4.6 million in cash.
v) In October 1997, the Company purchased the rail products business and
related assets of Sloan Valve Company for $2.5 million.
vi) Effective July 31, 1997 the Company acquired 100% of the stock of HP
s.r.l. ("HP"), an Italian transit company, for a total purchase price of
$5.8 million, which included the assumption of $2.3 million in debt. HP is
located in Sassuolo, Italy and is a leading supplier of door controls for
transit rail cars and buses in the Italian market. Annual revenues
approximated $9 million.
vii) Acquired in May 1997 Stone Safety Service Corporation, New Jersey,
and Stone U.K. Limited ("Stone"), a supplier of transit air conditioning
equipment and in June 1997, the Company acquired the heavy rail air
conditioning business of Thermo King Corporation ("Thermo King") from
Westinghouse Electric. The aggregate purchase price for the Stone and
Thermo King acquisitions was approximately $7.7 million. Annual revenues of
the these acquisitions prior to purchase were approximately $30 million.
viii) On September 19, 1996, the Company purchased the Vapor Group
("Vapor") for approximately $63.9 million in cash. Vapor is the leading
manufacturer of door controls for transit rail cars and metropolitan buses
in the United States. Annual revenues for its most recent fiscal year prior
to the acquisition totaled $65 million.
ix) In January 1996, the Company acquired Futuris Industrial Products
Pty. Ltd., an Australian molded products manufacturer, for approximately
$15 million. Annual revenues prior to acquisition were approximately $10.5
million.
All of these other acquisitions were accounted for under the purchase
method. Accordingly, the results of operations of the applicable acquisition
are included in the Company's financial statements prospectively from the
acquisition date. The excess of the purchase price over the fair value of net
assets was allocated to goodwill. Such recorded amounts totaled approximately
$24 million, $7 million and $17 million, in 1998, 1997 and 1996, respectively.
4. Intangibles
Intangible assets of the Company, other than goodwill, consist of the
following:
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
Patents, tradenames and trademarks, net of accumulated
amortization of $22,874 and $19,768 (4-40 years)........ $ 35,251 $ 35,942
Covenants not to compete, net of accumulated amortization
of $10,144 and $9,333 (5 years)......................... 6,092 1,133
Other intangibles, net of accumulated amortization of
$7,356 and $7,052 (3-7 years)........................... 4,678 5,391
---------- ----------
$ 46,021 $ 42,466
========== ==========
At December 31, 1998 and 1997, goodwill, net of accumulated amortization of
$7.7 million and $5.4 million, respectively, totaled $151.7 million and $66.6
million, respectively. The Company evaluates
F-10
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the recoverability of intangible assets, including goodwill, at each balance
sheet date based on forecasted future operations, undiscounted cash flows and
other subjective criteria. Based upon historical information, management
believes that the carrying amount of these intangible assets will be realizable
over the respective amortization periods.
5. Long-Term debt
Long-term debt consisted of the following:
Year Ended
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
Credit Agreement
Revolving credit........................................ $ 105,555 $ 100,880
Term loan............................................... 202,500 145,500
9 3/8% Senior notes due June 5, 2005..................... 100,000 100,000
Unsecured credit facility................................ 30,000 --
Pulse.................................................... 16,990 16,990
Comet.................................................... 10,200 --
Other.................................................... 2,572 1,564
---------- ----------
Total.................................................. 467,817 364,934
Less--current portion.................................. 30,579 32,600
---------- ----------
Long-term portion...................................... $ 437,238 $ 332,334
========== ==========
Credit Agreement
In June 1998, the Company refinanced its credit facility with a consortium
of commercial banks and amended it in October 1998 in connection with the RRE
acquisition (as amended, the "Credit Agreement"). The Credit Agreement provides
for an aggregate credit facility of $350 million, consisting of up to $170
million of June 1998 term loans, up to $40 million of September 1998 term
loans, and up to $140 million of revolving loans. In addition, the Credit
Agreement provides for swingline loans of up to an aggregate amount of $5
million, and for the issuance of letters of credit in an aggregate face amount
of up to $50 million. Swingline loans and the issuance of letters of credit
will reduce the amount of revolving loans which may be incurred under the
revolving credit facility.
At December 31, 1998, the Company had available borrowing capacity, net of
letters of credit, of approximately $12 million. The Company repaid a portion
of its borrowings under the Credit Agreement in January 1999 with proceeds of
the offering of $75 million of 9 3/8 Senior Notes, as further described below,
resulting in increased borrowing capacity of $47 million. (See Note 19).
The Credit Agreement limits the Company with respect to declaring or making
cash dividend payments and prohibits the Company from declaring or making other
distributions whether in cash, property, securities or a combination thereof,
with respect to any shares of the Company's capital stock subject to certain
exceptions, including an exception pursuant to which the Company will be
permitted to pay cash dividends on its Common Stock in any fiscal year in an
aggregate amount up to $15 million minus the aggregate amount of prepayments of
the Pulse note during such fiscal year so long as no default in the payment of
interest or fees has occurred thereunder. The Credit Agreement contains various
other covenants and restrictions including, without limitation, the following:
a limitation on the incurrence of additional indebtedness; a limitation on
mergers, consolidations and sales of assets and acquisitions (other than
mergers and consolidations with certain subsidiaries, sales of assets in the
ordinary course of business, and acquisitions for which the consideration paid
by the Company does not exceed $50 million individually or $150 million in the
aggregate); a limitation on liens; a limitation on sale and leasebacks; a
limitation on investments, loans and advances; a limitation on certain debt
payments; a limitation on capital expenditures; a minimum interest expense
coverage ratio; and a maximum leverage ratio. All debt incurred under the
Credit Agreement is secured by substantially all of the assets of the Company
and its domestic subsidiaries and is guaranteed by the Company's domestic
subsidiaries.
The Credit Agreement contains customary events of default, including payment
defaults, failure of representations to be true in any material respect,
covenant defaults, defaults with respect to other indebtedness of the Company,
bankruptcy, certain judgments against the Company, ERISA defaults and "change
of control" of the Company.
F-11
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit Agreement borrowings bear variable interest rates indexed to common
indexes such as LIBOR. The weighted-average contractual interest rate on Credit
Agreement borrowings was 6.71% on December 31, 1998. To reduce the impact of
interest rate changes on a portion of this variable-rate debt, the Company
entered into interest rate swaps which effectively convert a portion of the
debt from variable to fixed-rate borrowings during the term of the swap
contracts. On December 31 1998, the notional value of interest rate swaps
outstanding totaled $50 million and effectively changed the Company's interest
rate from a variable rate to a fixed rate of 7.09%. The interest rate swap
agreements mature in 2000 and 2001. The Company is exposed to credit risk in
the event of nonperformance by the counterparties. However, since only the cash
interest payments are exchanged, exposure is significantly less than the
notional amount. The counterparties are large financial institutions and the
Company does not anticipate nonperformance.
Scheduled term loan principal repayments required under the Credit Agreement
as of December 31, 1998 are as follows:
Dollars in millions
1999........................................................ $ 20.0
2000........................................................ 32.5
2001........................................................ 40.0
2002........................................................ 50.0
2003........................................................ 60.0
------
$202.5
======
9 3/8% Senior Notes Due June 2005
In June 1995 the Company issued $100 million of 9 3/8% Senior Notes due 2005
(the "Existing Notes"). In January 1999, the Company issued an additional $75
million of 9 3/8% Senior Notes due 2005 (the "Additional Notes"; the Existing
Notes and the Additional Notes are collectively, the "Notes"). See "Subsequent
Event" Note 19.
The terms of the Existing Notes and the Additional Notes are substantially
the same, and the Existing Notes and the Additional Notes were issued pursuant
to indentures that are substantially the same. The Notes bear interest at the
rate of 9 3/8% and mature in June 2005. The net proceeds of the Existing Notes
were used to prepay term loans outstanding under the then existing credit
agreement. The net proceeds of the Additional Notes were used to repay the
unsecured credit facility and to reduce revolving credit borrowings.
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future indebtedness under (i)
capitalized lease obligations, (ii) the Credit Agreement, (iii) indebtedness of
the Company for money borrowed and (iv) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable unless, in the case of clause (iii) or (iv),
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 notes.
Unsecured Credit Facility
In October 1998, the Company obtained a $30 million unsecured credit
facility from a group of commercial banks for the purpose of financing the RRE
acquisition. At December 31, 1998, the interest rate on the note was 9.75% per
annum. In January 1999, this facility was repaid with proceeds of the
Additional Note offering. See "Subsequent Event" Note 19.
Pulse Note
As partial payment for the Pulse acquisition, the Company issued a $17.0
million note due January 31, 2004. Interest is payable semiannually and accrues
at 9.5% until February 1, 2001; and from February 1, 2001 until January 31,
2004, interest will accrue at the prime rate charged by Chase Manhattan Bank on
December 31, 2000 plus 1%.
Comet Notes
In connection with the Comet acquisition, the Company issued notes totaling
$12.2 million, of which unsecured notes totaling $6.2 million were delivered by
the Company and a note in the amount of $6 million was delivered by a
subsidiary of the Company and secured by the acquired assets. The
F-12
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
notes bore interest at the rate of 10% per annum and were scheduled to mature
on October 8, 1999. These notes were repaid in January 1999 (See Note 19).
Capitalized debt issuance costs of $4.8 million, net of accumulated
amortization, are being amortized over the terms of the borrowings.
