AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
ZMP, INC.
ADAMS RITE AEROSPACE, INC.
(Exact name of each of the co-registrants as specified in its respective
charter)
DELAWARE 3728 13-3733378
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification
Code Number)
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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 any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / /
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 statement number of the earlier effective registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NEW NOTES OFFERING PRICE(1) FEE(1)(2)
10 3/8% Senior Subordinated Notes due 2008(3)..... $125,000,000 100% $125,000,000 $34,750
Guarantees of the 10 3/8 Senior Subordinated Notes
due 2008(4)..................................... N/A N/A N/A N/A
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(1) The registration fee has been calculated pursuant to Rule 457(a), Rule 457(f)(2) and Rule 457(n) under the Securities Act of 1933, as amended. The Proposed Maximum Aggregate Offering Price is estimated solely for the purpose of calculating the registration fee.
(2) Paid with the initial filing of the Registration Statement.
(3) The 10 3/8% Senior Subordinated Notes due 2008 will be the obligations of TransDigm Inc.
(4) Each of TransDigm Holding Company, Marathon Power Technologies Company, ZMP, Inc. and Adams Rite Aerospace, Inc. will guarantee on an unconditional basis the obligations of TransDigm Inc. under the 10 3/8% Senior Subordinated Note due 2008. Pursuant to Rule 457(n), no additional registration fee is being paid in respect of the guarantees. The guarantees are not traded separately.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 23, 1999
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($125,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
TRANSDIGM INC.
We are offering to exchange all of our outstanding 10 3/8% senior subordinated notes ("Old Notes") for our registered 10 3/8% senior subordinated notes ("New Notes" and, together with the Old Notes, the "Notes"). The terms of the New Notes are identical to the terms of the Old Notes except that the New Notes are registered under the Securities Act of 1933 and, therefore, are freely transferable.
*PLEASE CONSIDER THE FOLLOWING:
- You should carefully review the Risk Factors beginning on page 11 of this prospectus.
- Our offer to exchange Old Notes for New Notes will be open until 5:00 p.m., New York City time, on , 1999, unless we extend the offer.
- You should also carefully review the procedures for tendering the Old Notes beginning on page 21 of this prospectus.
- If you fail to tender your Old Notes, you will continue to hold unregistered securities and your ability to transfer them could be adversely affected.
- No public market currently exists for the Notes. We do not intend to list the New Notes on any securities exchange and, therefore, no active public market is anticipated.
INFORMATION ABOUT THE NOTES:
- The Notes will mature on December 1, 2008.
- We will pay interest on the Notes semi-annually on June 1 and April 1 of each year beginning June 1, 1999 at the rate of 10 3/8% per annum.
- We may redeem the Notes on or after December 1, 2003 at the rates set forth on page 75 of this prospectus.
- We also have the option until December 1, 2001, to redeem up to 35% of the original aggregate principal amount of the Notes with the net proceeds of certain types of equity offerings.
- The Notes are unsecured obligations and are subordinated to our existing and future senior debt.
- The Notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by our domestic subsidiaries and our parent holding company.
- If we undergo a change of control or sell some of our assets, we may be required to offer to purchase Notes from you.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION........................................................................ ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................................................. ii
PROSPECTUS SUMMARY......................................................................................... 1
RISK FACTORS............................................................................................... 11
TRANSACTIONS............................................................................................... 20
THE EXCHANGE OFFER......................................................................................... 21
USE OF PROCEEDS............................................................................................ 28
CAPITALIZATION............................................................................................. 28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................................................... 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................ 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 42
BUSINESS................................................................................................... 52
MANAGEMENT................................................................................................. 63
PRINCIPAL STOCKHOLDERS..................................................................................... 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 71
DESCRIPTION OF OTHER INDEBTEDNESS.......................................................................... 72
DESCRIPTION OF THE NEW NOTES............................................................................... 74
REGISTRATION RIGHTS........................................................................................ 111
BOOK-ENTRY; DELIVERY AND FORM.............................................................................. 113
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................... 115
PLAN OF DISTRIBUTION....................................................................................... 116
EXPERTS.................................................................................................... 116
LEGAL MATTERS.............................................................................................. 116
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the Registration Statement of which this prospectus is a part, we will file annual and quarterly and other information with the Securities and Exchange Commission (the "Commission"). You may read and copy any reports, statements and other information we file at the Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the public reference rooms. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the Commission at http://www.sec.gov.
We, together with our domestic subsidiaries and our parent holding company (the "Guarantors"), have filed a Registration Statement on Form S-4 to register with the Commission the New Notes to be issued in exchange for the Old Notes. This prospectus is part of that Registration Statement. As allowed by the Commission's rules, this prospectus does not contain all of the information you can find in the Registration Statement or the exhibits to the Registration Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED, YOU MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS DATE.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements about our financial condition, results of operations and business. You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates," or similar expressions used in this prospectus or incorporated herein.
This prospectus includes forward looking statements including, in particular, the statements about our plans, strategies and prospects under the headings "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward looking statements we make in this prospectus are set forth below under the caption "Risk Factors" and elsewhere in this prospectus. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by those cautionary statements.
You are cautioned not to place undue reliance on such statements, which speak only as of the date of this prospectus or, in the case of documents incorporated by reference, the date of such document.
We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this prospectus. Additionally, we don't undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained or incorporated by reference to this prospectus.
PROSPECTUS SUMMARY
IN THIS PROSPECTUS, "TRANSDIGM" REFERS TO TRANSDIGM INC., THE ISSUER OF THE NOTES, AND ITS SUBSIDIARIES. THE TERM "HOLDINGS" REFERS TO THE PARENT HOLDING COMPANY OF TRANSDIGM, WHICH HAS NO ASSETS OTHER THAN TRANSDIGM CAPITAL STOCK. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT TRANSDIGM AND THIS EXCHANGE OFFER. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO.
TRANSDIGM INC.
8233 Imperial Drive
Waco, Texas 76712
(254) 776-0650
We are a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. We sell our products to commercial airlines, such as United Airlines and Continental Airlines, large commercial transport and regional and business aircraft original equipment manufacturers, such as Boeing, Bombardier and Cessna, and various agencies of the United States government. We compete in niche individual aircraft component markets that we estimate range in size from $10 million to $100 million in annual revenues. For fiscal 1998 on a pro forma basis after giving effect to the offering of the Old Notes, the recapitalization of Holdings, Odyssey's equity investment in Holdings, the issuance of Holdings' pay-in-kind notes, the acquisition of ZMP, Inc. and the related borrowings under the new credit facility as if they had occurred on October 1, 1997, we would have generated net sales, operating income and EBITDA, As Defined, of $145.0 million, $39.3 million and $49.0 million, respectively. For the thirteen weeks ended January 1, 1999 on a pro forma basis as if those transactions had occurred on October 1, 1998, we would have generated net sales, operating income and EBITDA, As Defined, of $37.9 million, $10.3 million and $12.8 million, respectively.
Our business is comprised of four business units: (1) AdelWiggins Group, (2) AeroControlex Group, (3) Marathon Power Technologies Company, and (4) Adams Rite Aerospace, Inc., each of which has a long history in the aircraft components industry. AdelWiggins manufactures an extensive line of fuel and hydraulic system connectors and specialized clamps, heaters and refueling systems. AeroControlex manufactures customized fuel pumps, compressors, valves, couplings and mechanical and electromechanical controls. Marathon manufactures nickel cadmium batteries and static inverters. Adams Rite Aerospace manufactures mechanical hardware, fluid controls, lavatory hardware, electromechanical controls and oxygen systems related products. TransDigm Inc. was formed in 1993 through a management-led buyout of the Aerospace Components Group of IMO Industries Inc. In addition, Marathon and ZMP, Inc., the corporate parent of Adams Rite Aerospace, were acquired in August 1997 and April 1999, respectively, as a strategic complement to the Adelwiggins and AeroControlex businesses.
BUSINESS STRATEGY
Key elements of our strategy are:
- PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. We will continue to focus on marketing and manufacturing highly engineered products to customers that place a premium on our capabilities.
- GENERATE NEW BUSINESS INITIATIVES. We intend to continue to aggressively pursue growth opportunities through our new business initiatives, particularly in the aftermarket.
- REALIZE PRODUCTIVITY SAVINGS. We will continue to focus on improving our operating margins through manufacturing improvements and increases in employee productivity.
- PURSUE STRATEGIC ACQUISITIONS. We intend to aggressively pursue acquisitions that we believe will allow us to enhance value, reduce costs and develop new business.
RECENT DEVELOPMENTS
At the same time as the offering of the Old Notes by TransDigm, Holdings consummated a recapitalization. The former equity holders of Holdings received a payment in the recapitalization of $330.0 million of which $279.7 million was paid in cash, $20.0 million was paid in the form of Holdings' pay-in-kind notes and Holdings' common stock and approximately $30.3 million was retained by such equity holders in the form of equity interest in Holdings.
As part of the recapitalization, Odyssey Investment Partners Fund, LLC and its co-investors invested $100.2 million of cash equity in Holdings. As a result of the recapitalization, Odyssey and its co-investors own approximately 73.7%, and certain continuing equity holders of Holdings own approximately 26.3%, in each case, of the outstanding shares of Holdings common stock on a fully diluted basis.
On April 23, 1999, TransDigm acquired ZMP, Inc., the corporate parent of Adams Rite Aerospace, through a merger. The purchase price for the acquisition was $41 million, subject to post-closing purchase price adjustments. The acquisition was funded entirely through additional borrowings under the new credit facility. As a result of the acquisition, ZMP and Adams Rite Aerospace became wholly-owned subsidiaries of TransDigm.
ODYSSEY INVESTMENT PARTNERS FUND, LLC
As a result of the recapitalization, TransDigm is controlled by Odyssey, a private equity fund engaged in making investments in established, middle market companies. Although Odyssey was formed in 1997, its principals collectively have over 70 years of private equity experience.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer.................. $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $125.0 million
aggregate principal amount are outstanding.
Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued
to certain third parties unrelated to us, we,
together with Holdings, Marathon, ZMP and Adams Rite
Aerospace (together, the "Guarantors"), believe that
New Notes issued pursuant to the exchange offer in
exchange for Old Notes may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities Act, unless
you:
- are an "affiliate" of ours or the Guarantors within
the meaning of Rule 405 under the Securities Act;
- are a broker-dealer who purchased Old Notes
directly from us for resale under Rule 144A or any
other available exemption under the Securities Act;
- acquired the New Notes other than in the ordinary
course of your business; or
- have an arrangement with any person to engage in
the distribution of New Notes.
However, the Commission has not considered the
exchange offer in the context of a no-action letter
and we cannot be sure that the staff of the
Commission would make a similar determination with
respect to the exchange offer as in such other
circumstances. Furthermore, you must make the
appropriate representations in the letter of
transmittal that we are sending you with this
prospectus.
Registration Rights Agreement....... We sold the Old Notes on December 3, 1998, in a
private placement in reliance on Section 4(2) of the
Securities Act. The Old Notes were immediately resold
by the initial purchasers in reliance on Rule 144A
and Regulation S under the Securities Act. At the
same time, we entered into a registration rights
agreement with the initial purchasers requiring us to
make the exchange offer. The registration rights
agreement also requires us and the Guarantors to:
- cause the registration statement filed with respect
to the exchange offer to be declared effective by May
2, 1999; and
- consummate the exchange offer by June 6, 1999.
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See "The Exchange Offer--Purpose and Effect." If we
do not do so, the interest rate on the Old Notes will
increase initially by 0.50%.
Expiration Date..................... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999 or a later date and time if
we extend it (the "Expiration Date").
Withdrawal.......................... The tender of the Old Notes pursuant to the exchange
offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without
expense as soon as practicable after the expiration
or termination of the exchange offer.
Interest on the New Notes and the
Old Notes......................... Interest on the New Notes will accrue from the date
of the original issuance of the Old Notes or from the
date of the last payment of interest on the Old
Notes, whichever is later. No additional interest
will be paid on the Old Notes tendered and accepted
for exchange.
Conditions to the Exchange Offer.... The exchange offer is subject to customary
conditions, some of which may be waived by us. See
"The Exchange Offer-- Conditions to Exchange Offer."
Procedures for Tendering Old
Notes............................. If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal, or
a copy of the letter of transmittal, in accordance
with the instructions contained in this prospectus
and in the letter of transmittal, and mail or
otherwise deliver the letter of transmittal, or the
copy, together with the Old Notes and any other
required documentation, to the exchange agent at the
address set forth in this prospectus. If you are a
person holding the Old Notes through the Depository
Trust Company ("DTC") and wish to accept the exchange
offer, you must do so through DTC's Automated Tender
Offer Program, by which you will agree to be bound by
the letter of transmittal. By executing or agreeing
to be bound by the letter of transmittal, you will be
required to make the representations to us set forth
under "The Exchange Offer--Purpose and Effect."
Under certain circumstances specified in the
registration rights agreement, we may be required to
file a "shelf" registration statement for the Old
Notes for a continuous offering under Rule 415 under
the Securities Act. See "Registration Rights."
We will accept for exchange any and all Old Notes
which are properly tendered in the exchange offer
prior to the Expiration Date. The New Notes issued in
the exchange offer will be delivered promptly
following the Expiration
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Date. See "The Exchange Offer--Terms of the Exchange
Offer."
Exchange Agent...................... State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the exchange offer.
Federal Income Tax Considerations... We believe the exchange of Old Notes for New Notes in
the exchange offer will not constitute a sale or an
exchange for federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Effect of Not Tendering............. Old Notes that are not tendered or that are tendered
but not accepted will, following the completion of
the exchange offer, continue to be subject to their
existing transfer restrictions. We will have no
further obligation to provide for registration under
the Securities Act of such Old Notes.
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SUMMARY OF THE TERMS OF THE NEW NOTES
Securities Offered........................... $125,000,000 in aggregate principal amount of
senior subordinated notes.
Guarantees................................... Holdings, the parent holding company of
TransDigm, will fully and unconditionally
guarantee the New Notes. However, you should
not rely upon the guarantee by Holdings
because Holdings has no assets other than its
equity interest in TransDigm. In addition,
our domestic subsidiaries will fully and
unconditionally guarantee the New Notes on a
joint and several basis with Holdings.
If we create or acquire a new domestic
subsidiary, it will guarantee the New Notes
unless we designate the subsidiary as an
"unrestricted subsidiary" under the indenture
or the subsidiary does not have significant
assets.
Ranking...................................... The New Notes will be our unsecured senior
subordinated obligations and will rank junior
to our existing and future senior debt. The
guarantees by Holdings and our subsidiaries
will be subordinated to existing and future
senior debt of Holdings and our subsidiaries,
respectively. As of January 1, 1999 on a pro
forma basis after giving effect to the
acquisition of ZMP and the related borrowings
under the new credit facility as if they had
occurred on January 1, 1999, we and our
subsidiaries would have had $133.0 million of
senior debt, excluding approximately $21.0
million that we would have had available to
borrow under our New Credit Facility, and
Holdings would have had $153.2 million of
senior debt.
Optional Redemption.......................... We cannot redeem the New Notes until December
1, 2003. Thereafter we may redeem some or all
of the New Notes at the redemption prices
listed in the "Description of the New Notes"
section under the heading "Optional
Redemption," plus accrued interest.
Optional Redemption after Public Equity At any time and from time to time before
Offerings.................................. December 1, 2001, we can choose to buy back
up to 35% of the outstanding Notes with money
that we raise in certain types of equity
offerings, as long as:
- we pay 110.375% of the face amount of the
Notes, plus accrued interest;
- we buy the Notes back within 120 days of
completing such equity offering; and
- at least 65% of the aggregate principal
amount of Notes issued remains outstanding
afterwards.
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Change of Control Offer...................... If a change in control of TransDigm or
Holdings occurs, we may be required to give
holders of the New Notes the opportunity to
sell us their New Notes at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the required
price for New Notes you present to us at the
time of a change of control, because:
- we might not have enough funds at that
time; or
- the terms of our senior debt may prevent
us from paying.
Asset Sale Proceeds.......................... If we engage in asset sales, we generally
must either invest the net cash proceeds from
such sales in our business within a period of
time, repay senior debt or make an offer to
purchase a principal amount of the New Notes
equal to the excess net cash proceeds. The
purchase price of the New Notes will be 100%
of their principal amount, plus accrued
interest.
Certain Indenture Provisions................. The indenture governing the New Notes will
contain covenants limiting our and most or
all of our subsidiaries' ability to:
- incur additional debt or enter into sale
and leaseback transactions;
- pay dividends or distributions on capital
stock or repurchase capital stock;
- issue stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
- merge or consolidate with another company;
and
- transfer and sell assets.
These covenants are subject to a number of
important limitations and exceptions.
Risk Factors................................. See "Risk Factors" beginning on page 11 for a
description of certain of the risks you
should consider.
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SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma consolidated financial information of Holdings. The summary historical consolidated financial data for the fiscal years ended September 30, 1998, 1997, and 1996 have been derived from Holdings' consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The summary historical consolidated financial data as of and for the thirteen weeks ended January 1, 1999 and December 26, 1997 has been derived from Holdings' unaudited consolidated financial statements for those periods, which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position, and cash flows. The results for the thirteen weeks ended January 1, 1999 are not necessarily indicative of results that may be expected for the entire year. Separate financial information for TransDigm is not presented since the New Notes will be guaranteed by Holdings and all direct and indirect subsidiaries of TransDigm, and since Holdings has no operations or assets separate from its investment in TransDigm.
The pro forma statement of operations data and the pro forma other financial data set forth below give effect to the offering of the Old Notes, the recapitalization of Holdings, Odyssey's equity investment in Holdings, the issuance of Holdings' pay-in-kind notes, the acquisition of ZMP and the related borrowings under the new credit facility as if they had occurred at the beginning of the period. The pro forma balance sheet data set forth below give effect to the acquisition of ZMP and the related borrowings under the new credit facility as if they had occurred as of the balance sheet date. ZMP's fiscal year 1998 ended on June 26, 1998. The pro forma financial information is not necessarily indicative of either future results of operations or the results that might have occurred if the applicable transactions had been consummated on such date. There can be no assurance that assumptions used in the preparation of the pro forma financial data will prove to be correct.
The Marathon Acquisition was completed on August 8, 1997. The acquisition was accounted for as a purchase. The results of operations of Marathon are included in Holdings' consolidated historical financial statements from the date of such acquisition. The acquisition of ZMP will also be accounted for as a purchase.
You should read the following table together with the "Unaudited Pro Forma Consolidated Financial Information" and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and the Consolidated Historical Financial Statements and the notes thereto included elsewhere in this prospectus.