6. Employee Benefit Plans
Pension Plans Postretirement Plan
------------------ --------------------
As of or for the year ended December 31 1998 1997 1998 1997
--------------------------------------- -------- -------- --------- ---------
Dollars in thousands
Change in benefit obligation
Benefit (obligation) at beginning of
year.................................. $(39,424) $(34,126) $ (17,750) $ (14,980)
Service cost........................... (1,363) (1,176) (300) (289)
Interest cost.......................... (2,904) (2,720) (1,273) (1,226)
Participant contributions.............. (32) (35)
Actuarial gain (loss).................. (4,796) (3,964) (1,348) (1,526)
Plan amendments........................ (1,480) (1,025)
Benefits paid.......................... 2,725 2,797 392 271
Effect of currency rate changes........ 1,748 825
-------- -------- --------- ---------
Benefit (obligation) at end of year.. $(45,526) $(39,424) $ (20,279) $ (17,750)
======== ======== ========= =========
Change in plan assets
Fair value of plan assets at beginning
of year............................... $ 37,884 $ 33,702 $ -- $ --
Actual return on plan assets........... 5,335 5,519
Employer contribution.................. 3,688 2,550
Participant contribution............... 32 35
Administrative expenses................ (116) (213)
Benefits paid.......................... (2,725) (2,797)
Effect of currency rate changes........ (1,741) (912)
-------- -------- --------- ---------
Fair value of plan assets at end of
year................................ $ 42,357 $ 39,884 $ -- $ --
======== ======== ========= =========
Funded status
Funded status at year end.............. $ (3,169) $ (1,540) $ (20,279) $ (17,750)
Unrecognized net actuarial (gain)
loss.................................. 2,111 (261) 3,960 2,856
Unrecognized prior service cost........ 3,151 2,162 (221) (290)
Unrecognized transition obligation..... 302 324
-------- -------- --------- ---------
Prepaid (accrued) benefit cost....... $ 2,093 $ 361 $ (16,238) $ (14,860)
======== ======== ========= =========
Pension Plans Postretirement Plan
---------------------- ----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
Net periodic benefit cost
Service cost.................. $1,505 $1,305 $1,054 $ 340 $ 289 $ 267
Interest cost................. 2,904 2,675 2,394 1,351 1,226 935
Expected return on plan
assets....................... (3,717) (4,463) (2,482)
Net amortization/deferrals.... 755 1,865 302 195 155 13
Special event................. 696
------ ------ ------ ------ ------ ------
Net periodic benefit cost... $1,447 $1,382 $1,964 $1,886 $1,670 $1,215
====== ====== ====== ====== ====== ======
Assumptions
Discount rate................. 6.75% 7.25% 8.50% 6.75% 7.25% 7.50%
Expected long-term rate of
return....................... 10.00 9.25 9.25 -- -- --
F-13
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company sponsors defined benefit pension plans which cover substantially
all union employees and certain non-union Canadian employees and provide
pension benefits of stated amounts for each year of service of the employee. In
connection with the establishment of the ESOP (see Note 7) in January 1995, the
pension plan for U.S. salaried employees was modified to eliminate any credit
(or accrual) for current service costs for any future periods, effective March
31, 1995. The Company's 401(k) savings plan was also amended to provide for the
Company's future matching contributions to be made to the ESOP in the form of
the Company's Common Stock. The Company's funding methods, which are primarily
based on the ERISA requirements, differ from those used to recognize pension
expense, which is primarily based on the projected unit credit method, in the
accompanying financial statements.
Within the analysis above, the pension plan for U.S. salaried employees has
a benefit obligation of $22,338 and plan assets of $20,708 as of December 31,
1998. In 1996, as the result of an early retirement package offered to certain
union employees, the Company incurred a charge of $696,000 reflected as a
special event.
In addition to providing pension benefits, the Company had provided certain
unfunded postretirement health care and life insurance benefits for
substantially all U.S. employees. In conjunction with the establishment of the
ESOP in January 1995 (see Note 7), the postretirement health care and life
insurance benefits for salaried employees were modified to discontinue benefits
for employees who had not attained the age of 50 by March 31, 1995. The Company
is not obligated to pay health care and life insurance benefits to individuals
who had retired prior to 1990.
A one percentage point increase in the assumed health care cost trend rates
for each future year increases annual postretirement benefit expense by
$290,832 and the accumulated postretirement benefit obligation by $3.3 million.
A one percentage point decrease in the assumed health care cost trends for each
future year decreases annual postretirment benefit expense by $230,163 and the
accumulated postretirement benefit obligation by $2.6 million.
7. Employee Stock Ownership Plan and Trust (ESOP)
Effective January 31, 1995, the Company established the ESOP to enable
participating employees to obtain ownership interests in the Company. Employees
eligible to participate in the ESOP primarily include the salaried U.S.
employees and, as described in Note 6, the ESOP contributions are intended to
supplement or replace other salaried employee benefit plans.
In connection with the establishment of the ESOP, the Company made a $140
million loan to the ESOP, which was used to purchase 9,336,000 shares of the
Company's outstanding common stock. The ESOP loan initially had a term of 50
years with interest at 8.5% and was collateralized by the shares purchased by
the ESOP. Company contributions to the ESOP will be used to repay the ESOP
loan's annual debt service requirements of approximately $12 million. The
Company is obligated to contribute amounts sufficient to repay the ESOP loan.
The ESOP uses such Company contributions to repay the ESOP loan. Approximately
187,000 shares were to be allocated annually to participants over a 50-year
period. These transactions occur simultaneously and, for accounting purposes,
offset each other. Unearned ESOP shares of $128.5 million at December 31, 1998,
is reflected as a reduction in shareholders' equity in the accompanying
financial statements and will be amortized to compensation expense coterminous
with the ESOP loan. Total compensation expense recognized for allocated ESOP
shares was $4.5 million, $3.2 million and $2.9 million in 1998, 1997 and 1996,
respectively.
F-14
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income Taxes
The provision for income taxes consisted of the following:
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
Dollars in thousands
Current taxes
Federal............................................. $19,629 $18,490 $17,498
State............................................... 1,330 1,849 2,138
Foreign............................................. 10,537 6,494 2,372
------- ------- -------
31,496 26,833 22,008
Deferred taxes
Federal............................................. (1,964) (1,375) (2,432)
State............................................... (282) (137) (278)
Foreign............................................. (1,689) (1,994) 1,625
------- ------- -------
(3,935) (3,506) (1,085)
------- ------- -------
Total provision.................................... $27,561 $23,327 $20,923
======= ======= =======
The 1998 provision excludes a $2.0 million income tax effect on the
extraordinary loss (see Note 9) related to the early extinguishment of certain
debt obligations.
The components of income before taxes on income for U.S. and foreign
operations, primarily Canada, were $49.9 million and $22.6 million,
respectively, for 1998, $47.9 million and $12.7 million, respectively, for
1997, and $42.4 million and $11.3 million, respectively, for 1996.
A reconciliation of the United States federal statutory income tax rate to
the effective income tax rate is provided below:
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
U.S. federal statutory rate.......................... 35.0% 35.0% 35.0%
State taxes.......................................... 2.1 2.7 3.5
Foreign.............................................. .9 .8 .5
------- ------- -------
Effective rate...................................... 38.0% 38.5% 39.0%
======= ======= =======
The sources of deferred income taxes were as follows:
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
Dollars in thousands
Deferred debt costs................................. $(1,673) -- --
ESOP................................................ (1,513) $(1,150) $ (919)
Depreciation........................................ (964) 176 782
Postretirement benefits............................. (593) (851) (171)
Inventory........................................... (350) 451 (1,450)
Accrued warranty.................................... 1,157 (1,697) (497)
Pension............................................. 31 958 (319)
Other liabilities and reserves...................... (30) (1,393) 1,489
------- ------- -------
Deferred tax benefits.............................. $(3,935) $(3,506) $(1,085)
======= ======= =======
Components deferred tax assets and liabilities were as follows:
December 31
----------------------
1998 1997
---------- ----------
Dollars in thousands
ESOP................................................... $ 4,539 $ 3,026
Postretirement benefits................................ 3,508 2,915
Inventory.............................................. 3,461 3,111
Accrued warranty....................................... 3,021 4,178
Deferred debt costs.................................... 1,673 --
Pension................................................ 749 780
Depreciation........................................... (7,458) (8,422)
Other.................................................. 50 20
---------- ----------
Net deferred tax asset................................ $ 9,543 $ 5,608
========== ==========
9. Extraordinary Item
In June 1998, the Company refinanced its credit agreement and subsequently
amended the agreement in October 1998. This resulted in a write off of
previously deferred financing costs of approximately $3.3 million, net of tax
($.13 per diluted share), which has been reported as an extraordinary item.
F-15
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Earnings Per Share
The computation of earnings per share is as follows:
Year ended December 31
-----------------------
1998 1997 1996
------- ------- -------
Dollars in thousands,
except per share
Basic
Income before extraordinary item applicable to common
shareholders......................................... $44,969 $37,263 $32,725
Divided by
Weighted average shares outstanding................... 25,081 25,693 28,473
Basic earnings per share, before extraordinary item... $ 1.79 $ 1.45 $ 1.15
------- ------- -------
Diluted
Income before extraordinary item applicable to common
shareholders......................................... $44,969 $37,263 $32,725
Divided by sum of
Weighted average shares outstanding................... 25,081 25,693 28,473
Conversion of dilutive stock options.................. 627 480
------- ------- -------
Diluted shares outstanding............................ 25,708 26,173 28,473
Diluted earnings per share, before extraordinary
item................................................. $ 1.75 $ 1.42 $ 1.15
------- ------- -------
Options to purchase .2 million, .5 million and 2.2 million shares of common
stock were outstanding in 1998, 1997, and 1996, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price exceeded the average market price of the common shares.
11. Stock-Based Compensation Plans
Stock Options Under the 1995 Stock Incentive Plan, as amended in 1998, the
Company may grant options to employees of Westinghouse Air Brake Company and
Subsidiaries for up to 4.7 million shares of Westinghouse Air Brake Company
Common Stock. The 1998 amendment increased the number of stock options
available for grant, from 3.1 million to 4.7 million. Options to purchase
approximately 3.8 million shares of Westinghouse Air Brake Company Common Stock
under the plan have been granted to employees of Westinghouse Air Brake Company
at, or in excess of, fair market value at the date of grant. Generally, the
options become exercisable over three and five-year vesting periods and expire
ten years from the date of grant.
As part of a long-term incentive program, in 1998 and 1996 the Company
granted options to purchase up to 500,020 and 684,206 shares, respectively, to
certain executives under the 1995 Stock Incentive Plan. The option price per
share is the greater of the market value of the stock on the date of grant or
$20 and $14 , respectively. The options vest 100% after eight years and are
subject to accelerated vesting after three years if the Company achieves
certain earnings targets as established by the compensation committee of the
board of directors.
The Company also has a nonemployee directors stock option plan under which
100,000 shares of common stock are reserved for issuance at a price not less
than $14. Through year-end 1998, the Company granted nonstatutory stock options
to nonemployee directors to purchase a total of 35,000 shares.
Employee Stock Purchase Plan In 1998, the Company adopted an employee stock
purchase plan (ESPP). The ESPP has 500,000 shares available for issuance.
Participants purchase the Corporation's Common Stock at 85% of the lesser of
fair market value on the first or last day of each offering period. Shares
issued pursuant to the ESPP in 1998 were 6,998 shares and the average purchase
price per share was $16.575.
The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized under these plans. Had compensation expense for these plans been
determined based on the fair value at the grant dates for awards the method set
forth under SFAS No. 123, the Company's net income and earnings per share would
be as set forth in the following table. For purposes of pro forma disclosures,
the estimated fair value is amortized to expense over the options' vesting
period.
F-16
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year ended December 31
-----------------------
1998 1997 1996
------- ------- -------
Dollars in thousands,
except per share
Net income
As reported........................................... $41,654 $37,263 $32,725
Pro forma............................................. 38,324 34,007 31,117
Diluted earnings per share
As reported........................................... $ 1.62 $ 1.42 $ 1.15
Pro forma............................................. 1.49 1.30 1.09
Since compensation expense associated with option grants would be recognized
over the vesting period, the initial impact of applying SFAS No. 123 on pro
forma net income is not representative of the potential impact on pro forma net
income in future years. In each subsequent year, pro forma compensation expense
would include the effect of recognizing a portion of compensation expense from
multiple awards.
For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
Dividend yield....................................... .20% .23% .32%
Risk-free interest rate.............................. 4.56 5.80 6.25
Stock price volatility............................... 29.10 29.22 30.43
Expected life (years)................................ 5.0 5.3 7.3
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which are significantly different than employee
stock options. Although this valuation model is an acceptable method for use in
presenting pro forma information, because of the differences in traded options
and employee stock options, the Black-Scholes model does not necessarily
provide a single measure of the fair value of employee stock options.
A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
1998 1997 1996
--------------------------- --------------------------- ---------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- ---------------- --------- ---------------- --------- ----------------
Beginning of year....... 2,778,443 $14.64 2,222,456 $13.63 1,279,500 $14.00
Granted................ 813,520 20.99 748,126 17.84 958,956 13.14
Exercised.............. (169,025) 14.39 (135,139) 13.75
Canceled............... (134,951) 15.86 (57,000) 14.00 (16,000) 14.00
--------- --------- ---------
End of year............ 3,287,987 16.29 2,778,443 14.64 2,222,456 13.63
========= ========= =========
Exercisable at end of
year................... 1,148,134 671,971 332,992
Available for future
grant.................. 1,107,849 186,418 877,544
Weighted average fair
value of options
granted during the
year................... $ 8.98 $ 8.07 $ 4.05
Exercise prices for options outstanding as of December 31, 1998 ranged from
$11.00 to $27.66. The weighted-average remaining contractual life of those
options is 8 years.
Restricted Stock Award In 1998, the Company granted 15,000 shares of
restricted Common Stock to an officer. The shares vest according to a vesting
schedule over a three-year period. The grant date market value totaled $372
thousand and is being amortized to expense over the vesting period. Unamortized
compensation is recorded as a component of shareholders' equity.
Executive Retirement Plan Under the 1997 Executive Retirement Plan, the
Company may award its Common Stock to certain employees including certain
executives who do not participate in the
F-17
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ESOP. Through December 31, 1998, 19,555 shares have been awarded with a fair
market value of approximately $400 thousand.
With respect to the Restricted Stock Award and the Executive Retirement
Plan, compensation expense is recognized in the consolidated statement of
operations.
12. Operating Leases
Minimum annual rentals payable under noncancelable leases in each of the
next five years and beyond are as follows:
Dollars in millions
1999........................................................ $ 3.2
2000........................................................ 2.6
2001........................................................ 2.2
2002........................................................ 1.2
2003........................................................ .7
Thereafter.................................................. 2.1
-----
$12.0
=====
Rental expense under all leases was approximately $3.8 million, $3.3 million
and $2.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Operating leases relate principally to facilities, transportation
equipment and communication systems.
13. Stock Repurchase
In March 1997, the Company repurchased from Scandinavian Incentive Holdings,
B.V., ("SIH"), 4 million shares of the Company's Common Stock for an aggregate
purchase price of $44 million plus fees and expenses of approximately $2
million (the "Redemption"). The Redemption was effected pursuant to a
Redemption Agreement (the "Redemption Agreement") dated as of March 5, 1997
among the Company, SIH and Incentive AB, the sole shareholder of SIH.
Concurrently therewith, SIH sold its remaining 6 million shares of WABCO Common
Stock to investors consisting of Vestar Equity Partners, L.P., Charlesbank
Capital Partners, LLC, f/k/a Harvard Private Capital Holdings, Inc., American
Industrial Partners Capital Fund II, L.P. and certain members of management of
the Company (the "Management Purchasers") for a purchase price of $11 per share
in cash, pursuant to a Stock Purchase Agreement dated as of March 5, 1997,
which sale was effective as of March 31, 1997 (the "SIH Purchase").
To finance the Redemption, the Company amended its Credit Agreement to
increase the revolving credit availability by $15 million (from $125 million to
$140 million) and to obtain a waiver of the requirement to make a prepayment in
an aggregate principal amount equal to 50% of excess cash flow for 1996, or
approximately $11.5 million. The Company obtained consents from record owners
as of March 3, 1997 of the Existing Notes to certain amendments to a covenant
contained in the Indenture dated as of June 20, 1995 among the Company, as
issuer, and The Bank of New York, as trustee, pursuant to which the Notes were
issued (the "Indenture"). The Company borrowed $46 million to fund the
Redemption and related expenses.
The following presents the Company's results for the year ended December 31,
1997 on a pro forma basis as if the stock repurchase had occurred on January 1,
1997:
Reported Pro Forma
-------- ---------
In thousands,
except per share
Net income................................................... $37,263 $36,774
Basic earnings per share..................................... 1.45 1.49
Diluted earnings per share................................... 1.42 1.46
Average shares used for
Basic....................................................... 25,693 24,718
Diluted..................................................... 26,173 25,198
14. Stockholders' and Voting Trust Agreements
As of December 31, 1998, the approximate ownership interests in the
Company's common stock are held by management and the ESOP (58%), the investors
referred to in Note 13 (17%), and all others including public shareholders
(25%). The investors referred to in Note 13 and certain members of senior
management purchased 6 million shares of WABCO common stock from SIH. The
seller is a successor in interest to Incentive AB (a Swedish
F-18
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
corporation) which acquired Investment AB Cardo, an original equity owner at
the time of the 1990 acquisition of the Railway Products Group of American
Standard, Inc. ("1990 Acquisition"). A Stockholders Agreement exists between
management and the investors referred to in Note 13 that provides for, among
other things, the composition of the Board of Directors as long as certain
minimum stock ownership percentages are maintained, restrictions on the
disposition of shares and rights to request the registration of the shares.
The active original management owners have entered into an Amended Voting
Trust/Disposition Agreement effective December 13, 1995, as amended. The
agreement provides for, among other matters, the stock to be voted as one block
and restrictions on the sale or transfer of such stock. The agreement expires
on January 1, 2000 and can be terminated by an affirmative vote of two-thirds
of the stock shares held by the trust. In connection with this Voting Trust,
the Company has entered into an Indemnification Agreement with the trustees,
which is covered by the Company's directors and officers liability insurance.
The shares held by the ESOP (established January 31, 1995) are subject to
the terms of the related ESOP Loan Agreement, Employee Stock Ownership Trust
Agreement, Employee Stock Ownership Plan and the Pledge Agreement. The ESOP is
further described in Note 7.
15. Preferred Stock
The Company's authorized capital stock includes 1,000,000 shares of
preferred stock. The Board of Directors has the authority to issue the
preferred stock and to fix the designations, powers, preferences and rights of
the shares of each such class or series, including dividend rates, conversion
rights, voting rights, terms of redemption and liquidation preferences, without
any further vote or action by the Company's shareholders. The rights and
preferences of the preferred stock would be superior to those of the common
stock. At December 31, 1998 and 1997 there was no preferred stock issued or
outstanding.
16. Commitments and Contingencies
Under the terms of the purchase agreement and related documents for the 1990
Acquisition, American Standard, Inc. ("ASI"), has indemnified the Company for
certain items including, among others, environmental claims. The
indemnification provisions of the agreement expire at various dates through
2000. If ASI was unable to honor or meet these indemnifications, the Company
would be responsible for such items. In the opinion of management, ASI
currently has the ability to meet its indemnification obligations. ASI has not
disputed any coverage or reimbursement under these provisions.
The Company, through one of its operating subsidiaries, has been named,
along with other parties, as a Potentially Responsible Party (PRP) under the
North Carolina Inactive Sites Response Act because of an alleged release or
threat of release of hazardous substances at the "Old James Landfill" site in
North Carolina. The Company believes that any costs associated with the cleanup
activities at this site which it may be held responsible for, if any, are
covered by (a) the ASI indemnification referred to above, as ASI previously
owned 50% of the subsidiary and (b) a related insurance policy which expires
January 2002 for environmental claims provided by the other former 50% owner of
the involved operating subsidiary. The Company has submitted a claim under the
policy for any costs of clean up imposed on or incurred by the Company in
connection with the "Old James Landfill" and Rocky Mountain International
Insurance, Ltd. has acknowledged coverage under the policy, subject to the
stated policy exclusions. In addition, management believes that such costs, if
any, attributable to the Company will not be material and, therefore, has not
established a reserve for such costs.
The Company's operations do not use and its products do not contain any
asbestos. The operations acquired by the Company from ASI discontinued the use
of asbestos in 1980. The Company is named as a codefendant in asbestos claims
filed by third parties against ASI relating to events occurring prior to 1981
(which is significantly prior to the 1990
F-19
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquisition). These claims are covered by the indemnification agreement and the
insurance policy referred to above. ASI has taken complete responsibility in
administering, defending and settling the claims. The Company is not involved
with, nor has it incurred any costs related to, these claims. ASI has not
claimed that the Company has any responsibility for these cases. Management
believes that these claims are not related to the Company and that such costs,
if any, attributable to the Company and will not be material; therefore, the
financial statements accordingly do not reflect any costs or reserves for such
claims.
In the opinion of management, based on available information, environmental
matters and asbestos claims do not presently represent any material
contingencies to the Company.
On February 12, 1999, GE Harris Railway Electronics, LLC and GE Harris
Railway Electronic Services, LLC (collectively, "GE Harris") brought suit
against the Company for alleged patent infringement and unfair competition
related to a communications system installed in one of the Company's products.
GE Harris is seeking to prohibit the Company from future infringement and is
seeking an unspecified amount of money damages to recover, in part, royalties.
While this lawsuit is in the earliest stages, the Company believes the
technology developed by the Company does not infringe on the GE Harris patents.
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the ordinary course of business. As of the
date hereof, the Company is involved in no litigation that the Company believes
will have a material adverse effect on its financial condition, results of
operations or liquidity. The Company historically has not been required to pay
any material liability claims.
17. Segment Information
WABCO has three reportable segments-- Railroad Group, Transit Group and
Molded Products Group. The key factors used to identify these reportable
segments are the organization and alignment of the Company's internal
operations, the nature of the products and services and customer type. The
business segments are:
Railroad Group consists of products geared to the production of freight cars
and locomotives, including braking control equipment and train coupler systems
and operating freight railroads. Revenues are derived from OEM and aftermarket
sales and from repairs and services.
Transit Group consists of products for passenger transit vehicles (typically
subways, rail and busses) that include braking and monitoring systems, climate
control and door equipment, that are engineered to meet individual customer
specifications. Revenues are derived from OEM and aftermarket sales as well as
from repairs and services.
Molded Products Group include manufacturing and distribution of brake shoes
and other rubberized products. Revenues are generally derived from the
aftermarket.
The Company evaluates its business segments' operating results based on
income from operations. Corporate activities include general corporate
expenses, elimination of intersegment transactions, interest income and expense
and other unallocated charges. Since certain administrative and other operating
expenses and other items have not been allocated to business segments, the
results in the below tables are not necessarily a measure computed in
accordance with generally accepted accounting principles and may not be
comparable to other companies.