THIRTEEN
FISCAL YEAR ENDED SEPTEMBER 30, WEEKS ENDED UNAUDITED
UNAUDITED -------------------------- PRO FORMA
------------------------------- PRO FORMA DECEMBER 26, JANUARY 1, JANUARY 1,
1996 1997 1998 1998 1997 1999 1999
--------- --------- --------- ----------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 62,897 $ 78,159 $ 110,868 $ 145,022 $ 26,104 $ 28,194 $ 37,855
Gross profit.............................. 21,023 28,856 51,473 61,856 11,397 13,257 16,009
Selling and administrative................ 6,459 7,561 10,473 17,349 2,669 2,685 4,516
Amortization of intangibles............... 3,838 2,089 2,438 3,000 635 645 786
Research and development.................. 836 1,116 1,724 1,724 339 448 448
ZMP facility relocation................... -- -- -- 503 -- -- --
Merger expenses........................... -- -- -- -- -- 39,593 --
--------- --------- --------- ----------- ------------- ----------- -----------
Operating income (loss) (1)............... 9,890 18,090 36,838 39,280 7,754 (30,114) 10,259
Interest expense, net (2)................. 4,510 3,463 3,175 28,952 1,046 2,276 6,884
Warrant put value adjustment.............. 2,160 4,800 6,540 -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Pre-tax income (loss)..................... 3,220 9,827 27,123 10,328 6,708 (32,390) 3,375
Provision (benefit) for income taxes...... 2,045 5,193 12,986 4,000 2,590 (7,566) 1,281
--------- --------- --------- ----------- ------------- ----------- -----------
Income (loss) before extraordinary item... 1,175 4,634 14,137 6,328 4,118 (24,824) 2,094
Extraordinary item........................ -- (1,462) -- -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
Net income (loss)......................... $ 1,175 $ 3,172 $ 14,137 $ 6,328 $ 4,118 $ (24,824) $ 2,094
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities.................... $ 18,695 $ 17,468 $ 23,455 $ 11,223 $ 6,485 $ (32,735) $ 4,813
Investing activities.................... (2,494) (43,160) (4,295) (8,163) 138 (712) (1,682)
Financing activities.................... (13,475) 28,153 (5,071) (6,980) (20) 16,064 16,278
EBITDA (3)................................ 17,213 23,856 43,305 46,844 9,409 (28,515) 12,174
EBITDA, As Defined (4).................... 17,213 24,522 43,547 49,014 9,651 11,078 12,824
EBITDA, As Defined, margin................ 27.4% 31.4% 39.3% 33.8% 37.0% 39.3% 33.9%
Depreciation and amortization............. $ 7,323 $ 5,766 $ 6,467 $ 7,564 $ 1,655 $ 1,599 $ 1,915
Capital expenditures...................... 2,494 2,285 5,061 8,888 628 712 1,402
Ratio of earnings to fixed charges (5).... 1.7x 3.7x 9.0x 1.4x 7.1x -- 1.5x
Ratio of EBITDA, As Defined, to interest
expense (2)............................. 3.8x 7.1x 13.7x 1.7x 9.2x 4.9x 1.9x
Ratio of total debt to EBITDA, As
Defined................................. 1.1x 2.0x 1.0x 5.5x 5.2x 21.3x 21.7x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital........................... $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754 $ 38,344
Total assets.............................. 57,666 101,969 115,785 105,474 118,161 165,975
Long-term debt, including current
portion................................. 19,124 50,000 45,000 50,000 236,200 278,200
Total stockholders' equity (deficiency)... 19,670 22,613 36,427 26,432 (136,165) (136,165)
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(1) Operating income (loss) includes the effect of a non-cash charge of $666 in fiscal 1997 and $242 in fiscal 1998 due to, in each case, a purchase accounting adjustment to inventory associated with the acquisition of Marathon.
(2) The interest expense reported for fiscal 1996 through 1998 represents interest expense of TransDigm. Holdings had no interest expense prior to the Recapitalization. After the Recapitalization, Holdings has incurred interest expense relating to the Holdings PIK Notes and Holdings has no other interest expense. TransDigm is not an obligor or a guarantor under the Holdings PIK Notes. Pro forma interest expense and historical interest expense for the Holdings PIK Notes for the thirteen weeks ended January 1, 1999 were $600 and $200, respectively. Pro forma EBITDA, As Defined to interest expense of TransDigm, which excludes the Holdings PIK Notes, for fiscal 1998 and the thirteen weeks ended January 1, 1999 was 1.9x and 2.0x, respectively.
(3) EBITDA represents earnings before interest, taxes, depreciation, amortization, warrant put value adjustments and extraordinary items. EBITDA is presented because management believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in Holdings' industry. However, other companies in Holdings' industry may calculate EBITDA differently than Holdings does. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or an alternative to net income as indicators of Holdings' operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See Holdings' Consolidated Statements of Cash Flows included in Holdings consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
THIRTEEN WEEKS ENDED
---------------------------------------
PRO FORMA
PRO FORMA DECEMBER 26, JANUARY 1, JANUARY 1,
1996 1997 1998 1998 1997 1999 1999
--------- --------- --------- ----------- ------------- ----------- -----------
EBITDA.............................. $ 17,213 $ 23,856 $ 43,305 $ 46,844 $ 9,409 $ (28,515) $ 12,174
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
Adjustments:
Merger expenses................. -- -- -- 125 -- 39,593 --
Inventory purchase
accounting adjustments........ -- 666 242 1,542 242 -- 650
ZMP facility relocation......... -- -- -- 503 -- -- --
--------- --------- --------- ----------- ------------- ----------- -----------
EBITDA, As Defined.................. $ 17,213 $ 24,522 $ 43,547 $ 49,014 $ 9,651 $ 11,078 $ 12,824
--------- --------- --------- ----------- ------------- ----------- -----------
--------- --------- --------- ----------- ------------- ----------- -----------
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EBITDA, As Defined, is presented herein to provide additional information with respect to the ability of Holdings to satisfy its debt service, capital expenditure and working capital requirements and because certain types of covenants in TransDigm's and Holdings' borrowing arrangements are tied to similar measures. While EBITDA-based measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of debt expense and the portion (approximately 33%) of rental expense that management believes is representative of the interest component of rental expense. Earnings were insufficient to cover fixed charges by $32,390 for the thirteen weeks ended January 1, 1999.
RISK FACTORS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT OUR PLANS, STRATEGIES, AND PROSPECTS UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS." ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO TRANSDIGM, HOLDINGS OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NEW NOTES.
We have a significant amount of indebtedness. The following chart shows some of our important credit statistics and is presented as at January 1, 1999 on a pro forma basis assuming we had completed the acquisition of ZMP and the related borrowings under the new credit facility as of the date specified below:
TRANSDIGM
PRO FORMA
AT JANUARY 1, 1999
------------------
(DOLLARS IN
MILLIONS)
Total indebtedness............................................................................ $ 258.0
Stockholders' equity (deficit)................................................................ $ (116.0)
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In addition, Holdings has an additional $20.2 million of indebtedness represented by the value of the Holdings' pay-in-kind notes, all of which will be senior to Holdings' guarantee of these New Notes. As at January 1, 1999 on a pro forma basis assuming we had completed the acquisition of ZMP and the related borrowings under the new credit facility on January 1, 1999, Holdings would have had a stockholders' deficit of approximately $136.2 million. See "Unaudited Pro Forma Consolidated Financial Information." Holdings' ratio of earnings to fixed charges for the fiscal year ended September 30, 1998 and the thirteen weeks ended January 1, 1999, in each case, on a pro forma basis assuming we had completed (1) the offering of the Old Notes, (2) the recapitalization of Holdings, (3) Odyssey's equity investment in Holdings, (4) the issuance of Holdings' pay-in-kind notes, (5) the acquisition of ZMP and (6) the related borrowings under the new credit facility at the beginning of the period specified below would have been as follows:
HOLDINGS HOLDINGS
PRO FORMA PRO FORMA
FOR THE YEAR ENDED FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 30, 1998 JANUARY 1, 1999
--------------------- -------------------------------
Ratio of earnings to fixed charges............................. 1.4x 1.5x
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Our substantial indebtedness could have important consequences to you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to the New Notes;
- increase our vulnerability to general adverse economic and industry conditions;
- limit our ability to fund future working capital, capital expenditures, research and development costs and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that have less debt; and
- limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. And, failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on us.
See "Description of the New Notes" and "Description of Other Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE--DESPITE OUR CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not fully prohibit us or our subsidiaries from doing so. As at January 1, 1999 on a pro forma basis assuming we had completed the acquisition of ZMP and the related borrowings under the new credit facility on January 1, 1999, our new credit facility would have permitted additional borrowings of up to $21.0 million and all of those borrowings would have been senior to the New Notes and the guarantees of the New Notes. If new debt is added to our and the guarantors' current debt levels, the related risks that we and they now face could intensify.
See "Capitalization," "Selected Historical Consolidated Financial Data" and "Description of the New Notes" and "Description of Other Indebtedness."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including the New Notes, and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This is subject not only to our performance within our industry, but also to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and revenue growth, we believe our cash flow from operations, available cash and available borrowings under our new credit facility, will be adequate to meet our future liquidity needs for at least the next several years.
We cannot assure you, however, that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and revenue growth will be realized on schedule or at all or that future borrowings will be available to us under our new credit facility in amounts sufficient to enable us to pay our indebtedness, including the New Notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the New Notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our new credit facility and the New Notes, on commercially reasonable terms or at all.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS JUNIOR TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES OF THE NEW NOTES WILL BE JUNIOR TO ALL THE GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
The New Notes and the guarantees rank behind all of our and the guarantors' existing indebtedness, other than trade payables, and all of our and all the guarantors' future borrowings, other than trade payables, except any future indebtedness that expressly provides that it ranks equal with, or junior in right of payment to, the New Notes and the guarantees. As a result, upon any distribution to our creditors or the creditors of the guarantors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors or our or their property, the holders of our senior debt and the senior debt of the guarantors will be entitled to be paid in full in cash before any payment may be made with respect to the New Notes or the guarantees.
In addition, all payments on the New Notes and the guarantees will be blocked in the event of a payment default on senior debt and may be blocked for up to 179 of 360 consecutive days in the event of certain non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or the guarantors, holders of the New Notes will participate with trade creditors and all other holders of our subordinated indebtedness and the subordinated indebtedness of the guarantors in the assets remaining after we and the guarantors have paid all of the senior debt. However, because the indenture requires that amounts otherwise payable to holders of the New Notes in a bankruptcy or similar proceeding be paid to holders of senior debt instead, holders of the New Notes may receive less, ratably than holders of trade payables in any such proceeding. In any of these cases, we and the guarantors may not have sufficient funds to pay all of our creditors and holders of New Notes may receive less, ratably than the holders of senior debt.
Assuming we had completed the exchange offer, the acquisition of ZMP and the related borrowings under the new credit facility on January 1, 1999, the New Notes and the guarantees by our domestic subsidiary would have been subordinated to $133.0 million of senior debt under our new credit facility. In addition, the new credit facility would have provided for up to approximately $21.0 million of additional borrowings. Holdings' guarantee of the New Notes would have been subordinated to $153.2 million of senior debt consisting of the guarantee of the new credit facility and the value of the Holdings' pay-in-kind notes. We are permitted to borrow substantial additional indebtedness, including senior debt, in the future under the terms of the indenture.
LIMITED VALUE OF HOLDINGS GUARANTEE--YOU SHOULD NOT RELY ON THE GUARANTEE BY
HOLDINGS IN THE EVENT WE CANNOT MAKE PAYMENTS UPON THE NEW NOTES.
The New Notes will be guaranteed by Holdings, our parent holding company, on a senior subordinated basis. You should not rely on this guarantee because Holdings has no assets other than our capital stock. If we cannot make payments under the New Notes, Holdings probably cannot make payments either. In addition, this guarantee will be subordinated to all senior debt of Holdings, which consists of Holdings' guarantee of the borrowings under the new credit facility and the borrowings consisting of the face value of the Holdings' pay-in-kind notes, in each case, whose holders would be paid before you in the event of a liquidation.
DEPENDENCE ON MAJOR CUSTOMERS--WE RELY HEAVILY ON CERTAIN CUSTOMERS FOR MUCH
OF OUR SALES.
Our three largest customers for the fiscal year ended September 30, 1998 were Aviall, a distributor of aftermarket parts to airlines throughout the world, Boeing, which includes McDonnell Douglas and various agencies of the United States government. These customers accounted for approximately 20%, 14% and 9%, respectively, of our consolidated net sales in fiscal 1998.
Our top ten customers accounted for approximately 61% of our consolidated net sales for fiscal 1998.
The loss of any one or more of these key customers could have a material adverse effect on our business. See "Business--Customers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMER CONTRACTS--WE GENERALLY DO NOT HAVE GUARANTEED FUTURE SALES OF OUR PRODUCTS. FURTHER, WE ARE OBLIGATED UNDER FIXED PRICE CONTRACTS WITH SOME OF OUR CUSTOMERS, SO WE TAKE THE RISK FOR COST OVERRUNS.
Since we do not have long-term contracts with most of our customers, future sales of our products are not guaranteed. Even in those cases where we do, such as with Boeing and the United States government, our customers may terminate these contracts on short notice.
We also have entered into fixed-price contracts with some of our customers, where we agree to perform the work for a fixed price and, accordingly, realize all the benefit or detriment resulting from any decreased or increased costs for making these products. Sometimes we accept a fixed-price contract for a product which we have not yet produced, which increases the risks of delays or cost overruns.
We also have some contracts with customers which establish prices for certain of our components based upon the volume the customer purchases. A number of these contracts do not permit us to recover for increases in input prices, taxes or labor costs. Any such increases without increases in our prices are likely to have an adverse effect on our business and may affect our ability to make payments to you under the New Notes.
AIRCRAFT COMPONENTS INDUSTRY RISKS--OUR BUSINESS IS SENSITIVE TO THE NUMBER OF FLIGHT HOURS THAT OUR CUSTOMERS' PLANES SPEND ALOFT AND TO OUR CUSTOMERS' PROFITABILITY. THESE ITEMS ARE, IN TURN, AFFECTED BY GENERAL ECONOMIC CONDITIONS. IN ADDITION, OUR SALES TO MANUFACTURERS OF NEW LARGE AIRCRAFT ARE CYCLICAL.
We compete in the aircraft component segment of the aerospace industry. This segment is sensitive to changes in the number of miles flown by paying customers of commercial airlines ("revenue passenger miles") and, to a lesser extent, to changes in the profitability of the commercial airline industry and the size and age of the worldwide aircraft fleet.
Revenue passenger miles and airline profitability have historically been correlated with the general economic environment, although international events can also play a key role. For example, in 1991 revenue passenger miles declined as a result of increased security concerns among airline customers following the Gulf War. Although 1991 was the only year in the last ten years in which revenue passenger miles declined, any future reduction would reduce the use of commercial aircraft and, consequently, the need for spare parts and new aircraft. During periods of reduced airline profitability, some airlines may elect to delay purchases of spare parts, preferring instead to deplete existing inventories.
If demand for new aircraft and spare parts decreases, there may be a decrease in demand for certain of our products. Therefore, any future decline in revenue passenger miles, airline profitability or the size of the worldwide aircraft fleet, for any reason, could have a material adverse effect on our business. See "Business--Industry Overview."
In addition, sales to manufacturers of large commercial aircraft, which accounted for less than 20% of our annual net sales in fiscal 1998, have historically experienced periodic downturns. In the past, these sales have been affected by airline profitability, which is impacted by fuel and labor costs and price competition, and other things. Due in part to these factors, the number of large commercial aircraft delivered dropped from a peak of approximately 756 aircraft in 1991 to approximately 370 aircraft in 1995, according to a trade report.
We believe that by concentrating on products with strong aftermarket demand and on smaller regional planes, we have reduced our exposure to downturns in this sector. Prior downturns have adversely effected our net sales, gross margin and net income. These and certain other factors may cause a downturn in sales to manufacturers of large commercial aircraft in the future which may have a material adverse effect on our business.
REDUCTION IN DEFENSE SPENDING--A DECLINE IN THE U.S. DEFENSE BUDGET MAY
ADVERSELY AFFECT OUR SALES OF PARTS USED IN MILITARY AIRCRAFT.
In fiscal 1998, approximately 27.0% of our sales were related to products used in military aircraft, in each case, over half of which were spare parts provided to various governmental agencies.
In general, the United States' defense budget has been declining or stable in recent years, resulting in reduced or stable demand for new aircraft and, to a lessor extent, spare parts. The United States' defense budget may continue to decline and sales of defense related items to foreign governments may decrease. If there is a decline which reduces demand for our components, our business may be adversely affected.
GOVERNMENT REGULATION--OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE LOST OUR GOVERNMENT PERMITS OR IF FUTURE, MORE ONEROUS GOVERNMENT REGULATIONS WERE ENACTED.
In order to sell our components, our company and the components we manufacture must be certified by the FAA, the United States Department of Defense and similar agencies in foreign countries and by individual manufacturers.
If material authorizations or approvals were revoked or suspended, our business would be adversely affected. In the future, if new and more stringent government regulations are adopted or if industry oversight increases, our business may be adversely affected. See "Business--Governmental Regulation."
RISKS ASSOCIATED WITH OUR WORKFORCE--WE ARE DEPENDENT ON OUR HIGHLY TRAINED EMPLOYEES AND ANY WORK STOPPAGE OR DIFFICULTY HIRING SIMILAR EMPLOYEES WOULD ADVERSELY AFFECT OUR BUSINESS.
Because our products are complicated and very detailed, we are highly dependent on an educated and trained workforce. There is substantial competition for these kinds of personnel in the aircraft component industry. We may not be able to (1) retain our existing senior management or engineering staff, (2) fill new positions or vacancies created by expansion or turnover, or (3) attract additional qualified personnel. Although we have entered into employment agreements with certain executive officers, these agreements may not be renewed. See "Management--Employment Agreements."
At September 30, 1998, approximately 30% of our employees were unionized. Our collective bargaining agreements expire in April 2002 and November 2000. Although we believe that our relations with our employees are good, we cannot assure you that we will be able to negotiate a satisfactory renewal of these collective bargaining agreements or that our employee relations will remain stable.
Because we maintain a relatively small inventory of finished goods and operate on relatively short lead times for our products, any work shortage or shortage in skilled employees could have a material adverse effect on our business. "See Business--Employees."
RISKS ASSOCIATED WITH SUPPLIERS--OUR BUSINESS IS DEPENDENT ON THE
AVAILABILITY OF CERTAIN COMPONENTS AND RAW MATERIALS THAT WE BUY FROM SUPPLIERS.
Our business is affected by the price and availability of the raw materials and unique component parts that we use to manufacture our components. Because we maintain a relatively small inventory of raw materials and component parts, our business could be adversely affected by factors affecting our
suppliers, or by increased costs of such raw materials or components if we are unable to pass along such price increases to our customers. See "Business--Raw Materials and Patents."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF ENVIRONMENTAL LAWS, EVEN IF WE DID NOT CAUSE ANY ENVIRONMENTAL PROBLEMS. CHANGES IN ENVIRONMENTAL LAWS OR UNEXPECTED INVESTIGATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business and our facilities are subject to a number of federal, state and local laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials.