F-20
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment financial information for 1998 is as follows:
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
Sales to external customers..... $388,797 $211,801 $70,311 $670,909
Intersegment sales.............. 14,137 1,276 8,805 $(24,218)
-------- -------- ------- -------- --------
Total sales................... $402,934 $213,077 $79,116 $(24,218) $670,909
======== ======== ======= ======== ========
Income from operations.......... $ 78,987 $ 16,047 $20,713 $(11,081) $104,666
Interest expense and other...... 32,136 32,136
-------- -------- ------- -------- --------
Income before income taxes and
extraordinary item........... $ 78,987 $ 16,047 $20,713 $(43,217) $ 72,530
======== ======== ======= ======== ========
Depreciation and amortization... $ 7,401 $ 4,742 $ 1,952 $ 11,113 $ 25,208
Capital expenditures............ 12,111 8,470 5,393 2,983 28,957
Working capital................. 75,516 41,856 9,762 (31,723) 95,411
Segment assets.................. 325,585 182,398 48,550 39,651 596,184
Segment financial information for 1997 is as follows:
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
Sales to external customers..... $310,295 $189,541 $64,605 $564,441
Intersegment sales.............. 8,977 1,247 7,323 $(17,547)
-------- -------- ------- -------- --------
Total sales................... $319,272 $190,788 $71,928 $(17,547) $564,441
======== ======== ======= ======== ========
Income from operations.......... $ 63,840 $ 19,907 $18,364 $(12,136) $ 89,975
Interest expense and other...... 29,385 29,385
-------- -------- ------- -------- --------
Income before income taxes and
extraordinary item........... $ 63,840 $ 19,907 $18,364 $(41,521) $ 60,590
======== ======== ======= ======== ========
Depreciation and amortization... $ 6,284 $ 4,168 $ 2,029 $ 12,143 $ 24,624
Capital expenditures............ 19,236 5,341 3,254 1,365 29,196
Working capital................. 42,485 29,553 8,401 (31,720) 48,719
Segment assets.................. 175,586 149,669 42,865 42,759 410,879
F-21
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment financial information for 1996 is as follows:
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
Sales to external customers..... $294,021 $100,902 $58,589 $453,512
Intersegment sales.............. 12,707 863 6,089 $(19,659)
-------- -------- ------- -------- --------
Total sales................... $306,728 $101,765 $64,678 $(19,659) $453,512
======== ======== ======= ======== ========
Income from operations.......... $ 62,839 $ 12,865 $15,057 $(11,043) $ 79,718
Interest expense and other...... 26,070 26,070
-------- -------- ------- -------- --------
Income before income taxes and
extraordinary item........... $ 62,839 $ 12,865 $15,057 $(37,113) $ 53,648
======== ======== ======= ======== ========
Depreciation and amortization... $ 5,893 $ 2,785 $ 1,563 $ 12,008 $ 22,249
Capital expenditures............ 8,759 2,306 1,663 127 12,855
Working capital................. 46,705 21,862 7,922 (28,313) 48,176
Segment assets.................. 157,768 117,274 40,890 47,304 363,236
The following geographic area data include trade revenues based on product
shipment destination and long-lived assets consists of plant, property and
equipment, net of depreciation, that are resident in their respective
countries.
Sales Long-Lived Assets
-------------------------- -------------------------
Year ended December 31 1998 1997 1996 1998 1997 1996
---------------------- -------- -------- -------- -------- -------- -------
In thousands
United States.............. $486,010 $421,057 $333,405 $ 78,720 $ 71,030 $63,348
Canada..................... 74,066 72,618 76,301 38,775 34,529 30,178
Other international........ 110,833 70,766 43,806 7,486 2,808 2,318
-------- -------- -------- -------- -------- -------
Total.................... $670,909 $564,441 $453,512 $124,981 $108,367 $95,844
======== ======== ======== ======== ======== =======
18. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments approximate
their related carrying values, except for the following:
1998 1997
------------ ------------
Carry Fair Carry Fair
Value Value Value Value
----- ----- ----- -----
Dollars in millions
9 3/8% Senior Notes................................ $(100) $(106) $(100) $(106)
Unsecured credit facility.......................... (30) (30) -- --
Note Payable--Pulse 9 1/2%......................... (17) (18) (17) (18)
Comet Notes........................................ (10) (10) -- --
Interest rate swaps................................ -- (1) -- (1)
Fair values of the fixed rate obligations were estimated using discounted
cash flow analyses. The fair value of the Company's interest rate swaps (see
Note 5) were based on dealer quotes and represent the estimated amount the
Company would pay to the counterparty to terminate the swap agreements.
19. Subsequent Event
In January 1999, WABCO completed the private placement of $75 million of
9 3/8% Senior Notes which mature in 2005. The Senior Notes were issued at a
premium resulting in an effective rate of 8.5%. The issuance improved WABCO's
financial liquidity by i) using a portion of the proceeds to repay $30 million
of debt associated with the RRE acquisition that bore interest at 9.56%; ii)
using a portion of the proceeds to repay variable-rate revolving credit
borrowings thereby increasing amounts available under the revolving credit
facility;
F-22
WESTINGHOUSE AIR BRAKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and iii) repay the remaining unpaid principal of $10.2 million from the Comet
acquisition. As result of the issuance, the Company will write-off previously
capitalized debt issuance costs of approximately $.02 per diluted share, in the
first quarter of 1999.
20. Selected Quarterly Financial Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(Unaudited)
Dollars in thousands, except per share data
1998
Net sales........................ $ 158,136 $ 172,052 $ 160,476 $ 180,245
Operating income................. 24,755 26,084 25,181 28,646
Income before taxes.............. 17,513 18,871 17,493 18,653
Income before extraordinary
item............................ 10,858 11,700 10,846 11,565
Net income....................... 10,858 8,970 10,846 10,980
Diluted earnings per common share
before extraordinary item....... 0.42 0.45 0.42 0.45
Diluted earnings per common
share........................... 0.42 0.34 0.42 0.43
1997
Net sales........................ $ 136,508 $ 138,066 $ 142,761 $ 147,106
Operating income................. 22,542 22,784 22,036 22,613
Income before taxes.............. 15,719 15,279 14,486 15,106
Net income....................... 9,589 9,320 8,836 9,518
Diluted earnings per common
share........................... 0.34 0.37 0.35 0.37
In the second quarter of 1998, the Company refinanced its credit agreement
and wrote-off deferred financing costs of approximately $2.7 million, net of
tax, or $.11 per diluted share. In the fourth quarter of 1998, the Company
amended its credit agreement and wrote-off deferred financing costs of
approximately $.6 million, net of tax, or $.02 per diluted share. Such charges
were recorded as extraordinary items.
F-23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Westinghouse Air Brake Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Westinghouse Air Brake Company, and
have issued our report thereon dated February 17, 1999. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index to the financial statements and schedules is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
February 17, 1999
F-24
SCHEDULE II
WESTINGHOUSE AIR BRAKE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
For each of the three years ended December 31
Balance
Balance at Charged/ Deductions at
beginning of (credited) to Charged to other from end of
period expense accounts (1) reserves (2) period
------------ ------------- ---------------- ------------ -------
Dollars in thousands
1998
Accrued warranty...... $12,851 $6,238 $4,936 $11,368 $12,657
Allowance for doubtful
accounts............. 2,045 528 712 428 2,857
1997
Accrued warranty...... $ 8,172 $9,893 $2,281 $ 7,495 $12,851
Allowance for doubtful
accounts............. 1,347 812 36 150 2,045
1996
Accrued warranty...... $ 3,655 $5,459 $3,802 $ 4,744 $ 8,172
Allowance for doubtful
accounts............. 831 406 210 100 1,347
- --------
(1) Reserves of acquired companies.
(2) Actual disbursements and/or charges
F-25
No person has been authorized to give any information or to make any
representations other than those contained in this Offering Memorandum, and,
if given or made, such information or representations must not be relied upon
as having been authorized. This Offering Memorandum does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or any offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Offering Memorandum nor
any offer or sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
----------------
TABLE OF CONTENTS
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 17
Capitalization............................................................ 17
Selected Historical Financial Data........................................ 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 29
Security Ownership of Certain Beneficial Owners and Management............ 40
Description of Certain Indebtedness....................................... 42
Book-Entry Delivery and Form.............................................. 67
Exchange and Registration Rights.......................................... 70
The Exchange Offer........................................................ 72
Terms of the Exchange Offer............................................... 74
Plan of Distribution...................................................... 85
Legal Matters............................................................. 86
Experts................................................................... 86
PROSPECTUS
$75,000,000
Westinghouse Air Brake Company
Offer To Exchange Its
9 3/8% Senior Subordinated Notes
Due 2005, Series B2
For Any and All Outstanding
9 3/8% Senior Subordinated Notes
Due 2005, Series B
[LOGO]
[ ], 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests except that no indemnification
is permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred. [confirm] The certificate of
incorporation, as amended, of the Company provide that no director of the
corporation shall be liable to such corporation or its stockholders for
monetary damages arising from a breach of fiduciary duty owed to the
corporation or its stockholders.
The by-laws of the Company provide that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director or officer of such corporation or other entity, or
is or was serving at the request of such corporation as a director, officer or
member of another corporation, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding and that
such indemnification shall continue as to an indemnitee who has ceased to a be
a director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. The by-laws of the Company further provide that
the Company may, to the extent authorized from time to time by the directors,
indemnify any employee or agent of such corporation in the same manner as a
director or officer of such entity.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The by-laws of the Company provide that WABCO may purchase and maintain
insurance on behalf of any person who is or was a director or officer of WABCO
or was serving at the request of WABCO as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him in any such, or arising out of his status as
such, whether or not WABCO would have the right or obligation to indemnify him
against such liability under its by-laws.
II-1
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Filing
Exhibits Method
-------- ------
3.1 Restated Certificate of Incorporation of the Company dated
January 30, 1995, as amended March 30, 1995 2
3.2 Amended and Restated By-Laws of the Company, effective March
31, 1997 5
4.1 Form of Indenture between the Company and The Bank of New York
with respect to the public offering of $100,000,000 of 9 3/8%
Senior Notes due 2005 2
4.2 Form of Note (included in Exhibit 4.1) 2
4.3 First Supplemental Indenture dated as of March 21, 1997 between
the Company and The Bank of New York 6
4.4 Indenture dated as of January 12, 1999 by and between the
Company and The Bank of New York with respect to the private
offering of $75,000,000 of 9 3/8% Senior Notes due 2005, Series
B 8
4.5 Form of Note (included in Exhibit 4.4) 8
5.1 Opinion of Reed Smith Shaw & McClay LLP as to the Legality of
the Notes 1
9 Second Amended WABCO Voting Trust/Disposition Agreement dated
as of December 13, 1995 among the Management Investors
(Schedules and Exhibits omitted) 3
10.1 Westinghouse Air Brake Company Employee Stock Ownership Plan
and Trust, effective January 31, 1995 2
10.2 ESOP Loan Agreement dated January 31, 1995 between Westinghouse
Air Brake Company Employee Stock Ownership Trust ("ESOT") and
the Company (Exhibits omitted) 2
10.3 Employee Stock Ownership Trust Agreement dated January 31, 1995
between the Company and U.S. Trust Company of California, N.A. 2
10.4 Pledge Agreement dated January 31, 1995 between ESOT and the
Company 2
10.5 Credit Agreement dated as of June 30, 1998, and Amended and
Restated as of October 2, 1998 among the Company, various
financial institutions, The Chase Manhattan Bank, Chase
Manhattan Bank Delaware, and The Bank of New York (Schedules
and Exhibits omitted) 8
10.6 Amended and Restated Stockholders Agreement dated as of March
5, 1997 among the RAC Voting Trust ("Voting Trust"), Vestar
Equity Partners, L.P. ("Vestar Equity"), Charlesbank Capital
Partners f/k/a Harvard Private Capital Holdings, Inc.