Pursuant to certain environmental laws, a current or previous owner or operator of land or persons who arrange (as defined under these statutes) for the disposal or treatment of hazardous materials may be liable for the costs of investigation, removal or remediation of hazardous materials at such property. These laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials. See "Business--Environmental Matters."
Because we own and operate a number of facilities, and because we arrange for the disposal of hazardous materials at many disposal sites, we may incur costs for investigation, removal and remediation, as well as capital costs associated with compliance with these laws. Although such environmental costs have not been material in the past and are not expected to be material in the future, changes in environmental laws or unexpected investigations and clean-up costs could have a material adverse effect on our business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND ASIAN FINANCIAL MARKETS--OUR INTERNATIONAL BUSINESS EXPOSES US TO RISKS RELATING TO INCREASED REGULATION AND POLITICAL OR ECONOMIC INSTABILITY, GLOBALLY OR WITHIN CERTAIN FOREIGN COUNTRIES.
Approximately 16%, 20% and 20% of our sales in fiscal 1998, fiscal 1997 and fiscal 1996, respectively, were made directly to foreign end-users. In addition, a portion of the products we sell to domestic distributors are resold to foreign end-users. These sales are subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices.
Foreign governments could adopt regulations or take other actions that would have an adverse impact on our business or market opportunities abroad. Furthermore, the political, cultural and economic climate outside the United States may not be favorable to our business and growth strategy.
The Asian markets are important markets for airlines and the large commercial aircraft manufacturers. For example, Boeing has developed a large backlog of aircraft sales to customers in Asia, and the current crisis in the Asian financial markets has resulted in some deferrals and cancellations of deliveries. This may result in significant cancellation of orders or additional deferral of deliveries for new aircraft or negatively impact these manufacturers. The resulting decreased demand in the aftermarket could adversely affect our business.
RISKS RELATED TO CURRENT AND POTENTIAL FUTURE ACQUISITIONS--WE INTEND TO PURSUE FUTURE ACQUISITIONS AND ARE CONSIDERING A SPECIFIC ACQUISITION WHICH, IF CONSUMMATED, WOULD SUBSTANTIALLY INCREASE THE LEVEL OF OUR INDEBTEDNESS AND MAY ADVERSELY AFFECT OUR BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW OPERATIONS.
On April 23, 1999, we acquired ZMP, Inc., the corporate parent of Adams Rite Aerospace, through a merger. The purchase price for the acquisition was $41 million, subject to post-closing purchase price adjustments. The acquisition was funded entirely through additional borrowings under the new credit facility. We intend to pursue additional acquisitions that we believe will present
opportunities to realize significant synergies, operating expense reductions or overhead cost savings and increase our market position. This acquisition strategy may require substantial capital, and we may not be able to raise the necessary funds on satisfactory terms or at all. Although we currently have no binding agreements with respect to any additional acquisitions and we cannot assure you that we will be able to reach agreement with respect to any additional acquisition, such acquisitions would likely result in the incurrence of debt and contingent liabilities and an increase in interest expense and amortization expenses related to goodwill and other intangible assets, which could have a material adverse effect upon our business.
Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services and products of the acquired companies and the diversion of management's attention from other business concerns. For all of these reasons, if any such acquisitions occur, our business could be adversely affected. In addition, if we are unable to successfully assimilate the operations, technologies, services and products of Adams Rite Aerospace with that of our other three divisions or if the assimilation of Adams Rite Aerospace materially diverts the management's attention from other business concerns, our business could be adversely affected.
COMPETITION--WE MAY BE UNABLE TO REPAY THE NEW NOTES IF WE DO NOT
SUCCESSFULLY COMPETE WITHIN OUR INDUSTRY.
We compete against a number of companies, including divisions of larger companies, some of which have significantly greater financial, technological and marketing resources than us. We also compete for a limited number of customers. We believe that our ability to compete depends on product performance, short lead-time and timely delivery, competitive pricing, responsiveness to our customers and continued certification under customer quality requirements and assurance programs. If we do not retain an advantage vis a vis our competitors in these areas, our business may be adversely affected. See "Business--Competition."
CONTROL BY ODYSSEY--WE ARE CONTROLLED BY ODYSSEY, WHOSE INTERESTS MAY NOT BE
ALIGNED WITH YOURS.
Odyssey and its co-investors indirectly own approximately 73.7% of the equity interests in our parent company, Holdings, on a fully diluted basis and, therefore, have the power, subject to certain exceptions, to control Holdings. They also control the appointment of management and the entering into of mergers, sales of substantially all assets and other extraordinary transactions. The interests of Odyssey may not in all cases be aligned with yours. See "The Transactions" and "Certain Relationships and Related Transactions."
IMPACT OF YEAR 2000 ISSUE--THE YEAR 2000 PROBLEM MAY RESULT IN DECREASED SALES FOR US IF CERTIFICATIONS WE RECEIVED FROM OUR VENDORS ARE INACCURATE OR IF OUR CUSTOMERS AND SUPPLIERS DO NOT ADEQUATELY ADDRESS THEIR YEAR 2000 CONCERNS.
We are completing a review of our information technology systems and embedded systems in order to assess our exposure to Year 2000 issues. For details of this review see "Management's Discussion and Analysis of Financial Condition and Results of Operation--Impact of Year 2000 Issue."
In the event that Year 2000 problems arise for us, or that our significant suppliers or customers, including various agencies of the United States government, do not successfully and timely achieve Year 2000 compliance, we may have to bear Year 2000 costs and expenses which could have a material adverse effect on our business.
PRODUCT LIABILITY; CLAIMS EXPOSURE--WE COULD BE ADVERSELY AFFECTED AS A RESULT OF A LAWSUIT IF ONE OF OUR COMPONENTS CAUSES AN AIRCRAFT TO CRASH AND WE ARE NOT COVERED BY OUR INSURANCE POLICIES.
Our operations expose us to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has been designed, manufactured or serviced by us. While management believes that our liability insurance is adequate to protect us from future products liability claims, if claims were to arise, such insurance coverage may not be adequate.
Additionally insurance coverage may not be able to be maintained in the future at an acceptable cost. Any such liability not covered by insurance or for which third party indemnification is not available could have a material adverse effect on our business.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding Notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of Notes or that restrictions in our new credit facility will not allow such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the indenture. See "Description of the New Notes-Change of Control."
FAILURE TO EXCHANGE OLD NOTES--IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely received by the Exchange Agent together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the Old Notes and you should carefully follow the instructions on how to tender your Old Notes. Neither we nor the Exchange Agent are required to tell you of any defects or irregularities with respect to your tender of the Old Notes. If you do not tender your Old Notes or if we do not accept your Old Notes because you did not tender your Old Notes properly, then, after we consummate the exchange offer, you may continue to hold Old Notes that are subject to the existing transfer restrictions. In addition, if you tender your Old Notes for the purpose of participating in a distribution of the New Notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes. If you are a broker-dealer that receives New Notes for your own account in exchange for Old Notes that you acquired as a result of market-making activities or any other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of such New Notes. After the exchange offer is consummated, if you continue to hold any Old Notes, you may have difficulty selling them because there will be less Old Notes outstanding. In addition, if a large amount of Old Notes are not tendered or are tendered improperly, the limited amount of New Notes that would be issued and outstanding after we consummate the exchange offer could lower the market price of such New Notes.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE NEW NOTES AND THE GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the New Notes and the guarantees could be voided, or claims in respect of the New Notes or the guarantees could be subordinated to all of our other debts or debts of any guarantor if, among other things, we or that guarantor, at the time it incurred the indebtedness evidenced by the New Notes or its guarantee:
- received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness; or
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which our or that guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, any payment by us or that guarantor pursuant to the New Notes or a guarantee could be voided and required to be returned to us or that guarantor, or to a fund for the benefit of the creditors of us or that guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, we or a guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets,
- if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or
- it could not pay its debts as they become due.
Based upon information currently available to us, we believe that the New Notes and the guarantees are being incurred for proper purposes and in good faith and that we, and each of the guarantors:
- are solvent and will continue to be solvent after giving effect to the issuance of the New Notes and the guarantees, as the case may be;
- will have enough capital for carrying on our business and the business of each of the guarantors after the issuance of the New Notes and the guarantees, as the case may be; and
- will be able to pay our debts.
NO PRIOR MARKET FOR THE NEW NOTES--YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NEW NOTES.
The New Notes are a new issue of securities with no established trading market and will not be listed on any securities exchange. The liquidity of the trading market in the New Notes, and the market price quoted for the New Notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the New Notes.
TRANSACTIONS
On April 23, 1999, TransDigm acquired ZMP, Inc., the corporate parent of Adams Rite Aerospace, Inc., under the terms of an agreement and plan of reorganization, dated March 31, 1999. The purchase price for the acquisition of ZMP was $41 million, subject to post-closing purchase price adjustments. The acquisition of ZMP and the related expenses were funded entirely through additional borrowings under the New Credit Facility.
On December 3, 1998, together with the completion of the offering of the Old Notes by TransDigm, Holdings consummated a recapitalization of Holdings (the "Recapitalization") under the terms of an agreement and plan of merger, dated August 3, 1998, as amended, between Phase II Acquisition Corp. and Holdings (the "Merger Agreement"). Concurrently with the offering of the Old Notes, TransDigm entered into a credit agreement (as amended, the "New Credit Facility") providing for a six-year $30.0 million revolving credit facility (the "Revolving Credit Facility"), $2.6 million of which was funded to consummate the Recapitalization and $8.0 million of which was funded to consummate the acquisition of ZMP, and a 6-year $62.0 million Tranche A Term Loan Facility (the "Tranche A Facility") and a 7 1/2-year $62.0 million Tranche B Term Loan Facility (the "Tranche B Facility"), in each case, $45.0 million of which was funded to consummate the Recapitalization and $17.0 million of which was funded to consummate the acquisition of ZMP. Additional borrowings under the Revolving Credit Facility are available for certain permitted acquisitions and for general corporate purposes, including working capital requirements. See "Description of Other Indebtedness--The Company--The New Credit Facility."
As part of the Recapitalization, Odyssey and its co-investors invested approximately $100.2 million of cash equity in Holdings (the "Odyssey Investment"). The equity holders of Holdings received a payment in the Recapitalization of $330.0 million of which $279.7 million was paid in cash, $20.0 million was paid in the form of Holdings' pay-in-kind notes due 2009 of Holdings (the "Holdings PIK Notes") and Holdings' common stock and $30.3 million was paid in the form of common stock and options of Holdings that was retained by the shareholders of Holdings (the "Rollover Investment"). As a result of the consummation of the Recapitalization, Odyssey and its co-investors own approximately 73.7%, and certain continuing equity holders of Holdings own approximately 26.3%, in each case, of the outstanding shares of Holdings common stock on a fully diluted basis.
The offering of the Old Notes, the Recapitalization, the Odyssey Investment, the issuance of the Holdings PIK Notes, the acquisition of ZMP and the related borrowings under the New Credit Facility are collectively referred to herein as the "Transactions."
THE EXCHANGE OFFER
PURPOSE AND EFFECT
Together with the sale by TransDigm of the Old Notes on December 3, 1998, TransDigm, Holdings and Marathon (together with Holdings, the "Initial Guarantors") entered into a registration rights agreement (the "Registration Rights Agreement"), dated December 3, 1998, with the initial purchasers, which requires that TransDigm and the Initial Guarantors file a registration statement under the Securities Act with respect to the New Notes (the "Registration Statement") and, upon the effectiveness of that Registration Statement, offer to the holders of the Old Notes the opportunity to exchange their Old Notes for a like principal amount of New Notes. The New Notes will be issued without a restrictive legend and generally may be reoffered and resold by the holder without registration under the Securities Act. The Registration Rights Agreement further provides that TransDigm must cause the Registration Statement with respect to the exchange offer to be declared effective by May 2, 1999 and consummate the exchange offer by June 6, 1999.
Except for exceptions listed below, upon the completion of the exchange offer, TransDigm's obligations with respect to the registration of the Old Notes and the New Notes will terminate. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement, of which this prospectus is a part, and this summary of the material provisions of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the complete Registration Rights Agreement. As a result of the timely filing and the effectiveness of the Registration Statement, TransDigm will not have to pay certain additional interest on the Old Notes provided in the Registration Rights Agreement. Following the completion of the exchange offer, holders of Old Notes not tendered will not have any further registration rights other than as set forth in the paragraphs below, and those Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected upon consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent to TransDigm, among other things, that:
- the New Notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the holder;
- the holder is not engaging in and does not intend to engage in a distribution of the New Notes;
- the holder does not have an arrangement or understanding with any person to participate in the distribution of the New Notes; and
- the holder is not an "affiliate," as defined under Rule 405 under the Securities Act, of TransDigm or the Guarantors.
Under certain circumstances specified in the Registration Rights Agreement, TransDigm may be required to file a "shelf" registration statement for a continuous offering pursuant to Rule 415 under the Securities Act in respect of the Old Notes. See "--Procedure for Tendering" and "Registration Rights."
Based on an interpretation by the Commission's staff set forth in no-action letters issued to third parties unrelated to TransDigm, TransDigm believes that, with the exceptions set forth below, New Notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by the holder of New Note without compliance with the registration and prospectus delivery requirements of the Securities Act, unless the holder:
- is an "affiliate" of TransDigm or the Guarantors within the meaning of Rule 405 under the Securities Act;
- is a broker-dealer who purchased Old Notes directly from TransDigm for resale under Rule 144A or any other available exemption under the Securities Act;
- acquired the New Notes other than in the ordinary course of the holder's business; or
- the holder has an arrangement with any person to engage in the distribution of New Notes.
Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes cannot rely on this interpretation by the Commission's staff and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives New 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 New Notes. See "Plan of Distribution." Broker-dealers who acquired Old Notes directly from us and not as a result of market-making activities or other trading activities may not rely on the staff's interpretations discussed above or participate in the exchange offer and must comply with the prospectus delivery requirements of the Securities Act in order to sell the Old Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, TransDigm will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1999, or such date and time to which we extend the offer. TransDigm will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the exchange offer. Holders may tender some or all of their Old Notes pursuant to the exchange offer. However, Old Notes may be tendered only in integral multiples of $1,000 in principal amount.
The New Notes will evidence the same debt as the Old Notes and will be issued under the terms of, and entitled to the benefits of, the Indenture relating to the Old Notes.
As of the date of this prospectus, Old Notes representing $125.0 million aggregate principal amount were outstanding and there was one registered holder, a nominee of DTC. This prospectus, together with the letter of transmittal, is being sent to such registered holder and to others believed to have beneficial interests in the Old Notes. TransDigm intends to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated under the Exchange Act.
TransDigm shall be deemed to have accepted validly tendered Old Notes when, as, and if TransDigm has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the New Notes from TransDigm. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth under the heading "--Conditions to the Exchange Offer" or otherwise, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder of those Old Notes as promptly as practicable after , 1999, unless the exchange offer is extended.
Holders who tender Old Notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Old Notes in the exchange offer. TransDigm will pay all charges and expenses, other than certain applicable taxes, applicable to the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on , 1999, unless TransDigm, in its sole discretion, extends the exchange offer, in which case the expiration date shall mean the latest
date and time to which the exchange offer is extended. In order to extend the exchange offer, TransDigm will notify the Exchange Agent and each registered holder of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. TransDigm reserves the right, in its sole discretion, (A) to delay accepting any Old Notes, to extend the exchange offer or, if any of the conditions set forth under "--Conditions to Exchange Offer" shall not have been satisfied, to terminate the exchange offer, by giving oral or written notice of that delay, extension or termination to the Exchange Agent, or (B) to amend the terms of the exchange offer in any manner. In the event that TransDigm makes a material or fundamental change to the terms of the exchange offer, TransDigm will file a post-effective amendment to the Registration Statement.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the exchange offer. Except as set forth under "--Book Entry Transfer," to tender in the exchange offer a holder must complete, sign, and date the letter of transmittal, or a copy of the letter of transmittal, have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal, and mail or otherwise deliver the letter of transmittal or copy to the Exchange Agent prior to the expiration date. In addition:
- certificates for the Old Notes must be received by the Exchange Agent along with the letter of transmittal prior to the expiration date;
- a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of the Old Notes, if that procedure is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") following the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the expiration date; or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required documents must be received by the Exchange Agent at the address set forth under "--Exchange Agent" prior to the expiration date.
Your tender, if not withdrawn before the expiration date will constitute an agreement between you and TransDigm in accordance with the terms and subject to the conditions set forth herein and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO TRANSDIGM. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR YOU.
Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, the owner must, prior to completing and executing the letter of transmittal and delivering the owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in the beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless Old Notes tendered pursuant thereto are tendered (A) by a registered holder who has not completed the box entitled "Special Registration Instruction" or "Special Delivery Instructions" on the letter of transmittal or (B) for the account of an Eligible Institution. If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, the guarantee must be by any eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or an Eligible Institution.
If the letter of transmittal is signed by a person other than the registered holder of any Old Notes listed in the letter of transmittal, the Old Notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as that registered holder's name appears on the Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to TransDigm of their authority to so act must be submitted with the letter of transmittal unless waived by TransDigm.
All questions as to the validity, form, eligibility, including time of receipt, acceptance, and withdrawal of tendered Old Notes will be determined by TransDigm in its sole discretion, which determination will be final and binding. TransDigm reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes TransDigm's acceptance of which would, in the opinion of counsel for TransDigm, be unlawful. TransDigm also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. TransDigm's interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as TransDigm shall determine. Although TransDigm intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither TransDigm, the Exchange Agent, nor any other person shall incur any liability for failure to give that notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following , 1999, unless the exchange offer is extended.
In addition, TransDigm reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding after the expiration date or, as set forth under "--Conditions to the exchange offer," to terminate the exchange offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions, or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer.
By tendering, you will represent to TransDigm that, among other things:
- the New Notes acquired in the exchange offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the registered holder;
- you are not engaging in and do not intend to engage in a distribution of the New Notes;
- you do not have an arrangement or understanding with any person to participate in the distribution of such New Notes; and
- you are not an "affiliate," as defined under Rule 405 of the Securities Act, of TransDigm or any of the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for exchange in the exchange offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed letter of transmittal or, with respect to the DTC and its participants, electronic instructions in which the tendering holder acknowledges its receipt of and agreement to be bound by the letter of transmittal, and all other
required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering 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 according to the book-entry transfer procedures described below, those nonexchanged Old Notes will be credited to an account maintained with that Book-Entry Transfer Facility, in each case, as promptly as practicable after the expiration or termination of the exchange offer.
Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where those 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 those New Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the exchange offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes being tendered by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with that Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the letter of transmittal or copy of the letter of transmittal, with any required signature guarantees and any other required documents, must, in any case other than as set forth in the following paragraph, be transmitted to and received by the Exchange Agent at the address set forth under "--Exchange Agent" on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of processing exchange offers through DTC. To accept the exchange offer through ATOP, participants in DTC must send electronic instructions to DTC through DTC's communication system instead of sending a signed, hard copy letter of transmittal. DTC is obligated to communicate those electronic instructions to the Exchange Agent. To tender Old Notes through ATOP, the electronic instructions sent to DTC and transmitted by DTC to the Exchange Agent must contain the character by which the participant acknowledges its receipt of and agrees to be bound by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender Old Notes and the Old Notes are not immediately available, or time will not permit that holder's Old Notes or other required documents to reach the Exchange Agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the Exchange Agent receives from that Eligible Institution a properly completed and duly executed letter of transmittal or a facsimile of duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by TransDigm, by telegram, telex, fax transmission, mail or hand delivery, setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered and stating that the tender is being made by guaranteed delivery and guaranteeing that within three New York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, will be deposited by the Eligible Institution with the Exchange Agent; and
- the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, are received by the Exchange Agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.
For a withdrawal of a tender of Old Notes to be effective, a written or, for DTC participants, electronic ATOP transmission notice of withdrawal, must be received by the Exchange Agent at its address set forth under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor");
- identify the Old Notes to be withdrawn, including the certificate number or numbers and principal amount of such Old Notes;
- 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 register the transfer of such Old Notes into the name of the person withdrawing the tender; and
- 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, eligibility and time of receipt of such notices will be determined by TransDigm, 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 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 of those Old Notes without cost to that 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 under "--Procedures for Tendering" at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, TransDigm shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the exchange offer if at any time before the acceptance of those Old Notes for exchange or the exchange of the New Notes for those Old Notes, TransDigm determines that the exchange offer violates applicable law, any applicable interpretation of the staff of the Commission or any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of TransDigm and may be asserted by TransDigm regardless of the circumstances giving rise to any such condition or may be waived by TransDigm in whole or in part at any time and from time to time in its sole discretion. The failure by TransDigm at any time to exercise any of the foregoing rights shall not be deemed a waiver of any of those rights and each of those rights shall be deemed an ongoing right which may be asserted at any time and from time to time.
In addition, TransDigm will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for those Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939. In any of those events TransDigm
is required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
All executed letters of transmittal should be directed to the Exchange Agent. State Street Bank and Trust Company has been appointed as Exchange Agent for the exchange offer. Questions, requests for assistance and requests for additional copies of this Prospectus or of the letter of transmittal should be directed to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department, Fourth Floor
Attn: Susan Levy Attn: Susan Levy
P.O. Box 778 Two International Place
Boston, MA 02102-0078 Boston, MA 02110
Reference: TransDigm Inc. Reference: TransDigm Inc.
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BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(617) 664-5290
Reference: TransDigm Inc.
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
Susan Levy
(617) 664-5314
Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service.
FEES AND EXPENSES
TransDigm will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of TransDigm. The estimated cash expenses to be incurred in connection with the exchange offer will be paid by TransDigm and will include fees and expenses of the Exchange Agent, accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection with that tender or exchange, except that holders who instruct TransDigm to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax on those Old Notes.
USE OF PROCEEDS
TransDigm will not receive any cash proceeds from the issuance of the New Notes. In consideration for issuing the New Notes as contemplated in this prospectus, TransDigm will receive in exchange Old Notes in like principal amount, which will be canceled and as such will not result in any increase in our indebtedness.
CAPITALIZATION
The following table sets forth the consolidated capitalization of TransDigm and Holdings as of January 1, 1999, on a historical basis and of Holdings as of January 1, 1999 on a pro forma basis after giving effect to the acquisition of ZMP and the related borrowings under the New Credit Facility as if they had occurred on January 1, 1999. This table should be read in conjunction with the information contained in "Unaudited Pro Forma Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as the Consolidated Historical Financial Statements and the notes thereto included elsewhere in this prospectus.
JANUARY 1, 1999
-------------------------------------
UNAUDITED
PRO FORMA
TRANSDIGM HOLDINGS HOLDINGS
------------ ---------- -----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.................................................. $ 2,103 $ 2,103 $ 2,103
------------ ---------- -----------
------------ ---------- -----------
Total debt (including current maturities):
New Credit Facility (1).................................................. $ 91,000 $ 91,000 $ 133,000
Old Notes................................................................ 125,000 125,000 125,000
Holdings PIK Notes....................................................... -- 20,200 20,200
------------ ---------- -----------
Total debt............................................................. 216,000 236,200 278,200
------------ ---------- -----------
Redeemable common stock (2)................................................ -- 800 800
Stockholders' equity (deficit):
Common stock $0.01 par value and paid-in capital......................... 24,281 100,624 100,624
Other stockholders' equity (deficit)..................................... (139,446) (236,789) (236,789)
------------ ---------- -----------
Total stockholders' equity (deficit)................................... (115,165) (136,165) (136,165)
------------ ---------- -----------
Total capitalization................................................... $ 100,835 $ 100,835 $ 142,835
------------ ---------- -----------
------------ ---------- -----------
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(1) The New Credit Facility, as amended, consists of: (A) the Revolving Credit Facility which provides for borrowings of up to $30.0 million, of which, on a pro forma basis, $9.0 million would have been drawn as of January 1, 1999 with the remainder undrawn and available for certain permitted acquisitions and for general corporate purposes, including working capital requirements; (B) the Tranche A Facility, which provides for term debt of $62.0 million; and (C) the Tranche B Facility which provides for term debt of $62.0 million. See "Description of Other Indebtedness--The Company--The New Credit Facility."
(2) The redeemable common stock represents the estimated value of Common Stock held by management stockholders which have the put rights described under the heading "Management-- Management Stockholders Agreement."
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial information of TransDigm and Holdings has been derived by the application of pro forma adjustments to Holdings' historical consolidated financial statements for the year ended September 30, 1998 and the thirteen weeks ended January 1, 1999 and as at January 1, 1999. The pro forma consolidated statements of operations give effect to each of the Transactions as if they had been consummated at the beginning of each respective period. The pro forma consolidated balance sheet gives effect to the acquisition of ZMP and the related borrowings under the New Credit Facility as if they had occurred as of the balance sheet date. The adjustments necessary to fairly present this pro forma consolidated financial information have been made based on available information and in the opinion of management are reasonable and are described in the accompanying notes. The pro forma consolidated financial information should not be considered indicative of actual results that would have been achieved had the Transactions been consummated on the respective dates indicated and do not purport to indicate results of operations for any future period. You should read the pro forma consolidated financial statements together with the "The Transactions" and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and the Consolidated Historical Financial Statements and the notes thereto, and other financial information included elsewhere in this prospectus.
As a result of the consummation of the Recapitalization, Odyssey and its co-investors acquired 73.7% of Holdings common stock on a fully diluted basis and certain continuing equity holders of Holdings retained approximately 26.3% of the common stock. Accordingly, the Recapitalization was accounted for as a recapitalization and had no impact on the historical basis of TransDigm's and Holdings' assets and liabilities. The pro forma adjustments were applied to the respective historical consolidated financial statements to reflect and account for the Recapitalization as a recapitalization.
The acquisition of ZMP has been accounted for as a purchase. The purchase price consideration of $41 million in cash and $1 million of costs associated with the acquisition was funded entirely through additional borrowings under the New Credit Facility. The purchase price has been allocated to the assets acquired and liabilities assumed of ZMP and its wholly-owned subsidiary, Adams Rite Aerospace, based on a preliminary analysis of their fair values.
One-time merger charges of approximately $39.6 million and $0.2 million ($28.8 million and $0.1 million after tax), incurred in connection with, or due to, the Recapitalization and the acquisition of ZMP, respectively, were recorded, in each case, in the first quarter of fiscal 1999, as follows:
IN THOUSANDS
-------------
Recapitalization
Compensation expense on stock options........................................ $ 19,437
Management bonuses........................................................... 6,450
Termination of financial advisory services agreement......................... 5,850
Professional fees and expenses............................................... 6,673
Write-off deferred financing charges......................................... 552
Other........................................................................ 631
-------------
39,593
Acquisition of ZMP
Professional fees and expenses............................................... 164
-------------
Total...................................................................... $ 39,757
-------------
-------------
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The unaudited pro forma consolidated statements of operations for the year ended September 30, 1998 and the thirteen weeks ended January 1, 1999 exclude those non-recurring expenses.
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.)
(DOLLARS IN THOUSANDS)
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
HOLDINGS ZMP, INC. FOR THE FOR THE TRANSDIGM FOR THE HOLDINGS
HISTORICAL HISTORICAL(1) RECAPITALIZATION(2) ACQUISITION(3) PRO FORMA RECAPITALIZATION(4) PRO FORMA
----------- ------------ ----------------- ------------- ----------- ----------------- -----------
Net sales............... $ 110,868 $ 34,154 -- -- $ 145,022 -- $ 145,022
Cost of sales........... 59,395 22,421 -- $ 1,300(a) 83,166 -- 83,166
50(b)
----------- ------------ -------- ------------- ----------- -------- -----------
Gross profit............ 51,473 11,733 -- (1,350) 61,856 -- 61,856
----------- ------------ -------- ------------- ----------- -------- -----------
Operating expenses:
Selling and 10,473 6,976 $ (100) -- 17,349 -- 17,349
administrative...... (a)
Amortization of 2,438 687 -- (125) 3,000 3,000
intangibles......... (c)
Research and 1,724 -- -- -- 1,724 1,724
development.........
ZMP facility -- 503 503 503
relocation..........
----------- ------------ -------- ------------- ----------- -------- -----------
Total operating 14,635 8,166 (100) (125) 22,576 -- 22,576
expenses..........
----------- ------------ -------- ------------- ----------- -------- -----------
Income from 36,838 3,567 100 (1,225) 39,280 -- 39,280
operations............
Interest expense - 3,175 1,496 19,382(b) 2,269(d) 26,322 $ 2,630(a) 28,952
net...................
Warrant put value 6,540 -- (6,540) -- -- -- --
adjustment............ (c)
----------- ------------ -------- ------------- ----------- -------- -----------
Income before income 27,123 2,071 (12,742) (3,494) 12,958 (2,630) 10,328
taxes.................
12,986 1,098 (7,610) (1,448) 5,026 (1,026) 4,000
Income tax provision.... (d) (e) (b)
----------- ------------ -------- ------------- ----------- -------- -----------
Net income.............. $ 14,137 $ 973 $ (5,132) $ (2,046) $ 7,932 $ (1,604) $ 6,328
----------- ------------ -------- ------------- ----------- -------- -----------
----------- ------------ -------- ------------- ----------- -------- -----------
EBITDA, As Defined(5)... $ 43,547 $ 5,367 $ 100 $ -- $ 49,014 $ -- $ 49,014
Cash flow provided by
(used in):
Operating 23,455 462 (10,489) (2,205) 11,223 -- 11,223
activities..........
Investing (4,295) (3,868) -- -- (8,163) -- (8,163)
activities..........
Financing (5,071) -- 300 (2,209) (6,980) -- (6,980)
activities..........
|
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.)
(1) The amounts in this column represent the consolidated operations of ZMP, Inc. for the year ended June 26, 1998.
(2) The amounts in this column represent the adjustments resulting from the Recapitalization that are necessary to determine TransDigm's pro forma results of operations as follows:
(a) This adjustment represents the elimination of the annual advisory fee payable to an affiliate of TransDigm's former largest stockholder.
(b) The adjustment to interest expense reflects the following (in thousands):
Interest expense on existing indebtedness to be retired in
connection with the Recapitalization..................... $ (3,358)
Interest income on cash and cash equivalents............... 450
Amortization of debt issuance costs on existing
indebtedness............................................. (267)
---------
Net interest expense....................................... (3,175)
Interest expense on New Credit Facility (at a weighted
average rate of 8.75%)................................... 8,138
Interest expense on the Notes.............................. 12,969
Amortization of debt issuance costs........................ 1,450
---------
Total adjustment........................................... $ 19,382
---------
---------
|
A 0.250% increase or decrease in the weighted average interest rate applicable to TransDigm's indebtedness outstanding under the New Credit Facility resulting from the Recapitalization would change the pro forma interest expense and net income by $232,000 and $142,000, respectively, for the year ended September 30, 1998 and $58,000 and $36,000 for the thirteen weeks ended January 1, 1999. Each $1.0 million increase or decrease in the revolving credit facility under the New Credit Facility would change the pro forma interest expense by $87,500 and $21,875, respectively, for the year ended September 30, 1998 and the thirteen weeks ended January 1, 1999, respectively.
(c) This adjustment represents the elimination of the warrant put value adjustment. The warrants were retired in connection with the Recapitalization.
(d) The tax effect of pro forma adjustments to income before income taxes is based on the estimated applicable statutory tax rates. No tax effect is recorded for the elimination of the warrant put value adjustment.
(3) The amounts in this column represent the adjustments resulting from the acquisition of ZMP that are necessary to determine TransDigm's pro forma results of operations as follows:
(a) This amount represents the inventory purchase accounting adjustment that will be charged to cost of sales as the ZMP inventory on hand at the date of the acquisition of ZMP is sold.
(b) This adjustment represents an increase in depreciation expense due to the write-up of ZMP's equipment and improvements to fair value in connection with the acquisition of ZMP.
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.) (CONTINUED)
(c) This adjustment represents the change in amortization expense resulting from the amortization of the goodwill recorded in connection with the acquisition of ZMP over 40 years using the straight-line method.
(d) The adjustment to interest expense reflects the following (in thousands):
Interest expense on existing indebtedness to be retired in
connection with the acquisition of ZMP................... $ (1,496)
Interest expense on additional indebtedness to be incurred
in connection with the acquisition of ZMP (at a weighted
average rate of 8.75%)................................... 3,675
Amortization of debt issuance costs........................ 90
---------
Total adjustment........................................... $ 2,269
---------
---------
|
A 0.250% increase or decrease in the weighted average interest rate applicable to TransDigm's indebtedness outstanding under the New Credit Facility resulting from the acquisition of ZMP would change the pro forma interest expense and net income by $105,000 and $63,000, respectively, for the year ended September 30, 1998 and $26,000 and $16,000 for the thirteen weeks ended January 1, 1999.
(e) This adjustment represents the tax effect of pro forma adjustments to income before income taxes and is based on the estimated applicable statutory tax rates.
(4) The amounts in this column represent the adjustments necessary to determine Holdings' pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK Notes, including amortization of debt issuance costs.
(b) This adjustment represents the tax effect of pro forma adjustments to income before income taxes and is based on the estimated applicable statutory tax rates.
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FISCAL YEAR ENDED JUNE 26, 1998 FOR ZMP,
INC.) (CONTINUED)
(5) EBITDA, As Defined, represents earnings before interest, taxes, depreciation and amortization, the warrant put value adjustment, the inventory purchase accounting adjustments, ZMP facility relocation costs, and merger expenses as follows (in thousands):
HOLDINGS ZMP, INC. TRANSDIGM HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
----------- ----------- ----------- -----------
Net income............................................ $ 14,137 $ 973 $ 7,932 $ 6,328
Adjustments:
Income tax provision................................ 12,986 1,098 5,026 4,000
Interest expense.................................... 3,175 1,496 26,322 28,952
Depreciation and amortization....................... 6,467 1,172 7,564 7,564
Warrant put value adjustment........................ 6,540 -- -- --
----------- ----------- ----------- -----------
EBITDA................................................ 43,305 4,739 46,844 46,844
Inventory purchase accounting adjustments:
Marathon............................................ 242 -- 242 242
ZMP, Inc............................................ -- 1,300 1,300
ZMP facility relocation............................... -- 503 503 503
ZMP merger expenses................................... -- 125 125 125
----------- ----------- ----------- -----------
EBITDA, As Defined.................................... $ 43,547 $ 5,367 $ 49,014 $ 49,014
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
|
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999
(THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR ZMP, INC.)
(DOLLARS IN THOUSANDS)
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
HOLDINGS ZMP, INC. FOR THE FOR THE TRANSDIGM FOR THE
HISTORICAL HISTORICAL(1) RECAPITALIZATION(2) ACQUISITION(3) PRO FORMA RECAPITALIZATION(4)
----------- ------------- ------------------ -------------- ----------- ------------------
Net sales................ $ 28,194 $ 9,661 -- -- $ 37,855 --
Cost of sales............ 14,937 6,247 -- $ 650(a) 21,846 --
12(b)
----------- ------ ------------------ -------------- ----------- --------
Gross profit............. 13,257 3,414 -- (662) 16,009 --
----------- ------ ------------------ -------------- ----------- --------
Operating expenses:
Selling and
administrative....... 2,685 1,851 $ (20)(a) -- 4,516 --
Amortization of
intangibles.......... 645 171 -- (30)(c) 786 --
Research and
development.......... 448 -- -- -- 448 --
Merger expenses........ 39,593 164 (39,593)(b) (164)(d) -- --
----------- ------ ------------------ -------------- ----------- --------
Total operating
expenses........... 43,371 2,186 (39,613) (194) 5,750 --
----------- ------ ------------------ -------------- ----------- --------
Income (loss) from
operations............. (30,114) 1,228 39,613 (468) 10,259 --
Interest expense--net.... 2,276 425 3,057(c) 518(e) 6,276 $ 608(a)
----------- ------ ------------------ -------------- ----------- --------
Income (loss) before
income taxes........... (32,390) 803 36,556 (986) 3,983 (608)
Income tax provision
(benefit).............. (7,566) 281 9,209(d) (406)(f) 1,518 (237)(b)
----------- ------ ------------------ -------------- ----------- --------
Net income (loss)........ $ (24,824) $ 522 $ 27,347 $ (580) $ 2,465 $ (371)
----------- ------ ------------------ -------------- ----------- --------
----------- ------ ------------------ -------------- ----------- --------
EBITDA, As Defined(5).... $ 11,078 $ 1,726 $ 20 $ -- $ 12,824 $ --
Cash flow provided by
(used in):
Operating activities... (32,735) 2,143 35,858 (453) 4,813 --
Investing activities... (712) (970) -- -- (1,682) --
Financing activities... 16,064 214 -- -- 16,278 --
HOLDINGS
PRO FORMA
-----------
Net sales................ $ 37,855
Cost of sales............ 21,846
-----------
Gross profit............. 16,009
-----------
Operating expenses:
Selling and
administrative....... 4,516
Amortization of
intangibles.......... 786
Research and
development.......... 448
Merger expenses........ --
-----------
Total operating
expenses........... 5,750
-----------
Income (loss) from
operations............. 10,259
Interest expense--net.... 6,884
-----------
Income (loss) before
income taxes........... 3,375
Income tax provision
(benefit).............. 1,281
-----------
Net income (loss)........ $ 2,094
-----------
-----------
EBITDA, As Defined(5).... $ 12,824
Cash flow provided by
(used in):
Operating activities... 4,813
Investing activities... (1,682)
Financing activities... 16,278
|
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 (THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR
ZMP, INC.)