("Charlesbank"), American Industrial Partners Capital Fund II,
L.P. ("AIP") and the Company 6
10.7 Common Stock Registration Rights Agreement dated as of January
31, 1995 among the Company, Scandinavian Incentive Holding B.V.
("SIH"), Voting Trust, Vestar Capital, Pulse Electronics, Inc.,
Pulse Embedded Computer Systems, Inc., the Pulse Shareholders
and ESOT (Schedules and Exhibits omitted) 2
10.8 Indemnification Agreement dated January 31, 1995 between the
Company and the Voting Trust trustees 2
10.9 Agreement of Sale and Purchase of the North American Operations
of the Railway Products Group, an operating division of
American Standard Inc., dated as of 1990 between Rail
Acquisition Corp. and American Standard Inc. (only provisions
on indemnification are reproduced) 2
10.10 Letter Agreement (undated) between the Company and American
Standard Inc. on environmental costs and sharing 2
10.11 Purchase Agreement dated as of June 17, 1992 among the Company,
Schuller International, Inc., Manville Corporation and European
Overseas Corporation (only provisions on indemnification are
reproduced) 2
10.12 Asset Purchase Agreement dated as of January 23, 1995 among the
Company, Pulse Acquisition Corporation, Pulse Electronics,
Inc., Pulse Embedded Computer Systems, Inc. and the Pulse
Shareholders (Schedules and Exhibits omitted) 2
II-2
Filing
Exhibits Method
-------- ------
10.13 License Agreement dated as of December 31, 1993 between SAB
WABCO Holdings B.V. and the Company 2
10.14 Letter Agreement dated as of January 19, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.15 Westinghouse Air Brake Company 1995 Stock Incentive Plan, as
amended 8
10.16 Westinghouse Air Brake Company 1995 Non-Employee Directors' Fee
and Stock Option Plan 8
10.17 Form of Employment Agreement between William E. Kassling and
the Company 2
10.18 Letter Agreement dated as of January 1, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.19 Form of Indemnification Agreement between the Company and
Authorized Representatives 2
10.20 Share Purchase Agreement between Futuris Corporation Limited
and the Company (Exhibits omitted) 2
10.21 Purchase Agreement dated as of September 19, 1996 by and among
Mark IV Industries, Inc., Mark IV PLC, and W&P Holding Corp.
(Exhibits and Schedules omitted) (Originally filed as Exhibit
2.01) 4
10.22 Purchase Agreement dated as of September 19,1996 by and among
Mark IV Industries Limited and Westinghouse Railway Holdings
(Canada) Inc. (Exhibits and Schedules omitted) (Originally
filed as Exhibit 2.02) 4
10.23 Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of March 5, 1997 among the Voting Trust, Vestar
Equity, Charlesbank, AIP and the Company 6
10.24 Common Stock Registration Rights Agreement dated as of March 5,
1997 among the Company, Charlesbank, AIP and the Voting Trust 6
10.25 1998 Employee Stock Purchase Plan 8
10.26 Sale Agreement dated as of August 7, 1998 by and between
Rockwell Collins, Inc. and the Company (Schedules and Exhibits
omitted) (Originally filed as Exhibit 2.01) 8
10.27 Amendment No. 1 dated as of October 5, 1998 to Sale Agreement
dated as of August 7, 1998 by and between Rockwell Collins,
Inc. and the Company (Originally filed as Exhibit 2.02) 8
21 List of subsidiaries of the Company 8
23.1 Consent of Arthur Andersen LLP 1
23.2 Consent of Reed Smith Shaw & McClay LLP (included in the
opinion filed as Exhibit 5.1) 1
24 Powers of Attorney (filed herewith as part of signature pages) 1
27 Financial Data Schedule 8
99 Annual Report on Form 11-K for the year ended December 31, 1998
of the Westinghouse Air Brake Company Employee Stock Ownership
Plan and Trust 8
99.1 Form of Letter of Transmittal 1
99.2 Form of Notice of Guaranteed Delivery 1
99.3 Form of Exchange Agreement between the Company and the Exchange
Agent 1
Filing Method
-------------
1 Filed herewith
2 Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-90866)
3 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1995
4 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 3, 1996
5 Filed as an exhibit to the Company's Registration Statement on Form S-8
(No. 333-39159)
6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1997
7 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 5, 1998
8 Filed as an exhibit to the Company's Current Report on Form 10-K for the
period ended December 31, 1998
(b) Financial Statement Schedules.
Schedule II--Valuation Accounts and Reserves
II-3
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a twenty percent
(20%) change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) 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 provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
William E. Kassling and Robert J. Brooks and each of them, severally, as his
attorney-in-fact and Agent, with full power of substitution and resubstitution,
in his name and on his behalf, to sign in any and all capacities this
Registration Statement and any and all amendments (including post-effective
amendments) and exhibits to this Registration Statement, any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b) under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) and exhibits thereto, and any and all
applications and other documents relating thereto, with the Securities and
Exchange Commission, with full power and authority to perform and do any and
all acts and things whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection with any or all of
the above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Westinghouse Air
Brake Company has duly caused this registration statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, on April
26, 1999.
Westinghouse Air Brake Company
/s/ William E. Kassling
By: _________________________________
William E. Kassling,
Director, Chairman of the Board
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-4 has been signed by the following persons in
the capacities and on the dates indicated.
/s/ William E. Kassling
By: _________________________________
William E. Kassling,
Director, Chairman of the Board
and Chief Executive Officer
Date: April 26, 1999
By: _________________________________
Emilio A. Fernandez,
Director and Vice Chairman
Date: April 26, 1999
/s/ Gregory T.H. Davies
By: _________________________________
Gregory T.H. Davies
President, Chief Operating
Officer and Director
Date: April 26, 1999
/s/ Robert J. Brooks
By: _________________________________
Robert J. Brooks
Director, Chief Financial Officer
and Chief Accounting Officer
Date: April 26, 1999
II-5
/s/ Kim G. Davis
By: _________________________________
Kim G. Davis
Director
Date: April 26, 1999
By: _________________________________
James C. Huntington, Jr.
Director
Date: April 26, 1999
/s/ James P. Kelley
By: _________________________________
James P. Kelley
Director
Date: April 26, 1999
By: _________________________________
James V. Napier
Director
Date: April 26, 1999
II-6
EXHIBIT INDEX
Filing
Exhibits Method
-------- ------
3.1 Restated Certificate of Incorporation of the Company dated
January 30, 1995, as amended March 30, 1995 2
3.2 Amended and Restated By-Laws of the Company, effective March
31, 1997 5
4.1 Form of Indenture between the Company and The Bank of New York
with respect to the public offering of $100,000,000 of 9 3/8%
Senior Notes due 2005 2
4.2 Form of Note (included in Exhibit 4.1) 2
4.3 First Supplemental Indenture dated as of March 21, 1997 between
the Company and The Bank of New York 6
4.4 Indenture dated as of January 12, 1999 by and between the
Company and The Bank of New York with respect to the private
offering of $75,000,000 of 9 3/8% Senior Notes due 2005, Series
B 8
4.5 Form of Note (included in Exhibit 4.4) 8
5.1 Opinion of Reed Smith Shaw & McClay LLP as to the Legality of
the Notes 1
9 Second Amended WABCO Voting Trust/Disposition Agreement dated
as of December 13, 1995 among the Management Investors
(Schedules and Exhibits omitted) 3
10.1 Westinghouse Air Brake Company Employee Stock Ownership Plan
and Trust, effective January 31, 1995 2
10.2 ESOP Loan Agreement dated January 31, 1995 between Westinghouse
Air Brake Company Employee Stock Ownership Trust ("ESOT") and
the Company (Exhibits omitted) 2
10.3 Employee Stock Ownership Trust Agreement dated January 31, 1995
between the Company and U.S. Trust Company of California, N.A. 2
10.4 Pledge Agreement dated January 31, 1995 between ESOT and the
Company 2
10.5 Credit Agreement dated as of June 30, 1998, and Amended and
Restated as of October 2, 1998 among the Company, various
financial institutions, The Chase Manhattan Bank, Chase
Manhattan Bank Delaware, and The Bank of New York (Schedules
and Exhibits omitted) 8
10.6 Amended and Restated Stockholders Agreement dated as of March
5, 1997 among the RAC Voting Trust ("Voting Trust"), Vestar
Equity Partners, L.P. ("Vestar Equity"), Charlesbank Capital
Partners f/k/a Harvard Private Capital Holdings, Inc.
("Charlesbank"), American Industrial Partners Capital Fund II,
L.P. ("AIP") and the Company 6
10.7 Common Stock Registration Rights Agreement dated as of January
31, 1995 among the Company, Scandinavian Incentive Holding B.V.
("SIH"), Voting Trust, Vestar Capital, Pulse Electronics, Inc.,
Pulse Embedded Computer Systems, Inc., the Pulse Shareholders
and ESOT (Schedules and Exhibits omitted) 2
10.8 Indemnification Agreement dated January 31, 1995 between the
Company and the Voting Trust trustees 2
10.9 Agreement of Sale and Purchase of the North American Operations
of the Railway Products Group, an operating division of
American Standard Inc., dated as of 1990 between Rail
Acquisition Corp. and American Standard Inc. (only provisions
on indemnification are reproduced) 2
10.10 Letter Agreement (undated) between the Company and American
Standard Inc. on environmental costs and sharing 2
10.11 Purchase Agreement dated as of June 17, 1992 among the Company,
Schuller International, Inc., Manville Corporation and European
Overseas Corporation (only provisions on indemnification are
reproduced) 2
10.12 Asset Purchase Agreement dated as of January 23, 1995 among the
Company, Pulse Acquisition Corporation, Pulse Electronics,
Inc., Pulse Embedded Computer Systems, Inc. and the Pulse
Shareholders (Schedules and Exhibits omitted) 2
Filing
Exhibits Method
-------- ------
10.13 License Agreement dated as of December 31, 1993 between SAB
WABCO Holdings B.V. and the Company 2
10.14 Letter Agreement dated as of January 19, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.15 Westinghouse Air Brake Company 1995 Stock Incentive Plan, as
amended 8
10.16 Westinghouse Air Brake Company 1995 Non-Employee Directors' Fee
and Stock Option Plan 8
10.17 Form of Employment Agreement between William E. Kassling and
the Company 2
10.18 Letter Agreement dated as of January 1, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.19 Form of Indemnification Agreement between the Company and
Authorized Representatives 2
10.20 Share Purchase Agreement between Futuris Corporation Limited
and the Company (Exhibits omitted) 2
10.21 Purchase Agreement dated as of September 19, 1996 by and among
Mark IV Industries, Inc., Mark IV PLC, and W&P Holding Corp.