(1) The amounts in this column represent the consolidated operations of ZMP for the thirteen-week period September 26, 1998 through December 25, 1998. A comparison of ZMP's net sales, operating income, and net income for the thirteen weeks ended December 25, 198 and the thirteen weeks ended September 25, 1998 is as follows (in thousands):
DECEMBER 25, 1998 SEPTEMBER 25, 1998
------------------- ------------------
Net sales................................................ $ 9,661 $ 10,400
Operating income......................................... 1,228 1,089
Net income............................................... 522 247
|
ZMP's statement of operations for the thirteen weeks ended September 25, 1998 have been excluded from the unaudited pro forma consolidated statement of operations for the thirteen weeks ended January 1, 1999.
(2) The amounts in this column represent the adjustments resulting from the Recapitalization necessary to determine TransDigm's pro forma results of operations.
(a) This adjustment represents the elimination of the advisory fee payable to an affiliate of TransDigm's former largest stockholder.
(b) This adjustment eliminates the non-recurring merger expenses incurred in connection with the Recapitalization.
(c) The adjustment to interest expense reflects the following (in thousands):
Interest expense on indebtedness retired in connection with the
Recapitalization................................................... $ (600)
Interest income on cash and cash equivalents......................... 131
Amortization of debt issuance costs on existing indebtedness......... (36)
Interest expense on Holdings PIK Notes............................... (200)
---------
(705)
Additional interest on New Credit Facility (at a weighted average
rate of 8.75%)..................................................... 1,356
Additional interest expense on the Notes............................. 2,161
Additional amortization of debt issuance costs....................... 245
---------
Total adjustment..................................................... $ 3,057
---------
---------
|
(d) The tax effect of pro forma adjustments to income before income taxes is based on the estimated applicable statutory tax rates and includes the tax effect of the non-recurring merger expenses described previously.
(3) The amounts in this column represent the adjustments resulting from the acquisition of ZMP that are necessary to determine TransDigm's pro forma results of operations as follows:
(a) This amount represents the inventory purchase accounting adjustment that will be charged to cost of sales as the ZMP inventory, on hand at the date of the acquisition of ZMP, is sold.
(b) This adjustment represents an increase in depreciation expense due to the write-up of ZMP's equipment and improvements to fair value in connection with the acquisition of ZMP.
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 (THIRTEEN WEEKS ENDED DECEMBER 25, 1998 FOR
ZMP, INC.) (CONTINUED)
(c) This adjustment represents the change in amortization expense resulting from the amortization of the goodwill recorded in connection with the acquisition of ZMP over 40 years using the straight-line method.
(d) This adjustment eliminates non-recurring expenses directly attributable to the sale of ZMP's common stock to TransDigm.
(e) The adjustment to interest expense reflects the following (in thousands):
Interest expense on existing indebtedness to be retired in connection
with the acquisition of ZMP......................................... $ (425)
Interest expense on additional indebtedness to be incurred in
connection with the acquisition of ZMP (at a weighted average rate
of 8.75%)........................................................... 920
Amortization of debt issuance costs................................... 23
---------
Total adjustment...................................................... $ 518
---------
---------
|
(f) This adjustment represents the tax effect of proforma adjustments to income before income taxes and is based on the estimated applicable statutory tax rates.
(4) The amounts in this column represent the adjustments necessary to determine Holdings pro forma consolidated statement of operations as follows:
(a) This adjustment represents interest expense on the Holdings PIK Notes, including amortization of debt issuance costs.
(b) The tax effect of pro forma adjustments to income before income taxes is based on the estimated applicable statutory tax rates.
(5) EBITDA, As Defined, represents earnings before interest, taxes, depreciation and amortization, the ZMP inventory purchase accounting adjustment and merger expenses as follows (in thousands):
HOLDINGS ZMP, INC. TRANSDIGM HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
----------- ----------- ----------- -----------
Net income (loss)....................................... $ (24,824) $ 522 $ 2,465 $ 2,094
Adjustments:
Income tax provision.................................. (7,566) 281 1,518 1,281
Interest expense...................................... 2,276 425 6,276 6,884
Depreciation and amortization......................... 1,599 334 1,915 1,915
----------- ----------- ----------- -----------
EBITDA.................................................. (28,515) 1,562 12,174 12,174
Inventory purchase accounting adjustment-- ZMP........ -- -- 650 650
Merger expenses....................................... 39,593 164 -- --
----------- ----------- ----------- -----------
EBITDA, As Defined...................................... $ 11,078 $ 1,726 $ 12,824 $ 12,824
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
|
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 1, 1999 (DECEMBER 25, 1998 FOR ZMP, INC.)
(DOLLARS IN THOUSANDS)
ZMP, INC.
HOLDINGS HISTORICAL PRO FORMA TRANSDIGM PRO FORMA HOLDINGS
HISTORICAL (1) ADJUSTMENTS (2) PRO FORMA ADJUSTMENTS (3) PRO FORMA
----------- ------------ --------------- ----------- --------------- -----------
ASSETS
Current assets:
Cash and equivalents...................... $ 2,103 $ 3,687 $ (3,687)(a) $ 2,103 -- $ 2,103
Accounts receivable--net.................. 14,403 5,935 (506)(a) 19,832 -- 19,832
Inventories............................... 18,180 10,188 1,300(b) 29,668 -- 29,668
Refundable income taxes................... 7,692 -- -- 7,692 -- 7,692
Deferred income taxes and other........... 3,992 2,072 200(d) 6,264 -- 6,264
----------- ------------ --------------- ----------- --------------- -----------
Total current assets.................... 46,370 21,882 (2,693) 65,559 -- 65,559
----------- ------------ --------------- ----------- --------------- -----------
Property, plant and equipment--net.......... 21,709 4,681 500(c) 26,890 -- 26,890
Intangible assets--net...................... 34,649 13,394 9,200(i) 57,243 -- 57,243
Debt issue costs--net....................... 11,101 500(h) 11,601 -- 11,601
Deferred income taxes and other............. 4,332 550 (200)(d) 4,682 -- 4,682
----------- ------------ --------------- ----------- --------------- -----------
Total....................................... $ 118,161 $ 40,507 $ 7,307 $ 165,975 -- $ 165,975
----------- ------------ --------------- ----------- --------------- -----------
----------- ------------ --------------- ----------- --------------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 4,700 -- $ 2,209(h) $ 6,909 -- $ 6,909
Accounts payable.......................... 5,554 $ 1,645 -- 7,199 -- 7,199
Accrued liabilities....................... 9,362 2,164 (219)(a) 13,107 -- 13,107
1,800(j)
----------- ------------ --------------- ----------- --------------- -----------
Total current liabilities............... 19,616 3,809 3,790 27,215 -- 27,215
Long-term debt--less current portion........ 231,500 16,128 23,663(h) 251,091 $ 20,200(a) 271,291
(20,200)(f)
Other liabilities........................... 2,410 424 -- 2,834 -- 2,834
----------- ------------ --------------- ----------- --------------- -----------
Total liabilities......................... 253,526 20,361 7,253 281,140 20,200 301,340
----------- ------------ --------------- ----------- --------------- -----------
Redeemable common stock..................... 800 -- -- 800 -- 800
Stockholders' equity (deficit):
Capital stock............................. 100,624 17,167 (17,167)(e) 424 100,200(b) 100,624
(100,200)(g)
Retained earnings......................... (236,035) 2,979 (2,979)(e) (115,635) (20,200)(a) (236,035)
20,200(f) (100,200)(b)
100,200(g)
Accumulated other comprehensive income.... ) ) )
(754 -- -- (754 -- (754
----------- ------------ --------------- ----------- --------------- -----------
Total stockholders' equity (deficit)...... (136,165) 20,146 54 (115,965) (20,200) (136,165)
----------- ------------ --------------- ----------- --------------- -----------
Total....................................... $ 118,161 $ 40,507 $ 7,307 $ 165,975 $ -- $ 165,975
----------- ------------ --------------- ----------- --------------- -----------
----------- ------------ --------------- ----------- --------------- -----------
|
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 1, 1999 (DECEMBER 25, 1998 FOR ZMP, INC.)
(1) The amounts in this column represent the financial position of ZMP at December 25, 1998.
(2) The amounts in this column represent the adjustments resulting from the acquisition of ZMP that are necessary to determine TransDigm's pro forma consolidated balance sheet.
(a) This adjustment reflects cash balances, receivables and income tax liabilities retained by the seller.
(b) This adjustment represents the estimated excess of the fair value of ZMP's inventory over its carrying value. As the inventory is sold, this adjustment will be charged to cost of sales. TransDigm expects this inventory to be sold over a six month period.
(c) This adjustment represents the estimated excess of the fair value of ZMP's property, plant, and equipment over its carrying value.
(d) This adjustments recognizes deferred income tax liabilities for the fair value adjustments described in Notes (b), (c) and (j).
(e) This adjustment eliminates ZMP's stockholders' equity.
(f) This adjustment eliminates the Holdings PIK Notes from TransDigm's pro forma consolidated balance sheet.
(g) This adjustment is necessary to reflect TransDigm's capital structure.
(h) This adjustment reflects the repayment of existing indebtedness of ZMP and additional borrowings (including related costs) under the New Credit Facility to finance the purchase price and the direct costs of the acquisition of ZMP.
(i) This adjustment reflects the allocation of the purchase price to goodwill.
(j) This adjustment represents the accrual of fees and other costs associated with the acquisition of ZMP.
(3) The amounts in this column represent the adjustments necessary to determine Holdings' pro forma consolidated balance sheet.
(a) This adjustment records the outstanding balance (including accrued interest) of the Holdings PIK Notes at January 1, 1999.
(b) This adjustment is necessary to reflect Holdings' capital structure.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial information of Holdings. The selected historical consolidated financial data for the fiscal years ended September 30, 1998, 1997, and 1996 have been derived from Holdings' consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The selected historical consolidated audited financial data for the fiscal years ended September 30, 1995 and 1994, which have also been derived from Holdings' consolidated financial statements, have been adjusted to give retroactive effect to the change in accounting for put warrants as described in Note 17 to the Consolidated Historical Financial Statements of Holdings included elsewhere in this Prospectus. The selected historical consolidated financial data as of and for the thirteen weeks ended January 1, 1999 and December 26, 1997 has been derived from Holdings' unaudited consolidated financial statements for those periods, which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position, and cash flows. The results for the thirteen weeks ended January 1, 1999 are not necessarily indicative of results that may be expected for the entire year. Separate financial information for TransDigm is not presented since the New Notes will be guaranteed by Holdings and all direct and indirect domestic subsidiaries of TransDigm, and since Holdings has no operations or assets separate from its investment in TransDigm.
The Marathon Acquisition was completed on August 8, 1997. The acquisition was accounted for as a purchase. The results of operations of Marathon are included in Holdings' consolidated financial statements from the date of such acquisition.
You should read the following table together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and the Consolidated Historical Financial Statements and the notes thereto included elsewhere in this prospectus.
THIRTEEN WEEKS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------
----------------------------------------------------- DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- ------------ -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 52,028 $ 57,095 $ 62,897 $ 78,159 $ 110,868 $ 26,104 $ 28,194
Gross profit..................................... 9,151 17,029 21,023 28,856 51,473 11,397 13,257
Selling and administrative....................... 6,244 6,167 6,459 7,561 10,473 2,669 2,685
Amortization of intangibles...................... 4,062 4,002 3,838 2,089 2,438 635 645
Research and development......................... 784 1,058 836 1,116 1,724 339 448
Merger expenses.................................. -- -- -- -- -- -- 39,593
--------- --------- --------- --------- --------- ------------ -----------
Operating income (loss) (1)...................... (1,939) 5,802 9,890 18,090 36,838 7,754 (30,114)
Interest expense, net (2)........................ 4,823 5,193 4,510 3,463 3,175 1,046 2,276
Warrant put value adjustment..................... 868 736 2,160 4,800 6,540 -- --
--------- --------- --------- --------- --------- ------------ -----------
Pre-tax income (loss)............................ (7,630) (127) 3,220 9,827 27,123 6,708 (32,390)
Provision (benefit) for income taxes............. (2,307) 134 2,045 5,193 12,986 2,590 (7,566)
--------- --------- --------- --------- --------- ------------ -----------
Income (loss) before extraordinary item.......... (5,323) (261) 1,175 4,634 14,137 4,118 (24,824)
Extraordinary item............................... -- -- -- (1,462) -- -- --
--------- --------- --------- --------- --------- ------------ -----------
Net income (loss)................................ $ (5,323) $ (261) $ 1,175 $ 3,172 $ 14,137 $ 4,118 $ (24,824)
--------- --------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- --------- ------------ -----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities........................... $ 1,115 $ 3,972 $ 18,695 $ 17,468 $ 23,455 $ 6,485 $ (32,735)
Investing activities........................... (3,595) 702 (2,494) (43,160) (4,295) 138 (712)
Financing activities........................... 1,851 (4,560) (13,475) 28,153 (5,071) (20) 16,064
EBITDA (3)....................................... 5,402 13,168 17,213 23,856 43,305 9,409 (28,515)
EBITDA, As Defined (4)........................... 9,875 13,168 17,213 24,522 43,547 9,651 11,078
EBITDA, As Defined, margin....................... 19.0% 23.1% 27.4% 31.4% 39.3% 37.0% 39.3%
Depreciation and amortization.................... $ 7,341 $ 7,366 $ 7,323 $ 5,766 $ 6,467 $ 1,655 $ 1,599
Capital expenditures............................. 1,941 1,702 2,494 2,285 5,061 628 712
Ratio of earnings to fixed charges (5)........... -- -- 1.7x 3.7x 9.0x 7.1x --
Ratio of EBITDA, As Defined, to interest
expense........................................ 2.0x 2.5x 3.8x 7.1x 13.7x 9.2x 4.9x
Ratio of total debt to EBITDA, As Defined........ 3.7x 2.4x 1.1x 2.0x 1.0x 5.2x 21.3x
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital.................................. $ 12,592 $ 17,730 $ 16,300 $ 16,520 $ 16,654 $ 21,231 $ 26,754
Total assets..................................... 71,554 65,758 57,666 101,969 115,785 105,474 118,161
Long-term debt, including current portion........ 36,399 32,074 19,124 50,000 45,000 50,000 236,200
Total stockholders' equity (deficiency).......... 19,745 19,285 19,670 22,613 36,427 26,432 (136,165)
|
(2) All of the interest expense reported for fiscal 1994 through 1998 represents interest expense of TransDigm. Holdings had no interest expense prior to the Recapitalization. After the Recapitalization, Holdings has incurred interest expense relating to the Holdings PIK Notes and Holdings has no other interest expense. TransDigm is not an obligor or a guarantor under the Holdings PIK Notes. Interest expense for the Holdings PIK Notes for the thirteen weeks ended January 1, 1999 was $200.
(3) EBITDA represents earnings before interest, taxes, depreciation, amortization, warrant put value adjustment and extraordinary items. EBITDA is presented because management believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in Holdings' industry. However, other companies in Holdings' industry may calculate EBITDA differently than Holdings does. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or an alternative to net income as indicators of Holdings' operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See Holdings' consolidated Statements of Cash Flows included in Holdings' consolidated financial statements.
(4) EBITDA, As Defined, is calculated as follows:
THIRTEEN WEEKS ENDED
----------------------------
DECEMBER 26, JANUARY 1,
1994 1995 1996 1997 1998 1997 1999
--------- --------- --------- --------- --------- --------------- -----------
EBITDA........................................ $ 5,402 $ 13,168 $ 17,213 $ 23,856 $ 43,305 $ 9,409 $ (28,515)
Adjustments:
Merger Expenses............................. -- -- -- -- -- -- 39,593
Inventory Purchase Accounting Adjustments... 4,473 -- -- 666 242 242 --
--------- --------- --------- --------- --------- ------ -----------
EBITDA, As Defined............................ $ 9,875 $ 13,168 $ 17,213 $ 24,522 $ 43,547 $ 9,651 $ 11,078
--------- --------- --------- --------- --------- ------ -----------
--------- --------- --------- --------- --------- ------ -----------
|
EBITDA, As Defined, is presented herein to provide additional information with respect to the ability of Holdings to satisfy its debt service, capital expenditure and working capital requirements and because certain types of covenants in TransDigm's and Holdings' borrowing arrangements are tied to similar measures. While EBITDA-based measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of debt expense and the portion (approximately 33%) of rental expense that management believes is representative of the interest component of rental expense. Earnings were insufficient to cover fixed charges by $7,630, $127 and $32,390 for fiscal 1994, fiscal 1995 and the thirteen weeks ended January 1, 1999, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS IN THIS DISCUSSION REGARDING THE INDUSTRY OUTLOOK, TRANSDIGM'S EXPECTATIONS REGARDING THE FUTURE PERFORMANCE OF ITS BUSINESSES, AND THE OTHER NONHISTORICAL STATEMENTS IN THIS DISCUSSION ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES DESCRIBED IN THE "RISK FACTORS" SECTION. YOU SHOULD READ THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF TRANSDIGM TOGETHER WITH THE SECTIONS ENTITLED "RISK FACTORS" AND "SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA" AND WITH THE CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. TRANSDIGM'S FISCAL YEAR ENDS ON SEPTEMBER 30 OF THE YEARS INDICATED.
OVERVIEW
TransDigm is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. TransDigm sells its products to commercial airlines and aircraft maintenance facilities in the aftermarket, to most original equipment manufacturers ("OEMs") of aircraft and to various agencies of the United States government. Sales of TransDigm's products are made directly to these organizations as well as through U.S. and international distributors who maintain inventories throughout the world of products purchased from TransDigm and others. TransDigm generates most of its EBITDA, As Defined from sales of replacement parts in the aftermarket, including to the airlines. This is because most of TransDigm's OEM sales are on an exclusive sole source basis; therefore, in most cases, TransDigm is the only certified provider of these parts in the aftermarket. Because aftermarket parts sales are driven by the size of the worldwide aircraft fleet, they are relatively stable and generate recurring revenues over the life of an aircraft that are many times the size of the original OEM purchases.
TransDigm provides its products to commercial airlines, such as United Airlines and Continental Airlines, large commercial transport and regional and business aircraft OEMs such as Boeing, Bombardier and Cessna and various agencies of the United States government. While aftermarket and OEM sales have historically each accounted for approximately half of TransDigm's net sales, aftermarket sales typically carry a substantially higher gross margin than sales to OEMs.
Management believes that the aircraft components industry has historically been sensitive to changes in revenue passenger miles and, to a lesser extent, to airline profitability, each of which has historically been correlated with changes in general economic conditions, and the size and age of the worldwide aircraft fleet. On a worldwide basis, revenue passenger miles have increased from approximately 978 billion in 1985 to approximately 1,719 billion in 1996 at a compound annual growth rate of approximately 6%. See "Business--Industry." In addition, management believes less than 20% of TransDigm's net sales during fiscal 1998 and the thirteen weeks ended January 1, 1999 were attributable to sales to manufacturers of large commercial transports such as Boeing and Airbus. As a result, increases and decreases in the manufacture of large commercial transports only affect a portion of TransDigm's net sales.