(Exhibits and Schedules omitted) (Originally filed as Exhibit
2.01) 4
10.22 Purchase Agreement dated as of September 19,1996 by and among
Mark IV Industries Limited and Westinghouse Railway Holdings
(Canada) Inc. (Exhibits and Schedules omitted) (Originally
filed as Exhibit 2.02) 4
10.23 Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of March 5, 1997 among the Voting Trust, Vestar
Equity, Charlesbank, AIP and the Company 6
10.24 Common Stock Registration Rights Agreement dated as of March 5,
1997 among the Company, Charlesbank, AIP and the Voting Trust 6
10.25 1998 Employee Stock Purchase Plan 8
10.26 Sale Agreement dated as of August 7, 1998 by and between
Rockwell Collins, Inc. and the Company (Schedules and Exhibits
omitted) (Originally filed as Exhibit 2.01) 8
10.27 Amendment No. 1 dated as of October 5, 1998 to Sale Agreement
dated as of August 7, 1998 by and between Rockwell Collins,
Inc. and the Company (Originally filed as Exhibit 2.02) 8
21 List of subsidiaries of the Company 8
23.1 Consent of Arthur Andersen LLP 1
23.2 Consent of Reed Smith Shaw & McClay LLP (included in the
opinion filed as Exhibit 5.1) 1
24 Powers of Attorney (filed herewith as part of signature pages) 1
27 Financial Data Schedule 8
99 Annual Report on Form 11-K for the year ended December 31, 1998
of the Westinghouse Air Brake Company Employee Stock Ownership
Plan and Trust 8
99.1 Form of Letter of Transmittal 1
99.2 Form of Notice of Guaranteed Delivery 1
99.3 Form of Exchange Agreement between the Company and the Exchange
Agent 1
Filing Method
-------------
1 Filed herewith
2 Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-90866)
3 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1995
4 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 3, 1996
5 Filed as an exhibit to the Company's Registration Statement on Form S-8
(No. 333-39159)
6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1997
7 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 5, 1998
8 Filed as an exhibit to the Company's Current Report on Form 10-K for the
period ended December 31, 1998
EXHIBIT 5.1
[Letterhead of
REED SMITH SHAW & McCLAY LLP]
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219-1886
Phone: 412-288-3131
Fax: 412-288-3063
April 26, 1999
Westinghouse Air Brake Company
1001 Air Brake Company
Wilmerding, PA 15148
Ladies and Gentlemen:
We are counsel for Westinghouse Air Brake Company, a Delaware corporation,
(the "Company") in connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the issuance by the Company of $75,000,000
aggregate principal amount of its 9 3/8% Series B2 Senior Subordinated Notes due
2005 (the "Exchange Notes"). The Exchange Notes are to be offered by the Company
in exchange (the "Exchange") for $75,000,000 aggregate principal amount of its
outstanding 9 3/8% Series B Senior Subordinated Notes due 2005 (the "Notes").
The Notes have been, and the Exchange Notes will be, issued under an Indenture
dated as of January 12, 1999 (the "Indenture") between the Company and the Bank
of New York, as trustee.
We have examined the Registration Statement and the Indenture which has
been filed by reference with the Commission as an Exhibit to the Registration
Statement. In addition, we have examined, and have relied as to matters of fact
upon, the originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such other and
further investigations, as we have deemed relevant and necessary as a basis for
the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, assuming the Indenture has been duly authorized and validly
executed and delivered by the Trustee, when (i) the Indenture has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and (ii) the Exchange Notes have been duly executed,
authenticated, issued and delivered in accordance with the provisions of the
Indenture upon the Exchange, we are of the opinion that the Exchange Notes will
constitute valid and legally
Harrisburg, PA McLean, VA Newwark, NJ New York, NY Philadelphia, PA Princeton, NJ Washington, DC
REED SMITH SHAW & McCLAY LLP
Westinghouse Air Brake Company -2- April 26, 1999
binding obligations of the Company, enforceable against the Company in
accordance with their terms.
Our opinion set forth in the preceding sentence is subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
We are members of the Bar of the Commonwealth of Pennsylvania and we do not
express any opinion herein concerning any law other than the law of the
Commonwealth of Pennsylvania.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Reed Smith Shaw & McClay LLP
REED SMITH SHAW & McCLAY LLP
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 17, 1999
included in Westinghouse Air Brake Company's Form 10-K for the year ended
December 31, 1998 and to all references to our Firm in this registration
statement.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
April 26, 1999
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
9 3/8% SENIOR SUBORDINATED NOTES
DUE 2005
OF
WESTINGHOUSE AIR BRAKE COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[ ], 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED BY WESTINGHOUSE AIR
BRAKE COMPANY
EXCHANGE AGENT
THE BANK OF NEW YORK
By Registered or Facsimile Transmission By Hand/Overnight
Certified Mail: Number: Delivery:
The Bank of New York Attn.: Nathalie Simon The Bank of New York
101 Barclay Street, Reorganization Section 101 Barclay Street
Floor 7E (212) 815-6339 Corporate Trust Services
New York, New York Window
10286 Ground Level
Attn.: Nathalie Simon New York, New York 10286
Reorganization Section Attn.: Nathalie Simon
Reorganization Section
(For Eligible Institutions Only)
Confirm by Telephone:
(212) 815-5788
For Information Call:
(212) 815-5788
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated [ ], 1999
(the "Prospectus") of Westinghouse Air Brake Company (the "Company"), and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe
the Company's offer (the "Exchange Offer") to exchange $1,000 in principal
amount of its new 9 3/8% Series B2 Senior Notes due 2005 (the "Exchange Notes")
for each $1,000 in principal amount of outstanding 9 3/8% Series B Senior Notes
due 2005 (the "Old Notes"). The terms of the Exchange Notes are identical in
all material respects (including principal amount, interest rate and maturity)
to the terms of the Old Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are freely transferable by
holders thereof (except as provided herein or in the Prospectus) and are not
subject to any covenant regarding registration under the Securities Act of
1933, as amended (the "Securities Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
1
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
AGGREGATE
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY OLD NOTES* TENDERED**
Total
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes. See
instruction 2.
This Letter of Transmittal is to be used either if certificates representing
Old Notes are to be forwarded herewith or if delivery of Old Notes is to be
made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company, pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. Delivery
of documents to the book-entry transfer facility does not constitute delivery
to the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent
on or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Old Notes."
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
_______________________________________________
[_] The Depository Trust Company
Account Number
_______________________________________________
Transaction Code Number
_______________________________________________
2
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
_______________________________________________
Name of Eligible Institution that Guaranteed
Delivery
_______________________________________________
Date of Execution of Notice of Guaranteed
Delivery
_______________________________________________
If Delivered by Book-Entry Transfer:
Account Number
_______________________________________________
[_] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN
PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name
_______________________________________________
(Please Print)
Address
_______________________________________________
(Including Zip Code)
[_] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address
_______________________________________________
(Including Zip Code)
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name
_______________________________________________
Address
_______________________________________________
3
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were acquired
as result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may not
participate in the Exchange Offer with respect to Old Notes acquired other than
as a result of market-making activities or other trading activities. Any holder
who is an "affiliate" of the Company or who has an arrangement or understanding
with respect to the distribution of the Exchange Notes to be acquired pursuant
to the Exchange Offer, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act must comply with the registration
and prospectus delivery requirements under the Securities Act.
4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of the Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered herewith, the undersigned
hereby exchanges, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to such Old Notes. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company, in connection with the
Exchange Offer) to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by the book-entry transfer facility. The undersigned further agrees
that acceptance of any and all validly tendered Old Notes by the Company and
the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement (as defined in the Prospectus) and that the Company shall have
no further obligations or liabilities thereunder except as provided in the
first paragraph of Section 2 of said agreement.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these
conditions (which may be waived, in whole or in part, by the Company), as more
particularly set forth in the Prospectus, the Company may not be required to
exchange any of the Old Notes tendered hereby and, in such event, the Old Notes
not exchanged will be returned to the undersigned at the address shown above.
In addition, the Company may amend the Exchange Offer at any time prior to the
Expiration Date if any of the conditions set forth under "The Exchange Offer--
Certain Conditions to the Exchange Offer" occur.
By tendering, each holder of Old Notes represents that the Exchange Notes
acquired in the exchange will be obtained in the ordinary course of such
holder's business, that such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes, that such holder is not
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and that such holder is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. Any holder of Old Notes using
the Exchange Offer to participate in a distribution of the Exchange Notes (i)
cannot rely on the position of the staff of the Securities and Exchange
Commission (the "Commission") enunciated in its interpretive letter with
respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar letters and (ii) must comply with the registration and prospectus
requirements of the Securities Act in connection with a secondary resale
transaction.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes, however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may not
participate in the Exchange Offer with respect to Old Notes acquired other than
as a result of market-making activities or other trading activities.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal
5
representatives, successors and assigns of the undersigned. Tendered Old Notes
may be withdrawn at any time prior to the Expiration Date in accordance with
the terms of this Letter of Transmittal. See Instruction 2.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, and registered in
the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
TENDER HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Holder(s)
Dated ___________________ Area Code and Telephone Number ____________________
(MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR OLD NOTES. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR,
ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER
PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE
FULL TITLE OF SUCH PERSON.) SEE INSTRUCTION 3.
Name(s)
________________________________________________________________________________
(Please Print)
Capacity (full title)
________________________________________________________________________________
Address
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.
________________________________________________________________________________
Taxpayer Identification No
________________________________________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature
________________________________________________________________________________
Name
________________________________________________________________________________
Address
________________________________________________________________________________
Name of Firm
________________________________________________________________________________
Area Code and Telephone No.
________________________________________________________________________________
Dated
________________________________________________________________________________
6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
A holder of Old Notes may tender the same by (i) properly completing and
signing this Letter of Transmittal or a facsimile hereof (all references in the
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other document required by this Letter of Transmittal, to the Exchange
Agent at its address set forth above on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT
AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY
MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO
PERMIT TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT
TO THE COMPANY.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a "book-
entry transfer facility") whose name appears on a security listing as the owner
of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended. If the Exchange Notes and/or Old Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing
on the note register for the Old Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes 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 the Exchange Agent has received on
or prior to the Expiration Date, a letter or facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier) from an Eligible Institution setting forth the name and address of the
7
tendering holder, the names in which the Old Notes are registered and, if
possible, the certificate numbers of the Old Notes to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date, the Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of the
notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter or facsimile transmission to similar effect (as provided
above) from an Eligible Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old 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 appear on the Old Notes.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance
of the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but
not tendered will be sent to such holder as soon as practicable after the
Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise clearly indicated.