Management has, since 1993, implemented a number of programs that have had a positive impact on the profitability and strategic positioning of TransDigm. To ensure a competitive cost structure, TransDigm consolidated the Adel Fasteners and Wiggins Connectors divisions into AdelWiggins and the AeroProducts and Controlex divisions into AeroControlex and, in fiscal 1994, consolidated TransDigm's four manufacturing facilities into two locations. Beginning in fiscal 1994, management reorganized the business along 11 major product lines in order to streamline new business initiatives, increase accountability and facilitate greater responsiveness to customer needs. As a result of the acquisition of ZMP, TransDigm acquired four additional major product lines of Adams Rite Aerospace. Management
intends to reorganize the business along 15 major product lines to incorporate the four major product lines of Adams Rite Aerospace.
TransDigm's historical financial results are also affected by the acquisition of Marathon on August 8, 1997. Marathon's operations were consolidated with those of TransDigm as of the acquisition date.
The Recapitalization was recorded as a recapitalization for accounting purposes. As a result of the Recapitalization, including the financing and the application of the proceeds thereof, TransDigm incurred certain nonrecurring costs and charges, consisting primarily of compensation costs for management bonuses and stock options which were canceled in conjunction with the Recapitalization, the cost of terminating a financial advisory services agreement with an affiliate of one of TransDigm's stockholders, the write-off of deferred financing costs, and professional, advisory and financing fees. A one-time charge of approximately $39.6 million ($28.8 million after tax) was recorded for the thirteen weeks ended January 1, 1999. Because the cash costs included in this charge were funded principally through the proceeds of the offering of the Old Notes and borrowings under the New Credit Facility, this cost did not materially impact TransDigm's liquidity, ongoing operations or market position. For a discussion of the consequences of the incurrence of indebtedness as a result of the Transactions, see the heading "--Liquidity and Capital Resources" in this section.
On April 23, 1999, TransDigm acquired ZMP, the corporate parent of Adams Rite Aerospace. Adams Rite Aerospace is a well established supplier of highly engineered aircraft components that will complement the businesses of AdelWiggins, AeroControlex and Marathon. Through the acquisition of ZMP, TransDigm acquired four additional major product lines of Adams Rite Aerospace consisting of mechanical hardware, fluid control products, electromechanical control products and oxygen systems related products. For its fiscal 1998, Adams Rite Aerospace generated net sales, operating income and EBITDA, As Defined, of $34.2 million, $3.6 million and $5.4 million, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating data of Holdings as a percentage of net sales.
FISCAL YEAR ENDED SEPTEMBER 30,
THIRTEEN WEEKS ENDED
------------------------------- ----------------------------
DECEMBER 26, JANUARY 1,
1996 1997 1998 1997 1999
--------- --------- --------- --------------- -----------
Net sales..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................................. 33.4 36.9 46.4 43.7 47.0
Selling and administrative.................................... 10.3 9.7 9.4 10.3 9.5
Amortization of intangibles................................... 6.1 2.7 2.2 2.4 2.3
Research and development...................................... 1.3 1.4 1.6 1.3 1.6
Merger expenses............................................... 0.0 0.0 0.0 0.0 140.4
--------- --------- --------- ----- -----------
Operating income (loss)....................................... 15.7 23.1 33.2 29.7 (106.8)
Interest expense, net......................................... 7.2 4.4 2.9 4.0 8.1
Warrant put value adjustment (1).............................. 3.4 6.1 5.9 0.0 0.0
Provision (benefit) for income taxes.......................... 3.2 6.6 11.7 9.9 (26.8)
Extraordinary item............................................ 0.0 1.9 0.0 0.0 0.0
--------- --------- --------- ----- -----------
Net income (loss)............................................. 1.9% 4.1% 12.7% 15.8% (88.1)%
--------- --------- --------- ----- -----------
--------- --------- --------- ----- -----------
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CHANGES IN RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 COMPARED WITH THIRTEEN WEEKS ENDED DECEMBER
26, 1997
- NET SALES. Net sales increased by $2.1 million, or 8.0%, to $28.2 million for the thirteen weeks ended January 1, 1999 from $26.1 million for the thirteen weeks ended December 26, 1997. Substantially all of the increase was due to higher aftermarket sales, principally for large commercial transport aircraft, reflecting TransDigm's continued efforts to increase sales in this area because of the larger gross margins that are generally realized from such sales.
- GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $1.9 million, or 16.7%, to $13.3 million for the thirteen weeks ended January 1, 1999 from $11.4 million for the thirteen weeks ended December 26, 1997. This improvement in gross profits was principally the result of the higher aftermarket sales discussed above and the larger gross margins that are associated with such sales. Gross profit for the thirteen weeks ended December 26, 1997 includes the effect of a non-cash charge of $0.3 million due to a purchase accounting adjustment to inventory associated with the acquisition of Marathon. Gross profit also increased as a percentage of net sales from 43.7% for the thirteen weeks ended December 26, 1997 to 47.0% for the thirteen weeks ended January 1, 1999 due to the non-cash charge from the Marathon inventory purchase accounting adjustment and the increase in aftermarket sales.
- SELLING AND ADMINISTRATIVE. Selling and administrative expense was unchanged at $2.7 million for the thirteen weeks ended January 1, 1999 and December 26, 1997. Selling and administrative expenses as a percentage of net sales decreased from 10.2% for the thirteen weeks ended December 26, 1997 to 9.5% for the thirteen weeks ended January 1, 1999 due to the increase in sales referred to above and continued programs to manage expenses.
- AMORTIZATION OF INTANGIBLES. Amortization of intangibles was unchanged at $0.6 million for the thirteen weeks ended January 1, 1999 and December 26, 1997.
- RESEARCH AND DEVELOPMENT. Research and development expense increased $.1 million, or 33.3%, to $.4 million for the quarter ended January 1, 1999 from $.3 million for the comparable quarter last year. This increase was primarily attributable to continued new product development at each of AdelWiggins, AeroControlex and Marathon. Research and development expense as a percentage of net sales remained relatively constant at 1.6% for the thirteen weeks ended January 1, 1999 and 1.3% for the thirteen weeks ended December 26, 1997.
- MERGER EXPENSES. Merger costs totaling $39.6 million were incurred during the thirteen weeks ended January 1, 1999 in connection with the Merger and Recapitalization. The nature of the merger-related charges is detailed below:
(IN THOUSANDS)
Compensation expense on stock options......................................... $ 19,437
Management bonuses............................................................ 6,450
Termination of financial advisory service agreement........................... 5,850
Professional fees and expenses................................................ 6,673
Write-off of deferred financing costs......................................... 552
Other......................................................................... 631
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$ 39,593
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- OPERATING INCOME (LOSS). Operating income decreased from $7.8 million for the thirteen weeks ended December 26, 1997 to a loss of $30.1 million for the thirteen weeks ended January 1, 1999 due to the merger expenses discussed above. Operating income, excluding merger-related expenses, increased by $1.7 million, or 21.8%. As a percentage of net sales, operating income before merger-related
expenses increased to 33.6% for the thirteen weeks ended January 1, 1999 from 29.7% for the thirteen weeks ended December 26, 1997. This increase was primarily attributable to the increase in sales volume and gross profits referred to above.
- INTEREST EXPENSE. Interest expense increased by $1.2 million, or 109%, to $2.3 million for the thirteen weeks ended January 1, 1999 from $1.1 million for the thirteen weeks ended December 26, 1997 as a result of the increase in the average level of outstanding borrowings in connection with the Recapitalization.
- INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss) before income taxes was (23.3)% for the thirteen weeks ended January 1, 1999 compared to 38.6% thirteen weeks ended December 26, 1997. The tax benefit recorded for the thirteen weeks ended January 1, 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization.
- NET INCOME (LOSS). TransDigm incurred a net loss of $24.8 million for the thirteen weeks ended January 1, 1999 compared to net income of $4.1 million for the thirteen weeks ended December 26, 1997 primarily as a result of the factors referred to above.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1997
- NET SALES. Net sales increased by $32.8 million, or 42%, to $110.9 million for fiscal 1998 from $78.1 million for fiscal 1997. Approximately $19.5 million of this increase was attributable to the acquisition of Marathon on August 8, 1997. New business initiatives along with continued strength in airline traffic and airline capital spending resulted in a $7.4 million increase in aftermarket sales, principally for large commercial transport aircraft, and a $5.9 million increase in sales to OEMs.
- GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $22.6 million, or 78.2%, to $51.5 million for fiscal 1998 from $28.8 million for fiscal 1997. Approximately $9.5 million of this increase was attributable to the acquisition of Marathon, including a $0.4 million reduction in the charge to Marathon's cost of sales resulting from the write-up of Marathon's inventory in place at the time of the acquisition. In addition, the higher sales discussed above resulted in $7.8 million of additional gross profit from aftermarket sales, principally for large commercial transport aircraft, and $5.3 million from sales to OEMs. Gross profit increased as a percentage of net sales from 36.9% in the 1997 period to 46.4% in fiscal 1998. Approximately, 3.8% of this increase was attributable to the acquisition of Marathon and the remainder due to the higher sales discussed above.
- SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by $2.9 million, or 38.2%, to $10.5 million for fiscal 1998 from $7.6 million for fiscal 1997. This increase was primarily attributable to the Marathon acquisition partially offset by reduction in bad debt and environmental expenses of $0.3 million each. Selling and administrative expenses as a percentage of net sales remained relatively constant at 9.7% in fiscal 1997 and 9.4% in fiscal 1998.
- AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.3 million, or 14.3%, to $2.4 million for fiscal 1998 from $2.1 million for fiscal 1997. The increase in the amortization of intangibles resulted from $0.5 million of additional goodwill amortization relating to the acquisition of Marathon offset by a $0.2 million reduction in the amortization of other intangible assets which became fully amortized in fiscal 1997.
- RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.6 million, or 54.5%, to $1.7 million for fiscal 1998 from $1.1 million for fiscal 1997. This increase was primarily attributable to the acquisition of Marathon. Research and development expense as a percentage of net sales remained relatively constant at 1.4% in fiscal 1997 and 1.6% in fiscal 1998.
- OPERATING INCOME. Operating income increased by $18.7 million, or 103.3%, to $36.8 million for fiscal 1998 from $18.1 million for fiscal 1997. Approximately $4.6 million of this increase was attributable to the acquisition of Marathon and the remainder to the other increases in gross profit discussed above. As a percentage of revenues, operating income increased to 33.2% in fiscal 1998 from 23.1% in fiscal 1997.
- INTEREST EXPENSE. Interest expense for fiscal 1998 approximated the amount for fiscal 1997 at $3.2 million and $3.5 million, respectively. The $2.1 increase in interest expense resulting from the additional borrowings made in connection with acquisition of Marathon was more than offset by a $2.4 decrease in interest expense caused by the refinancing of TransDigm's subordinated notes and a general decline in interest rates.
- INCOME TAXES. Income tax expense as a percentage of income before income taxes and the non-deductible warrant put value adjustment increased to 38.6% in fiscal 1998 from 35.5% in fiscal 1997. The increase in the effective rate resulted from higher non-deductible expenses, including the amortization of goodwill recognized in connection with the Marathon acquisition.
- NET INCOME. Net income increased by $10.9 million, or 340.6%, to $14.1 million for fiscal 1998 from $3.2 million for fiscal 1997 primarily as a result of the factors referred to above and an extraordinary loss in 1997 of $1.5 million partially offset by a $1.7 million increase in the warrant put value adjustment during fiscal 1998.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1996
- NET SALES. Net sales increased by $15.3 million, or 24.3%, to $78.2 million for fiscal 1997 from $62.9 million for fiscal 1996. Approximately $3.0 million of this increase was attributable to the acquisition of Marathon. New business initiatives along with an industry-wide increase in demand resulted in a $7.2 million increase in aftermarket sales, principally for large commercial transport aircraft, and a $5.1 million increase in sales to OEMs.
- GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $7.9 million, or 37.6%, to $28.9 million for fiscal 1997 from $21.0 million for fiscal 1996. Approximately $0.5 million of this increase was attributable to the acquisition of Marathon. The higher sales discussed above resulted in $5.2 million of additional gross profit from aftermarket sales, principally for large commercial transport aircraft, and $2.2 million from sales to OEMs. Gross profit also increased as a percentage of net sales from 33.4% in the 1996 period to 36.9% in fiscal 1997. This increase was primarily attributable to the higher sales discussed above offset by an approximate 1% decline in gross margins due to higher cost of sales resulting from the write-up of Marathon's inventory in place at the time of the acquisition.
- SELLING AND ADMINISTRATIVE. Selling and administrative expense increased by $1.1 million, or 16.9%, to $7.6 million for fiscal 1997 from $6.5 million for fiscal 1996. Approximately $0.4 million of this increase was due to the acquisition of Marathon, $0.3 million resulted from the relocation of TransDigm's corporate headquarters and the remainder was caused by the increase in sales volume which generated larger commission expenses. Selling and administrative expenses declined as a percentage of net sales from 10.3% in fiscal 1996 to 9.7% in fiscal 1997 due to the increase in net sales referred to above coupled with an effort to control expenses.
- AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $1.7 million, or 44.7%, to $2.1 million for fiscal 1997 from $3.8 million for fiscal 1996. Amortization of intangibles decreased by $2.0 million as a result of the termination of an agreement not to compete at the end of fiscal 1996, partially offset by higher amortization of goodwill relating to the acquisition of Marathon.
- RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.3 million, or 37.5%, to $1.1 million for fiscal 1997 from $0.8 million for fiscal 1996. This increase was primarily
attributable to continued new product development. Research and development expense as a percentage of net sales remained relatively constant at 1.3% in fiscal 1996 and 1.4% in fiscal 1997.
- OPERATING INCOME. Operating income increased by $8.2 million, or 82.8%, to $18.1 million for fiscal 1997 from $9.9 million for fiscal 1996. As a percentage of revenues, operating income increased to 23.1% in fiscal 1997 from 15.7% in fiscal 1996. This increase was primarily attributable to the increase in sales volume and gross profits referred to above.
- INTEREST EXPENSE. Interest expense decreased by $1.0 million, or 22.2%, to $3.5 million for fiscal 1997 from $4.5 million for fiscal 1996 as a result of a decrease in the average level of outstanding borrowings during fiscal 1997.
- INCOME TAXES. Income tax expense as a percentage of income before income taxes and the non-deductible warrant put value adjustment decreased to 35.5% in fiscal 1997 from 38.0% in fiscal 1996. Foreign sales corporation earnings in fiscal 1997 decreased the effective rate by 2.7%; however, higher non-deductible expenses, including the amortization of goodwill recognized in connection with the Marathon acquisition, increased the effective rate by 0.2%.
- NET INCOME. Net income increased by $2.0 million, or 166.7%, to $3.2 million for fiscal 1997 from $1.2 million for fiscal 1996 primarily as a result of the factors referred to above partially offset by a $2.6 million increase in the warrant put value adjustment during fiscal 1997.
- EXTRAORDINARY LOSS. The extraordinary loss in fiscal 1997 of $1.5 million represents prepayment costs and the write-off of unamortized debt issuance costs, net of income tax benefits, related to the redemption of the subordinated notes which were refinanced with a new $70.0 million credit facility in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
TransDigm generated $23.5 million of cash from operating activities in fiscal 1998 compared to $17.5 million in fiscal 1997 and $18.7 million in 1996. Such increase in operating cash flows is due to improved operating results partially offset by higher working capital. TransDigm used approximately $32.7 million of cash in operating activities during the thirteen weeks ended January 1, 1999 compared to approximately $6.5 million generated during the thirteen weeks ended December 26, 1997. Such decrease in operating cash flows is due to the one-time merger expenses of $39.6 million partially offset by improved operating results.
Cash used in investing activities was approximately $4.3 million in fiscal 1998 compared with $43.2 million in fiscal 1997 and $2.5 million in fiscal 1996. Cash used in investing activities in fiscal 1997 includes $40.9 million related to the acquisition of Marathon, net of cash acquired of $0.7 million. TransDigm's expenditures for property, plant and equipment were $2.5 million in fiscal 1996, $2.3 million in fiscal 1997 and $5.1 million in fiscal 1998. Cash used in investing activities was approximately $0.7 million during the thirteen weeks ended January 1, 1999 compared to approximately $0.1 million generated during the thirteen weeks ended December 26, 1997. The change in investing cash flows is primarily due to post-closing purchase price adjustment of approximately $0.7 million received during the thirteen weeks ended December 26, 1997 as a result of the Marathon acquisition.
Cash used in financing activities for fiscal 1998 was $5.1 million compared to cash provided by financing activities of $28.2 million for fiscal 1997 and cash used in financing activities of $13.5 million for fiscal 1996. During fiscal 1997, the Company obtained a $70.0 million credit facility, the outstanding balance under which has been repaid in connection with the Transactions. Borrowings under this facility of $50.0 million in fiscal 1997 were used to help finance the Marathon acquisition and redeem the Company's outstanding subordinated notes. Cash provided by financing activities during the thirteen weeks ended January 1, 1999 was approximately $16.1 million compared to approximately $20 thousand used during the thirteen weeks ended December 26, 1997. This change in financing cash flows was due
to incurrence and refinancing of substantial indebtedness as a result of the Recapitalization and Merger.
As a result of the Recapitalization and the acquisition of ZMP, the Company incurred substantial indebtedness and refinanced certain other indebtedness including all borrowings under the prior credit facility. See the "Capitalization" section. As of January 1, 1999 on a pro forma basis after giving effect to the acquisition of ZMP and the related borrowings under New Credit Facility as if they had occurred on January 1, 1999, Holdings would have had indebtedness consisting of $20.2 million in Holdings PIK Notes and TransDigm would have had indebtedness consisting of (1) $125.0 million in principal amount of the Old Notes and (2) $133.0 million of borrowings under the New Credit Facility, which would have consisted of $9.0 million under a $30.0 million Revolving Credit Facility, a $62.0 million term loan under the Tranche A Facility and a $62.0 million term loan under the Tranche B Facility.