For a withdrawal to be effective, a written notice of withdrawal sent by
facsimile transmission (receipt confirmed by telephone) or letter must be
received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Old Notes to be withdrawn, (iv) include a statement that such holder
is withdrawing his election to have such Old Notes exchanged, (v) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (vi) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for book-
entry transfer, 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 Old Notes or otherwise comply with the book-entry transfer facility
procedure. All
8
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Company and such determination will be final
and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old 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
Old 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 Old Notes will be credited to an account with such book-
entry transfer facility specified by the holder) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under the caption "Procedures for Tendering Old Notes" in the
Prospectus at any time on or prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the book-
entry transfer facility whose name appears on a security listing as the owner
of the Old Notes) of Old Notes listed and tendered hereby, no endorsements of
certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holder of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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 so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of such Old Notes, for the holder of such Old Notes; or (ii) for the
account of an Eligible Institution.
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Old Notes to it or its order pursuant to the Exchange Offer.
If, however, certificates representing Exchange Notes or Old Notes
9
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be issued in the name of, any person other than the registered
holder of the Old Notes tendered, or if tendered Old Notes are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of Old
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exception therefrom is not submitted herewith the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS.
The Company reserves the right to waive in its reasonable judgment, in whole
or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated above for further
instructions.
7. SUBSTITUTE FORM W-9.
Each holder of Old Notes whose Old Notes are accepted for exchange (or other
payee) is required to provide a correct taxpayer identification number ("TIN"),
generally the holder's Social Security or federal employer identification
number, and with certain other information, on Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify that the
holder (or other payee) is not subject to backup withholding. Failure to
provide the information on the Substitute Form W-9 may subject the holder (or
other payee) to a $50 penalty imposed by the Internal Revenue Service and 31%
federal income tax backup withholding on payments made in connection with the
Exchange Notes. The box in Part 3 of the Substitute Form W-9 may be checked if
the holder (or other payee) has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future. If the box in Part 3 is
checked and a TIN is not provided by the time any payment is made in connection
with the Exchange Notes, 31% of all such payments will be withheld until a TIN
is provided.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Westinghouse Air Brake Company, 1001 Air
Brake Avenue, Wilmerding, Pennsylvania 15148, Attention: Alvaro Garcia-Tunon,
Vice President--Treasurer, telephone (412) 825-1000.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Old Notes whose Old Notes are
accepted for exchange may be subject to backup withholding unless the holder
provides Marine Midland Bank (as payor) (the
10
"Paying Agent"), through the Exchange Agent, with either (i) such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 attached
hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such holder of Old Notes is awaiting a TIN) and that (A) the holder of Old
Notes has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of a failure to report all interest
or dividends or (B) the Internal Revenue Service has notified the holder of Old
Notes that he or she is no longer subject to backup withholding; or (ii) an
adequate basis for exemption from backup withholding. If such holder of Old
Notes is an individual, the TIN is such holder's social security number. If the
Paying Agent is not provided with the correct taxpayer identification number,
the holder of Old Notes may be subject to certain penalties imposed by the
Internal Revenue Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Old Notes should indicate their
exempt status on Substitute Form W-9. In order for a foreign individual to
qualify as an exempt recipient, the holder must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Paying Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Old Notes or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Old Notes has not been issued a TIN and has applied for
a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is
checked, the holder of Old Notes or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding . Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the Paying
Agent will withhold 31% of all payments made prior to the time a properly
certified TIN is provided to the Paying Agent.
The holder of Old Notes is required to give the Paying Agent the TIN (e.g.,
social security number or employer identification number) of the record owner
of the Old Notes. If the Old Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
11
PAYOR'S NAME: THE BANK OF NEW YORK, AS PAYING AGENT
SUBSTITUTE PART I--PLEASE PROVIDE Social Security
YOUR TIN IN THE BOX AT number(s) or Employer
RIGHT AND CERTIFY BY Identification Number(s)
SIGNING AND DATING
BELOW.
PART 2--CERTIFICATION--Under penalties of perjury,
I certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting for
a number to be issued for me), and
FORM W-9 DEPARTMENT OF (2) I am not subject to backup withholding because:
THE TREASURY (a) I am exempt from backup withholding, or (b) I
INTERNAL REVENUE SERVICE have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup
withholding.
PAYOR'S REQUEST FOR CERTIFICATION INSTRUCTIONS--You must cross out item
TAXPAYER IDENTIFICATION (2) above if you have been notified by the IRS that
NUMBER ("TIN") you are currently subject to backup withholding
because of underreporting interest or dividends on
your tax return.
PART 3--Awaiting TIN [_]
Signature
Date
NOTE:
FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the time of
payment, 31% of all reportable cash payments made to me thereafter will be
withheld until I provide a taxpayer identification number.
__________________________________ _________________________________
Signature Date
12
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
9 3/8% SERIES B SENIOR NOTES
DUE 2005
IN EXCHANGE FOR NEW
9 3/8% SERIES B2 SENIOR NOTES DUE 2005
OF
WESTINGHOUSE AIR BRAKE COMPANY
Registered holders of outstanding 9 3/8% Series B Senior Notes due 2005 (the
"Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of new 9 3/8% Series B2 Senior Subordinated Notes due 2005
(the "Exchange Notes") and whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to The Bank of New York (the
"Exchange Agent") prior to the Expiration Date, may use this Notice of
Guaranteed Delivery or one substantially equivalent hereto. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) or mail to the Exchange Agent. See "The Exchange Offer--
Procedure for Tendering Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Registered or Facsimile Transmission By Hand/Overnight
Certified Mail: Number: Delivery:
The Bank of New York Attn.: Nathalie Simon The Bank of New York
101 Barclay Street, Reorganization Section 101 Barclay Street
Floor 7E (212) 815-6339 Corporate Trust Services
New York, New York Window
10286 Ground Level
Attn.: Nathalie Simon New York, New York 10286
Reorganization Section Attn.: Nathalie Simon
Reorganization Section
(For Eligible Institutions Only)
Confirm by Telephone:
(212) 815-5788
For Information Call:
(212) 815-5788
BY FACSIMILE:
(212) 571-3080
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 815-6333
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
1
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
dated [ ], 1999 of Westinghouse Air Brake Company (the "Prospectus"),
receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT
APPEARS ON THE OLD NOTES OF OLD NOTES OF OLD NOTES
NAME OF TENDERING HOLDER (PLEASE PRINT) TENDERED TENDERED
________________________ ________________________ _____________________ ________________
________________________ ________________________ _____________________ ________________
________________________ ________________________ _____________________ ________________
________________________ ________________________ _____________________ ________________
________________________ ________________________ _____________________ ________________
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth above, the certificates representing the Old Notes (or
a confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at the book-entry transfer facility), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, and any other documents required by the
Letter of Transmittal within three business days after the Expiration Date (as
defined in the Prospectus and the Letter of Transmittal).
Name of Firm: _______________________ _____________________________________
(Authorized Signature)
Address: ____________________________ Title: ______________________________
_____________________________________ Name: _______________________________
(Zip Code) (Please type or print)
Area Code and Telephone No.: ________ Date: _______________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
EXHIBIT 99.3
Date: [ ], 1999
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street--21st Floor
New York, New York 10286
Ladies and Gentlemen:
Westinghouse Air Brake Company (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange an aggregate principal amount of up to
$75,000,000 9 3/8% Series B2 Senior Notes Due 2005 (the "Exchange Notes") for a
like principal amount of the Company's issued and outstanding 9 3/8% Series B
Senior Notes Due 2005 (the "Old Notes"). The terms and conditions of the
Exchange Offer as currently contemplated are set forth in a prospectus dated
[ ], 1999 (the "Prospectus") proposed to be distributed to all record
holders of the Old Notes. Capitalized terms used but not defined herein shall
have the same meaning given to them in the Prospectus.
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or about
[ ], 1999. The Letter of Transmittal accompanying the Prospectus (or in the
case of book-entry securities, the ATOP system) is to be used by the holders of
the Old Notes to accept the Exchange Offer and contains instructions with
respect to the delivery of certificates for Old Notes tendered in connection
therewith.
The Exchange Offer shall expire at , New York City time, on [ ],
1999 or on such later date or time to which the Company may extend the Exchange
Offer (the "Expiration Date"). Subject to the terms and conditions set forth in
the Prospectus, the Company expressly reserves the right to extend the Exchange
Offer from time to time and may extend the Exchange Offer by giving oral
(confirmed in writing) or written notice to you before 9:00 A.M., New York City
time, on the business day following the previously scheduled Expiration Date.
You shall follow and act upon any further instructions in connection with the
Exchange Offer, any of which may be given to you by the Company or such other
persons as it may authorize, which are consistent with this Agreement.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified in the Prospectus under the caption "The Exchange Offer-
Conditions to the Exchange Offer."
The Company will give oral (confirmed in writing) or written notice of any
amendment, termination or nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
1
2. You will establish an account with respect to the Old Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two (2) business days after the date of the
Prospectus, and any financial institution that is a participant in the Book-
Entry Transfer Facility's systems may make book-entry delivery of Old Notes by
causing the Book-Entry Transfer Facility to transfer such Old Notes into your
account in accordance with the Book-Entry Transfer Facility's procedure for
such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Notes (or confirmations of book-entry transfer into your account at the
Book-Entry Transfer Facility) and any other documents delivered or mailed to
you by or for holders of the Old Notes to ascertain whether: (i) Letters of
Transmittal are duly executed and properly completed in accordance with
instructions set forth therein, (ii) the Old Notes have otherwise been properly
tendered or whether any stop transfer orders are in effect with respect to the
Old Notes, and (iii) any other documents submitted to you are duly executed and
properly completed. In each case where the Letter of Transmittal or any other
document has been improperly completed or executed or any of the certificates
for Old Notes are not in proper form for transfer (as required by the
instructions stated in the Letter of Transmittal) or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the President or any Executive Vice President of the
Company (such approval, if given orally, to be confirmed in writing) or any
other party designated by such an officer in writing, you are authorized to
waive any irregularities in connection with any tender of Old Notes pursuant to
the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange
Offer--Procedures for Tendering," and Old Notes shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein.
Notwithstanding the provisions of this paragraph 5, Old Notes which the
President or any Executive Vice President of the Company shall approve as
having been properly tendered shall be considered to be properly tendered (such
approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two (2) or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes, provided
that customary transfer requirements, including transfer taxes, if
applicable, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes
to the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of Transmittal)
as set forth in paragraph 10 hereof.
8. (a) Except as otherwise provided herein, delivery shall be deemed made at
the time the Old Notes (or a Book Entry Confirmation relating to such Old
Notes), the Letter(s) of Transmittal relating thereto and all other required
documents have been received by you.
2
(b) A delivery by Notice of Guaranteed Delivery shall be deemed made on
the date such Notice of Guaranteed Delivery is received by you, provided
that all other conditions, including timely compliance with the procedures
for guaranteed delivery set forth in the Prospectus, are met.
(c) Defective deliveries shall be deemed validly made at the time the
irregularities have been cured to the satisfaction of, or waived by, the
Company.
9. You shall notify the Company as promptly as practicable after the
Expiration Date of the aggregate principal amount of Old Notes received by you
along with the specific information requested with respect to each category of
Old Notes pursuant to paragraph 21 hereof.
10. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, within two days of receipt of your
notice pursuant to paragraph 9 hereof, of all Old Notes properly tendered and
you, on behalf of the Company, will exchange such Old Notes for Exchange Notes
and cause such Old Notes to be cancelled. Delivery of Exchange Notes will be
made on behalf of the Company by you at the rate of $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of the corresponding series of
Old Notes tendered promptly after notice (such notice if given orally, to be
confirmed in writing) of acceptance of said Old Notes by the Company, as set
forth above; provided, however, that in all cases, Old Notes tendered pursuant
to the Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Old Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility), a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. You shall issue Exchange
Notes only in denominations of $1,000 or any integral multiple thereof.
Delivery of Old Notes will be made on behalf of the Company by you for the
principal amount of the Old Notes not tendered, if tendered in part only, or
not exchanged promptly after notice of acceptance of Old Notes by the Company,
as set forth above.
11. You are authorized to cause to be registered in the name of, and deliver
to the transferee in accordance with such instructions, Exchange Notes if Old
Notes are surrendered to you for exchange with instructions to deliver Exchange
Notes in a name other than that of the registered holder of the Old Notes;
provided, however, that it shall be a condition of such exchange that the Old
Notes so surrendered shall be properly endorsed or accompanied by appropriate
powers of attorney or other written instruments of transfer or exchange
satisfactory to the Company, with the signatures guaranteed by an Eligible
Institution, and that the person requesting such exchange shall pay any
transfer or other taxes required by reason of the issuance of such Exchange
Notes in the name of a party other than the registered holder of the Old Notes
surrendered, or establish to you satisfaction that such tax has been paid or is
not applicable.
12. If a holder of Old Notes shall advise you that Old Notes owned by the
holder have been lost or destroyed and not replaced, you are hereby authorized,
in the absence of notice to you that such Old Notes have been acquired by a
bona fide purchaser, to deliver to such holder the Exchange Notes to which that
holder would be entitled, but only if you shall first have received (i) an
affidavit of loss of an Old Note which is in form and substance satisfactory to
the Company and the trustee under the indenture relating to the Old Note, in
their sole discretion, and (ii) such security or indemnity as may be required
by the Company or you to save and hold harmless to you, the Company, the
trustee under the indenture relating to the Old Notes and any other persons
with respect to the Old Notes alleged to have been lost or destroyed against
liability from such delivery in the absence of such Old Notes.
13. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and
the Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
14. The Company shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Old Notes tendered shall be
given (if orally, to be confirmed in writing) by the Company to you.
3
15. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender,
the occurrence of certain other events set forth in the Prospectus under the
caption "The Exchange Offer--Conditions to the Exchange Offer" or otherwise,
you shall, as soon as practicable after the expiration or termination of the
Exchange Offer, return those certificates for unaccepted Old Notes (or effect
appropriate book-entry transfer), together with any related required documents
and the Letters of Transmittal relating thereto that are in your possession,
with a letter or notice, in form satisfactory to the Company, explaining why
the Old Notes are being returned to the persons who deposited them.
16. All certificates for reissued Old Notes, unaccepted Old Notes or for
Exchange Notes shall be forwarded by first-class mail.
17. You are authorized to cooperate with and furnish information to
McDermott, Will & Emery or any of its representatives, or any other
organization (and its representatives) designated in writing to you from time
to time by the Company, in any manner reasonably requested by it in connection
with the Exchange Offer and the surrender of Old Notes thereunder.
18. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons
or to engage or utilize any person to solicit tenders.
19. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed to in writing by you and
the Company;
(b) will be regarded as making no representation and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any of the certificates or the Old Notes represented thereby deposited with
you pursuant to the Exchange Offer, and will not be required to and will
make no representation as to the validity, value or genuineness of the
Exchange Offer, except where failure to recognize such invalidity or lack
of genuineness would constitute gross negligence;
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability unless
you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter or other document
or security delivered to you and reasonably believed by you in good faith
to be genuine and to have been signed by the proper party or parties, and
you need not pass on the legal sufficiency of any signature or verify any
signature guarantee, although you are to ascertain whether each signature
or signature guarantee required to appear on the Letters of Transmittal and
any other required documents does so appear;
(e) shall not accept any defective, alternative, conditional or
contingent delivery, except as provided in the Prospectus, instructions to
the Letter of Transmittal or this Agreement;
(f) shall comply with the reasonable written instructions of the Company
if any dispute should arise between us or any other party with respect
hereto, or if you, in good faith, are in doubt as to what action should be
taken hereunder;
(g) may rely on and shall be protected in acting upon written or oral
instructions, with respect to any matter relating to your actions as
Exchange Agent specifically covered by this Agreement, or supplementing or
qualifying any such actions, from the President or any Executive Vice
President of the Company;
(h) may consult with your counsel with respect to any questions relating
to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by you hereunder in
good faith and in accordance with the advice or opinion of such counsel;
and
(i) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any Old Notes or take
any other action that may be deemed to be a solicitation of the exchange of
the Old Notes.
4
20. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish you with copies of such documents at
your request. All other requests for information relating to the Exchange Offer
shall be directed to the Company, Attention: Barry P. Hoffman, Esq.
21. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to Barry P. Hoffman, Esq., Executive Vice
President of the Company, and such other person or persons as the Company may
request, daily (and more frequently during the week immediately preceding the
Expiration Date and if otherwise requested) up to and including the Expiration
Date, as to the number of Old Notes which have been tendered pursuant to the
Exchange Offer and the items received by you pursuant to this Agreement,
separately reporting and giving cumulative totals as to items properly
received, items improperly received and items received but which have not yet
been verified to be in proper form. In addition, you will also inform, and
cooperate in making available to, the Company or any such other person or
persons upon oral request made from time to time prior to the Expiration Date
of such other information as it, he or she reasonably requests. Such
cooperation shall include, without limitation, the granting by you to the
Company and such person as the Company may request access to those persons on
your staff who are responsible for receiving tenders, in order to ensure that
at all times including immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old
Notes tendered, the aggregate principal amount of Old Notes accepted and
deliver said list to the Company.
22. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities, but in no
event less than three months. You shall dispose of unused Letters of
Transmittal and other surplus materials by returning them to the Company.
23. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to the Old Notes surrendered to you
or funds deposited with you for the payment of transfer taxes by reasons of
amounts, if any, borrowed by the Company, or any of its subsidiaries or
affiliates, pursuant to any loan or credit agreement with you or for
compensation owed to you hereunder.
24. For services rendered as Exchange Agent hereunder, you shall be entitled
to such compensation as set forth on Schedule I attached hereto. Your
compensation shall be paid and reimbursed to you by the Company promptly upon
submission of one or more invoices therefore.
25. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange
Agent, which shall be controlled by this Agreement.
26. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any claims, loss, liability,
cost or expense, including attorneys' fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by you in reliance
upon any signature, endorsement, assignment, certificate, order, request,
notice, instruction or other instrument or document reasonably believed by you
to be valid, genuine and sufficient and in accepting any tender or effecting
any transfer of Old Notes reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Notes; provided, however, that the
5
Company shall not be liable for indemnification or otherwise for any claims,
loss, liability, cost or expense to the extent arising out of your gross
negligence, willful misconduct, bad faith or breach of this Agreement. In no
case shall the Company be liable under this indemnity with respect to any claim
against you unless the Company shall be notified by you, by letter or by
facsimile confirmed by letter, of the written assertion of a claim against you
or of any other action commenced against you, promptly after you shall have
received any such written assertion or notice of commencement of action. The
Company shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Company so elects, the Company
shall assume the defense of any suit brought to enforce any such claim. In the
event that the Company shall assume the defense of any such suit, the Company
shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you so long as the Company shall retain counsel
reasonably satisfactory to you to defend such suit, and so long as you have not
determined, in your reasonable judgment, that a conflict of interest exists
between you and the Company. You shall not enter into a settlement or other
compromise with respect to any fully indemnified loss, liability, cost or
expense without the prior written consent of the Company. If you shall obtain a
repayment of any loss, liability, cost or expense paid by the Company pursuant
hereto, you shall promptly pay to the Company the amount of such repayment,
together with the amount of any interest received by you on account of such
repayment.
27. You shall comply with all requirements under the tax laws of the United
States, including those relating to missing Tax Identification Numbers and
obtaining and retaining substitute forms W-9, and shall file and mail any
appropriate reports which you are required to file pursuant to the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
with the Internal Revenue Service. The Company understands that you are
required to deduct 31% on payments to holders who have not supplied their
correct Taxpayer Identification Number or required certification. You shall
remit such funds to the Internal Revenue Service in accordance with applicable
regulations and remit to each tendering holder of Old Notes any requisite
federal income tax information return or other similar document.
28. You shall deliver or cause to be delivered, in a timely manner, to each
governmental authority to which any transfer taxes are payable in respect of
the exchange of Old Notes, your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Notes and, where
appropriate, advise the holders of any such taxes for which they may be liable
and obtain payment from such holders prior to delivery of any Exchange Notes;
provided, however, that you shall take all steps reasonably necessary to secure
any rebate or refund allowable to connection with such transfer taxes for the
account of the Company and that you shall reimburse the Company for amounts
refunded to you in respect of your payment of any such transfer taxes, at such
time as such refund is received by you.
29. THIS AGREEMENT AND YOUR APPOINTMENT AS EXCHANGE AGENT HEREUNDER SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
AND WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. This Agreement shall inure
to the benefit of, and the obligations created hereby shall be binding upon,
the successors and assigns of each of the parties hereto.
30. This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
31. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
32. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
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33. Unless otherwise provided herein, all notices, requests and
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
Facsimile:
Attention:Vice President
Investor Relations
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile:(212) 815-5915
Attention:Corporate Trust Trustee
Administration
34. Unless terminated earlier by the parties hereto, this Agreement shall
terminate ninety (90) days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 24, 26 and 28 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Company any certificates for securities, funds or property then held by
you as Exchange Agent under this Agreement.
35. This Agreement shall be binding and effective as of the date hereof.
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Westinghouse Air Brake Company
By: _________________________________
Name:
Title:
Accepted as of the date first above written:
The Bank of New York, as Exchange Agent
By: _________________________________
Name:
Title:
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SCHEDULE I
FEES
Basic Exchange Agent Fee.................................................. 5,000
Extension of Exchange Offer Fee........................................... 500
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