The interest rate for the New Credit Facility is, at TransDigm's option, either (A) a floating rate equal to the Base Rate (as defined in this Prospectus under the heading "Description of Other Indebtedness--The Company's New Credit Facility") plus the Applicable Margin (as defined in this paragraph), or (B) the Eurodollar Rate (as defined in this Prospectus under the heading "Description of Other Indebtedness--The Company's New Credit Facility") for fixed periods of one, two, three, or six months, plus the Applicable Margin. The "Applicable Margin" means the percentage per year equal to (1) in the case of Tranche A Facility and Revolving Credit Facility, (A) bearing an interest rate determined by the Base Rate, 2.50% through February 16, 1999 and 2.25%, 2.00%, 1.75% or 1.50% thereafter depending on Holdings' ability to achieve the respective debt coverage ratio specified in the New Credit Facility, as amended, and (B) bearing an interest rate determined by the Eurodollar Rate, 3.50% through February 16, 1999 and 3.25%, 3.00%, 2.75% or 2.50% thereafter depending on Holdings' ability to achieve the respective debt coverage ratio specified in the New Credit Facility, as amended, and (2) in the case of Tranche B Facility (A) bearing an interest rate determined by the Base Rate, 2.50% and (B) bearing an interest rate determined by the Eurodollar Rate, 3.50%. The New Credit Facility is subject to mandatory prepayment with a defined percentage of net proceeds from certain asset sales, insurance proceeds or other awards that are payable in connection with the loss, destruction or condemnation of any assets, certain new debt and equity offerings and 50% of excess cash flow (as defined in the New Credit Facility) in excess of a predetermined amount under the New Credit Facility.
The Old Notes bear, and the New Notes will bear, interest at 10 3/8%. The New Notes and the Old Notes will not require principal payments prior to maturity. The Revolving Credit Facility and the Tranche A Facility will each mature on the six year anniversary of the initial borrowing date and the Tranche B Facility will mature on the seven and a half year anniversary of the initial borrowing date. The New Credit Facility requires TransDigm to amortize the outstanding indebtedness under each of the Tranche A Facility and the Tranche B Facility, commencing in year 1999, and contains restrictive covenants that will, among other things, limit the incurrence of additional indebtedness, the payment of dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of other indebtedness. See the "Description of the New Notes" and "Description of Other Indebtedness--The Company--The New Credit Facility" section.
TransDigm's primary cash needs will consist of capital expenditures and debt service. TransDigm incurs capital expenditures for the purpose of maintaining and replacing existing equipment and facilities and, from time to time, for facility expansion. Capital expenditures totaled approximately $2.5 million, $2.3 million, $5.1 million, $0.6 million and $0.7 million in fiscal 1996, fiscal 1997, fiscal 1998, the thirteen weeks ended December 26, 1997 and the thirteen weeks ended January 1, 1999, respectively. TransDigm estimates that capital expenditures, excluding those of Adams Rite Aerospace, will total approximately $5.6 million in fiscal 1999.
TransDigm intends to pursue additional acquisitions that present opportunities to realize significant synergies, operating expense economies or overhead cost savings or to increase TransDigm's market position. TransDigm regularly engages in discussions with respect to potential acquisitions and investments. However, there are no binding agreements with respect to any material acquisitions at this time, and we cannot assure you that we will be able to reach an agreement with respect to any future acquisition. TransDigm's acquisition strategy may require substantial capital, and no assurance can be given that TransDigm will be able to raise any necessary funds on terms acceptable to TransDigm or at all. If TransDigm incurs additional debt to finance acquisitions, its total interest expense will increase. See "Risk Factors--Risks Related to Potential Future Acquisitions."
TransDigm's ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, its indebtedness, including the New Notes and the Old Notes, or to fund planned capital expenditures and research and development will depend on their future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond their control. Based upon the current level of operations and anticipated cost savings and revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under the New Credit Facility, will be adequate to meet TransDigm's future liquidity needs for at least the next few years. TransDigm may, however, need to refinance all or a portion of the principal of the New Notes and the Old Notes on or prior to maturity. There can be no assurance that TransDigm's business will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable TransDigm to service its indebtedness, including the New Notes and the Old Notes, or to fund its other liquidity needs. In addition, there can be no assurance that TransDigm will be able to effect any such refinancing on commercially reasonable terms or at all. See the "Risk Factors" section.
BACKLOG
Management believes that sales order backlog (i.e. orders for products that have not yet been shipped) is a useful indicator of sales to OEMs. As of January 1, 1999, TransDigm estimated its sales order backlog at $45.9 million compared to an estimated $43.7 million as of December 26, 1997. The majority of the purchase orders outstanding as of January 1, 1999 are scheduled for delivery within the next twelve months. Purchase orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled purchase orders at any given date during the year will be materially affected by the timing of TransDigm's receipt of purchase orders and the speed with which those orders are filled. Accordingly TransDigm's backlog as of January 1, 1999 is not necessarily indicative of actual shipments or sales for any future period, and period-to-period comparisons may not be meaningful.
FOREIGN OPERATIONS
TransDigm manufactures virtually all of its products in the United States. However, a significant portion of TransDigm's current sales are conducted abroad. Approximately 16%, 20%, and 20% of TransDigm's net sales in fiscal 1998, fiscal 1997, and fiscal 1996, respectively, were made directly to foreign end-users. These sales are subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of TransDigm within such governments' countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to TransDigm's operations and growth strategy.
INFLATION
Many of TransDigm's raw materials and operating expenses are sensitive to the effects of inflation, which could result in higher operating costs. The effects of inflation on TransDigm's businesses during fiscal 1998, 1997 and 1996 were not significant.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." The statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. TransDigm adopted this standard during the first quarter of fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." The statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments such as a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. TransDigm will adopt this standard for its fiscal 1999 year-end financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." The statement requires an enterprise to disclose certain information in its year-end financial statements about its pension and postretirement benefits, including a reconciliation of beginning and ending balances of the benefit obligation, the funded status of the plans, and the amount of net periodic benefit cost recognized. TransDigm will adopt this standard in fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. TransDigm will adopt this
standard during fiscal 2000.
While management has not completed its analysis of these new accounting standards contained in SFAS No. 131, SFAS No. 132 and SFAS No. 133, the adoption of these standards is not expected to have a material effect on TransDigm's financial statements.
IMPACT OF YEAR 2000 ISSUE
TransDigm has completed a review of its information technology systems in the Waco, Texas site and is completing a review of its information technology systems in the Los Angeles, California site and the Cleveland, Ohio site. TransDigm is also completing a review of its embedded systems at each of the three sites, in order to assess its exposure to Year 2000 issues. These reviews, including testing and verification, will be completed internally. Management anticipates that these reviews, including testing and verification will be completed by June 1999. Prior to the acquisition of ZMP, ZMP represented to TransDigm that the review of Adams Rite Aerospace's information technology systems and embedded systems have been completed and that it believes the plan to make those systems Year 2000 compliant can be fully implemented by December 1999. However, TransDigm has not initiated its independent review of Adams Rite Aerospace's information technology systems or embedded systems. Although management believes that any repairs necessary to make their embedded systems Year 2000 compliant
can be completed internally, until TransDigm has completed its review, testing and verification of its embedded systems, TransDigm will not be in a position to assess the extent of repairs that will be required or the parts that will need to be replaced in order to make its embedded systems Year 2000 compliant. TransDigm purchased all of its computer software from third party vendors and is relying on those vendors to make their software Year 2000 compliant. Except for the vendor of its e-mail system, those vendors have provided TransDigm with third party certifications that their systems are Year 2000 compliant.
TransDigm has distributed questionnaires to assess the Year 2000 compliance of its suppliers and customers; including various agencies of the United States government. However, TransDigm has not currently gathered sufficient data to determine to what extent those suppliers and customers are Year 2000 compliant. Prior to the acquisition of ZMP, ZMP represented to TransDigm that it has received confirmation from the material suppliers and customers of Adams Rite Aerospace of their respective Year 2000 compliance.
In the event that Year 2000 problems arise within TransDigm or that its significant suppliers or customers, including various agencies of the United States government, do not successfully and timely achieve Year 2000 compliance, the result may be a delay in its receiving orders and collecting payments, leading to a temporary loss of revenue. TransDigm has incurred $180,000 in costs associated with Year 2000 compliance and, excluding Adams Rite Aerospace, anticipates incurring $150,000 of additional costs in the future. Because TransDigm has not independently reviewed the information technology systems and the embedded systems of Adams Rite Aerospace, management does not currently have adequate data to estimate the additional cost that may have to be incurred by TransDigm in order to make Adams Rite Aerospace's systems Year 2000 compliant. However, since the anticipated additional cost reflects the cost of the review, testing, verification and repair to be completed internally, TransDigm has not allocated such cost between its embedded systems and its information technology systems. TransDigm may, however, have to bear further Year 2000 costs and expenses which could have a material adverse effect on its business.
TransDigm has no formal contingency plan in the event Year 2000 problems arise with respect to its information technology systems; however, TransDigm's accounting and business information systems are not complex and manual procedures could be performed for a period of time to provide the information necessary to continue to operate the business. In the event that Year 2000 problems arise within our embedded systems, TransDigm intends to employ their existing subcontractor machinists to manufacture the affected components.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of TransDigm's outstanding indebtedness at September 30, 1998 was repaid in connection with the Merger and Recapitalization. At January 1, 1999, TransDigm is subject to interest rate risk with respect to borrowings under its New Credit Facility as the interest rates on such borrowings vary with market conditions and, thus, the amount of outstanding borrowings approximates the fair value of the indebtedness. On a historical basis, the weighted average interest rate on the $91.0 million of borrowings outstanding under the New Credit Facility at January 1, 1999 was 8.75%. Also outstanding at January 1, 1999 was $125.0 million of TransDigm indebtedness in the form of the Old Notes and $20.0 million of Holdings PIK Notes. The interest rates on both of these borrowings are fixed at 10 3/8% and 12% per year, respectively. Although management believes that the fair value of these debt obligations approximates their outstanding balance at January 1, 1999, the effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the borrowings by $13.2 million and $2.4 million, respectively.
The acquisition of ZMP, including all of its outstanding common stock, on April 23, 1999 and the related expenses were funded entirely through $42 million of additional borrowings under the New Credit Facility. The weighted average interest rate on all borrowings outstanding under the New Credit Facility on April 23, 1999 was 8.50%. The effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the borrowings outstanding under the New Credit Facility on April 23, 1999 by approximately $6 million.
BUSINESS
THE COMPANY
TransDigm is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. TransDigm sells its products to commercial airlines, aircraft maintenance facilities, aircraft OEMs and to various agencies of the United States government. TransDigm generates most of its EBITDA, As Defined, from sales of replacement parts in the aftermarket including sales to airlines. This is because most of TransDigm's OEM sales are on an exclusive sole source basis; therefore, in most cases, TransDigm is the only certified provider of these parts in the aftermarket. Because aftermarket parts sales are driven by the size of the worldwide aircraft fleet, they are relatively stable and generate recurring revenues over the life of an aircraft that are many times the size of the original OEM purchases. In addition, because TransDigm has over 40 years of experience in most of its product lines, it benefits from a large and growing installed base of aircraft. For fiscal 1998 on a pro forma basis as if the Transactions had occurred on October 1, 1997, TransDigm would have generated net sales, operating income and EBITDA, As Defined, of $145.0 million, $39.3 million and $49.0 million, respectively. For the thirteen weeks ended January 1, 1999 on a pro forma basis as if the Transactions had occurred on October 1, 1998, TransDigm would have generated net sales, operating income and EBITDA, As Defined, of $37.9 million, $10.3 million and $12.8 million, respectively.
TransDigm differentiates itself based on its engineering and manufacturing capabilities, and typically will not bid on non-proprietary "build to print" business. TransDigm has developed strong product brand names within the airline industry and a reputation for high quality, reliability and customer service. TransDigm focuses on developing highly customized products to solve specific problems of aircraft operators and manufacturers. Management estimates that over 80% of the TransDigm's products are of proprietary design. TransDigm provides its products to commercial airlines, such as United Airlines and Continental Airlines, large commercial transport and regional and business aircraft OEMs such as Boeing, Bombardier and Cessna and various agencies of the United States government. While aftermarket and OEM sales each typically account for approximately half of Transdigm's revenues, aftermarket sales typically carry a substantially higher gross margin than sales to OEMs.
TransDigm is comprised of four business units: (1) AdelWiggins, (2) AeroControlex, (3) Marathon, and (4) Adams Rite Aerospace, each of which has a long history in the aircraft components industry. AdelWiggins manufactures an extensive line of fuel and hydraulic system connectors and specialized clamps, heaters and refueling systems. AeroControlex manufactures customized fuel pumps, compressors, valves, couplings and mechanical and electromechanical controls. Adams Rite Aerospace manufactures mechanical hardware, fluid controls, lavatory hardware, electromechanical controls and oxygen systems related products. Marathon manufactures nickel cadmium batteries and static inverters. Marathon and ZMP, the corporate parent of Adams Rite Aerospace, were acquired in August 1997 and April 1999, respectively as a strategic complement to the AdelWiggins and AeroControlex businesses.
TransDigm was formed in 1993 through a management-led buyout of IMO. Since its formation, TransDigm has successfully established leadership positions in well-defined, profitable niches of the aircraft components market that it believes offer sustainable growth opportunities.
INDUSTRY OVERVIEW
The aircraft components industry is highly fragmented, consisting of a large number of small, specialized companies and a limited number of well-capitalized companies. TransDigm competes in niche individual aircraft component markets that it estimates range in size from $10 million to $100 million in annual revenues. TransDigm believes that the small size of its markets, combined with the industry's stringent regulatory approvals and the need to make significant investments in research
and development reduces the risk of new entrants. Management believes TransDigm's markets are too small to attract large aerospace companies. In addition, management believes the financial resources and technical expertise required to compete in these markets are beyond the reach of most small companies. Finally all potential competitors must meet the certification requirements and qualification approvals required by the FAA and aircraft OEMs.
AFTERMARKET
Aircraft components need to be serviced regularly to meet FAA standards and aircraft reliability requirements. Demand for aftermarket parts depends on revenue passenger miles and, to a lesser extent, on airline profitability, each of which has historically been correlated with changes in general economic conditions, and the size and age of the worldwide aircraft fleet. Since certain modern aircraft can have useful lives of 30 years or more, spare parts and repair and overhaul services can often generate more sales than the OEM program at significantly higher margins. Management further believes that aftermarket sales help to offset declines in OEM demand as historically airlines and air cargo operators have increased repair and overhaul spending to prolong the life of older aircraft when they delay purchasing new aircraft. Customers in the aftermarket segment include airlines, air cargo operators, aircraft leasing companies, corporate and individual owners of aircraft as well as maintenance, repair and overhaul facilities and various agencies of the United States government, including the military. Management believes that aftermarket sales will continue to be an attractive market as a result of the following factors:
- Air travel traffic continues to increase. In the United States, large commercial transport revenue passenger miles have increased from approximately 431 billion in 1987 to approximately 604 billion in 1997, with 1991 representing the only year in the last ten years in which annual revenue passenger miles decreased. On a worldwide basis, revenue passenger miles have increased from approximately 978 billion in 1985 to 1,719 billion in 1996.
- Total aircraft fleet size has continued to increase despite the volatility of orders and deliveries. At the end of 1997 the large commercial aircraft fleet consisted of approximately 11,900 aircraft, a 4.5% compound annual increase from approximately 7,700 aircraft in 1987. Similarly, the regional aircraft fleet, which consists of turbo-prop and jet aircraft, has increased from approximately 4,900 units in 1987 to approximately 7,500 units in 1997 and the business aircraft fleet has increased from approximately 6,100 units in 1987 to approximately 8,700 units in 1997.
- Aircraft capacity utilization remains at high levels. Passenger load factors, measured as the percentage of occupied seats per flight, for U.S. carriers have increased from 62% in 1987 to 68% in 1996, a record for the industry. During 1997, carriers achieved 69% load factors on a worldwide basis.
OEM
Demand for OEM components depends on new aircraft deliveries. Demand for new aircraft is a function of (1) demand for air travel, (2) aircraft operator profitability, (3) fleet age, (4) regulatory mandates such as noise reduction, and (5) the lag time between order and delivery, which causes airlines to order aircraft according to perceived future need.
- In the early 1990's, many airlines significantly reduced spending on new aircraft and extended the average age of their fleets due to weakened financial performance. With the return of airline profitability, commercial OEMs have experienced a surge in aircraft orders and deliveries which resulted in large commercial transport deliveries growing from a low of 370 aircraft in 1995 to estimated 774 aircraft by the end of 1998.
- The regional jet aircraft market has grown significantly in recent years as turbo-jet powered aircraft have made substantial inroads in a market traditionally served by the turboprop powered aircraft and some smaller commercial transports. Regional jets have greater range, faster speed and lower noise levels and are perceived as safer and more comfortable by passengers. U.S. regional revenue passenger miles have increased from approximately 4.0 billion miles in 1987 to approximately 7.7 billion miles in 1996. Regional aircraft deliveries have increased significantly to 115 in 1997 since their introduction in 1988. Industry forecasts by the U.S. Regional Airline Association concluded that approximately 1,280 regional and commuter aircraft will be delivered between 1998 and 2008.
- The business jet market is driven by, among other factors, the increasing popularity of fractional ownership and the increasing demand for more expedient and convenient travel. Deliveries of executive jets have increased significantly since 1987.
- The FAA has mandated that aircraft flying in U.S. airspace comply with Stage 3 noise standards by December 31, 1999. Other countries, particularly in Western Europe, have instituted similar restrictions. As a result, it is expected that there will be an increased demand for aircraft during the next several years as the aircraft which are not retrofitted with "hush kits" are replaced.
- While military spending for new aircraft has significantly declined with the end of the cold war, military parts and repair spending has been relatively stable for the last several years as existing platforms require parts to remain operational.
COMPETITIVE STRENGTHS
TransDigm believes that its key competitive strengths are:
- LARGE INSTALLED PRODUCT BASE AND RECURRING REVENUE STREAM. Management believes that approximately 70% of TransDigm's sales are derived from parts for which it has achieved sole source designation and approximately 80% of TransDigm's products are of proprietary design. As a result, TransDigm has a large and growing installed base of products on large commercial transport and regional, business and military platforms. This installed base affords TransDigm the opportunity to capture a long-term stream of highly profitable aftermarket revenues. Over the life of an aircraft, sales of replacement parts can generate revenues many times the size of the original OEM purchases. Aftermarket sales generate most of TransDigm's EBITDA, As Defined, because they typically carry gross margins that are significantly higher than those generated from OEM sales.
- PROVEN ABILITY TO DEVELOP NEW PRODUCTS. TransDigm has a successful record of introducing solutions-oriented products. TransDigm works closely with aircraft operators and OEMs to identify their unmet needs, such as a component that fails to meet performance expectations or that requires excessive maintenance. TransDigm then utilizes its engineering and design capabilities to develop a prototype for a component that increases the value of the product to the customer. After rigorous testing requirements have been fulfilled and TransDigm has obtained necessary regulatory approvals, the product is made available for sale in the aftermarket and to OEMs. Management believes that its ability to successfully develop new products has contributed to its significant growth.
- DIVERSIFIED BUSINESS MIX. TransDigm's business is fairly evenly distributed between sales in the aftermarket and sales to OEMs. Each of these segments are further distributed among the large commercial transport and regional, business and military aircraft markets. As a result, TransDigm is not overly dependent on any one segment, with the large commercial transport OEM market accounting for less than 20% of sales in fiscal 1998 and the thirteen weeks ended January 1, 1999.
- LEADING POSITIONS IN NICHE MARKETS. With over 40 years of experience in most of its product lines, TransDigm has well-established and highly regarded products and trade names, such as "Adel," "Wiggins," "Controlex," "Marathon" and "SuperPower," and is a leader in many of its product lines.
For example, TransDigm believes that it is the leading supplier of tube connectors for use in the flexible fluid systems found on most aircraft platforms.
- EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. TransDigm's management team collectively has over 125 years of industry experience and brings a disciplined approach to the business. Management has a proven track record of consolidating operations, reducing overhead and rationalizing costs. Since TransDigm was created in 1993, management has successfully integrated four distinct operating divisions and formed AdelWiggins and AeroControlex. Most recently management has successfully integrated Marathon into TransDigm. The management team has dramatically improved the operating performance and strategic position of TransDigm. EBITDA, As Defined, margins have improved from 19.0% in fiscal 1994 to 39.3% in fiscal 1998. In addition, management owns approximately 12.5% of the capital stock of Holdings on a fully diluted basis, which amount is subject to an increase to approximately 21.3% if certain performance targets are met.
BUSINESS STRATEGY
Key elements of TransDigm's strategy are:
- PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. TransDigm will continue to focus on marketing and manufacturing highly engineered products to customers that place a premium on TransDigm capabilities. TransDigm has been effective in communicating to aircraft operators the value of TransDigm's products in terms of cost savings generated by their greater reliability and performance and reduced maintenance requirements. TransDigm's reputation for quality and sole supplier status for many parts has allowed it to achieve substantial gross margins on its aftermarket products. TransDigm intends to continue to develop and market high value added products that carry higher gross margins by emphasizing their benefits to the customer.
- GENERATE NEW BUSINESS INITIATIVES. TransDigm has been successful in identifying and commercializing new business opportunities to drive revenue growth. TransDigm has been particularly effective in creating aftermarket opportunities by developing superior products to retrofit aircraft already in service. New business has contributed significantly to TransDigm's 14% compound annual net sales growth rate, excluding Marathon's net sales growth, since fiscal 1994, which TransDigm believes is well in excess of the industry average growth rate during the same period. TransDigm intends to continue to aggressively pursue growth opportunities through its new business initiatives.
- REALIZE PRODUCTIVITY SAVINGS. Management will continue to focus on improving operating margins through manufacturing improvements and increases in employee productivity. Management has achieved significant increases in productivity since fiscal 1994. Manufacturing facilities have been rationalized and manufacturing and other business practices have been redesigned to maximize efficiency. For example, TransDigm encourages its employees through performance incentives to learn to operate multiple manufacturing stations in order to minimize overall labor costs. This initiative and others like it have enabled TransDigm to significantly increase sales without material increases in headcount.
- PURSUE STRATEGIC ACQUISITIONS. TransDigm intends to aggressively pursue acquisitions where it believes that it can enhance value, reduce costs and develop new business. The aircraft component industry is highly fragmented, with many of the companies in the industry being owned by small operators. TransDigm believes the industry is experiencing consolidation due to customer requirements, inherent economies of scale and technological advancements that favor more sophisticated competitors. TransDigm completed the Marathon acquisition and the acquisition of ZMP in August 1997 and April 1999, respectively. TransDigm regularly engages in discussions with respect to other acquisition and investment opportunities. See the section "Risk Factors" under the heading "Risk Related to Potential Future Acquisitions."
OPERATING GROUPS
TransDigm was formed in 1993 through a management-led buyout of IMO. TransDigm operates four business units: Adelwiggins, AeroControlex, Marathon and Adams Rite Aerospace. AdelWiggins, which is located in Los Angeles, CA and had 177 full time employees at September 30, 1998, manufactures an extensive line of proprietary fuel and hydraulic system connectors and specialized clamps, heaters and refueling systems. AdelWiggins was formed in 1994 from the consolidation of the Adel Fasteners and Wiggins Connectors divisions acquired from IMO. Founded in 1938 and 1925, respectively, both Adel Fasteners and Wiggins Connectors have had a long history in the aircraft components industry and enjoy strong brand name recognition.
AeroControlex, which is located in Cleveland, OH and had 183 full-time employees at September 30, 1998, manufactures proprietary pumps, compressors, valves, couplings and mechanical controls for commercial and military aircraft and marine applications. AeroControlex was formed in 1994 from the consolidation of the Aeroproducts and Controlex divisions acquired from IMO.
Marathon, which is located in Waco, TX and had 178 full-time employees at September 30, 1998, was acquired by TransDigm in August 1997 as a strategic addition to its AdelWiggins and AeroControlex business lines. Marathon has been a leading manufacturer of nickel-cadmium batteries and static inverters to the aerospace industry since its founding in 1923. Management has successfully integrated the Marathon business unit into the TransDigm culture and believes that, over the next several years, Marathon offers upside potential similar to that achieved with the integration of AdelWiggins and AeroControlex.
Adams Rite Aerospace, which is located in Fullerton, CA and had 253 employees at April 24, 1998, was acquired in April 1999 as a strategic addition to TransDigm's other three business lines. Adams Rite Aerospace is a leading manufacturer of mechanical hardware, fluid controls, lavatory hardware, electromechanical controls and oxygen systems related products and sells its products to substantially the same customer base, primarily on a sole source basis, as that of TransDigm's other three business lines.
PRODUCTS
TransDigm's products are found on virtually all types of aircraft, and TransDigm supplies components to all major domestic and international airlines. Management estimates that over 80% of TransDigm's products are of proprietary design and approximately 70% of TransDigm's sales are derived from parts for which it has achieved sole source designation. TransDigm's products are grouped into fifteen major product lines, each of which is profitable and is operated as a semiautonomous business unit.
Much of TransDigm's recent success has been due to its identification and development of new products for sale in the commercial aftermarket. TransDigm works closely with customers to identify their unmet needs, such as a component that fails to meet performance expectations or that requires excessive maintenance. TransDigm then utilizes its engineering and design capabilities to develop a prototype for a component that increases value of the product to the customer. After rigorous testing requirements have been fulfilled and TransDigm has obtained necessary regulatory approvals, the product is made available for sale in the aftermarket and to OEMs.
ADELWIGGINS. Adelwiggins manufactures over 8,000 SKUs, representing 40% of TransDigm's sales for fiscal 1998, which constitute five of TransDigm's fifteen major product lines: (A) flexible tube connectors, (B) special connectors, (C) Adel clamps, (D) Wiggins service systems and (E) heaters and hoses. Tube connectors are fluid line connectors that provide leak tight joints and are found in flexible fluid systems on most aircraft platforms including fuel, water, waste and environmental systems. Special connectors are connectors designed to allow breaking and reconnecting of fluid lines under pressure
and are found in quick disconnect applications including refueling and other fluid management systems for military, space and rocket launch applications and in frangible connectors for large commercial transports. Adel clamps include cushioned clamps, engineered elastomers, bare metal clamps, clampshells, block clamps and quick release clamps used to support fuel, hydraulic, fluid and electric lines and are found in a broad variety of clamps located throughout the airplane, including in engines to address high temperature and high vibration requirements. Wiggins service systems include proprietary refueling nozzles and systems, vents, receivers and quick disconnects and are found in mine refueling equipment and military applications such as tanks and armored vehicles that require high flow capabilities and universal compatibility. Heaters and hoses consists of specialized hoses and heaters, including blanket and ribbon heaters, heater cuffs, heated nipples and gaskets and heated tanks throughout the aircraft and are designed to prevent freezing of fluids such as potable water and waste and to provide heat for hot water service applications.
AdelWiggins designs its products specifically to meet the engineering requirements of its customers, focusing on aspects such as: reduced-profile or low-profile geometry, broad ranges of high-temperature service, ease of installation and, where possible, utilization of advanced materials to maximize the strength-to-weight ratios of its components. These factors are critical to both OEMs and commercial airlines given their emphasis on reducing both acquisition and operating costs. In addition, TransDigm believes AdelWiggins' products have a reputation for long service lives and extremely high reliability in stressful operating environments.
Approximately 60% of AdelWiggins' products are proprietary products designed to meet specific customer needs. The remaining 40% are industry standard designs. Roughly 55% of AdelWiggins' products are sole sourced, which is advantageous to TransDigm because it creates significant switching costs associated with the development and qualification of alternative engineered solutions. This sole sourced status has contributed to AdelWiggins achieving aftermarket sales of 30% of its net sales in fiscal 1998. See "Business--Customers."
AEROCONTROLEX. AeroControlex manufactures over 13,000 SKUs, representing 39% of TransDigm's sales for fiscal 1998, which constitute three of TransDigm's fifteen major product lines: (A) mechanical controls, (B) pumps and (C) valves and quick disconnects. Mechanical controls include electromechanical control systems, sliding and ball bearing control cables and gearboxes which are found in the lavatory drain, throttle control, engine feedback, landing gear release and in ejection seats and fuel and air systems. Pumps primarily include gear pumps which are found in hydraulic and fuel systems applications. Valves and quick disconnects include fuel and air system valves, compressors and quick disconnects which are found in air conditioning packages and fuel, radar and potable water systems.
AeroControlex designs, manufactures and sells pumps, compressors, valves, couplings and mechanical controls primarily for the commercial and military aircraft markets. AeroControlex has developed a reputation for providing high-quality, reliable products consistently delivered on time. AeroControlex works closely with customers to leverage its engineering expertise to create technical solutions to customer-specific problems. About 95% of AeroControlex products are proprietary and over 90% are sold on a sole-source basis, which is advantageous to TransDigm because its creates significant switching costs associated with the development and qualification of alternative engineered solutions. This sole sourced status has contributed to AeroControlex achieving aftermarket sales of 68% of its net sales in fiscal 1998. See "Business--Customers."
MARATHON. Marathon manufactures over 5,000 SKUs, representing 21% of TransDigm's sales for fiscal 1998, which constitute three of TransDigm's fifteen major product lines: (A) vented cell nickel-cadmium batteries, (B) static inverters and (C) sealed cell nickel-cadmium batteries. Vented cell nickel- cadmium batteries and sealed cell batteries are used for engine starting and emergency power aboard various aircraft while static inverters convert direct current to alternating current for use in applications
such as flight instrumentation and communication. Marathon products are used for numerous military applications, such as the F-16, F-18, Blackhawk, Apache and Cobra programs. Approximately 50% of Marathon's products have achieved sole sourcing status with its customers.
Marathon is one of the worlds leading manufacturers of vented cell nickel-cadmium batteries, which require frequent maintenance, as individual cells within a battery are replaced throughout the life of the battery. Marathon, which manufactures and sells both entire batteries and individual cells, realizes replacement revenue in the aftermarket throughout the life of the battery as a result of its position as a sole source supplier of products that accounted for over 50% of its sales. Over 95% of Marathon's sales are proprietary, the status of which has contributed to Marathon achieving aftermarket sales of 69% of its net sales in fiscal 1998. Vented cell batteries are marketed under the Marathon-TM- and SuperPower-TM- brand names.
ADAMS RITE AEROSPACE. Adams Rite Aerospace manufactures over 6,000 SKUs, which constitute four of TransDigm's fifteen major product lines: (A) mechanical hardware, (B) fluid control products, (C) electromechanical control products and (D) oxygen systems related products. Mechanical hardware include hardware installed inside the aircraft, such as overhead stowage bin latches, lavatory indicator and door latches, seat control cables and decompression latches, and hardware installed outside of the aircraft, such as door bolting systems. Fluid control products include various aircraft water system components, such as spigots, soap dispensers and water shut-off valves as well as entire self-contained water systems. Electromechanical control products include throttle quadrants, control wheels, electric strikes, speed brake controls and a variety of handle grips. Oxygen systems related products include oxygen cylinders, masks, reducers and control panels.
SALES AND MARKETING
Consistent with TransDigm's overall strategy, TransDigm's sales and marketing organization is structured to understand and anticipate the needs of customers in order to continually develop a stream of technical solutions that generate significant value. Particular focus is on the high-margin, repeatable aftermarket segment.
TransDigm has structured AdelWiggins', AeroControlex's and Marathon's sales efforts along their collective eleven major product lines, assigning a Product Line Manager to each line. Management anticipates that Adams Rite Aerospace's sales efforts will be structured in a similar fashion. The Product Line Managers are expected to grow the sales and profitability of their product line faster than the served market and to achieve the targeted annual level of booking, sales, new business and profitability for each product. Assisting the Product Line Managers are Account Managers and Sales Engineers who are responsible for covering both major OEM and airline accounts. They are expected to be familiar with the personnel, organization and needs of specific customers, for achieving total bookings and new business goals at each account, and, in conjunction with the Product Line Managers, for determining when additional resources are required at customer locations. All of TransDigm's sales personnel are compensated in part on their bookings and sales and ability to identify and convert new business opportunities.
Though the majority are employees, the Account Manager function may be performed by independent representatives depending on the specific customer, product and geographic location. TransDigm also uses a limited number of distributors to provide logistical support as well as primary customer contact with certain smaller accounts. TransDigm's largest distributor is Aviall, which provides logistic services to the commercial airlines.
MANUFACTURING AND ENGINEERING
TransDigm maintains four manufacturing facilities. Each facility serves its respective operating group, and comprises manufacturing, distribution and engineering as well as corporate functions,
including management, sales and finance. The AdelWiggins, AeroControlex, Marathon and Adams Rite Aerospace facilities encompass approximately 105,000, 44,000, 150,000 and 100,000 square feet of manufacturing space in Los Angeles, California, Cleveland, Ohio, Waco, Texas and Fullerton, California, respectively. In the last several years, management has taken a number of steps to improve productivity and reduce costs, including consolidating operations, developing improved control systems that allow for accurate product line profit and loss accounting, investing in equipment and tooling, installing modern information systems and implementing a broad-based employee training program. Management believes that TransDigm's manufacturing systems and equipment are critical competitive factors that permit it to meet the rigorous tolerances and cost sensitive price structure of aircraft customers. TransDigm concentrates in manufacturing by product line, alternating its equipment among designs as demand requires. TransDigm is in the process of applying its proven manufacturing strategy to the Marathon facility, where its expects to be able to substantially improve Marathon's performance.
Each of TransDigm's operating groups attempts to differentiate itself from its competitors by producing highly engineered products at a low cost. TransDigm's proprietary products are designed by its engineering staff and intended to serve an unmet need in the aircraft component industry, particularly through its new product initiatives. See "--Products." These proprietary designs must withstand the extraordinary conditions and stresses that will be endured by products during use and meet the rigorous demands of TransDigm's customers tolerance and quality requirements.
TransDigm uses sophisticated equipment and procedures to ensure the quality of its products and to comply with military specifications and FAA and OEM certification requirements. TransDigm performs a variety of testing procedures, including testing under different temperature, humidity and altitude levels, shock and vibration testing and X-ray fluorescent measurement. These procedures, together with other customer approved techniques for document, process and quality control, are used throughout TransDigm's manufacturing facilities.
CUSTOMERS
TransDigm's customers include (A) commercial airlines, including national and regional airlines, particularly for aftermarket MRO components, (B) large commercial transport and regional and business aircraft OEMs, (C) various agencies of the United States' government, including the United States military, and (D) various other industrial customers. TransDigm's three largest customers for fiscal 1998, were Aviall, a distributor of aftermarket parts to airlines throughout the world, Boeing which includes, McDonnell Douglas, and various agencies of the United States' government, which accounted for approximately 20%, 14% and 9%, respectively, of TransDigm's net sales in fiscal 1998. TransDigm's top ten customers accounted for approximately 61% of TransDigm's net sales for fiscal 1998.
TransDigm has strong customer relationships with virtually all important large commercial transport, general aviation and military OEMs. The demand for TransDigm's aftermarket parts and services is related to TransDigm's extensive installed base and to revenue passenger miles and, to a lesser extent, to airline profitability and the size and age of the worldwide aircraft fleet. See "Business--Industry Overview." Some of TransDigm's business is executed under long-term agreements with customers which encompass many products under a common agreement. See "Risk Factors-- Customer Contracts." TransDigm is also a leading supplier of components used on United States' designed military aircraft. TransDigm's products are used on a variety of fighter aircraft, and helicopters. Military aircraft using TransDigm's products include the Lockheed F-15 and F-16, the E2C (Hawkeye) and Blackhawk and Apache helicopters.
COMPETITION
TransDigm competes with a number of established companies, including divisions of larger companies, that have significantly greater financial, technological and marketing resources than TransDigm. The niche markets within the aerospace industry served by TransDigm are relatively fragmented with several competitors for each of the products and services provided by each of AdelWiggins, AeroControlex and Marathon. Due to the global nature of the commercial aircraft industry, competition in these categories comes from both U.S. and foreign companies. However, TransDigm knows of no single competitor that provides the same range of products and services as those provided by TransDigm. Competitors in TransDigm's product lines range in size from divisions of large corporations to small privately held entitles, with only one or two components in their entire product line. Some of TransDigm's competitors have significantly greater financial, technological and marketing resources than TransDigm. TransDigm believes that its ability to compete depends on high product performance, short lead-time and timely delivery, competitive price, and superior customer service and support. There can be no assurance that TransDigm will be able to compete successfully with respect to these or other factors. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The commercial aircraft component industry is highly regulated by both the FAA in the United States and by the Joint Aviation Authorities in Europe, while the military aircraft component industry is governed by military quality specifications. TransDigm, and the components it manufacturers, are required to be certified by one or more of these entities, and, in some cases, by individual OEMs in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, the operations of TransDigm would be adversely affected. In the future, new and more stringent government regulations may be adopted, or industry oversight may be heightened, which may have an adverse impact on TransDigm.
TransDigm must also satisfy the requirements of its customers, including OEMs and airlines, that are subject to FAA regulations, and provide these customers with products and services that comply with the government regulations applicable to commercial flight operations. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and TransDigm currently satisfies or exceeds these maintenance standards in its repair and overhaul services. Several of TransDigm's operating divisions include FAA-approved repair stations.
TransDigm's operations are also subject to a variety of worker and community safety laws. OSHA mandates general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of certain hazardous and toxic substances. TransDigm believes that its operations are in material compliance with OSHA's health and safety requirement.
RAW MATERIALS AND PATENTS
The components that TransDigm manufactures require the use of various raw materials including titanium, aluminum, nickel powder, nickel screen, stainless steel and cadmium, the availability and prices of which may fluctuate. The price of raw materials and outside processing represented approximately 20% of the sales price of the Company's products for fiscal 1998. Price increases in these supplies may not be able to be recovered. TransDigm also purchases a variety of manufactured component parts from various suppliers although TransDigm is concentrating its orders among fewer suppliers to strengthen its supplier relationships. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in TransDigm's ability to obtain necessary raw materials and component parts may affect its ability to meet customer production needs.
TransDigm has various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights which TransDigm believes, in the aggregate but not individually, are important to its business.
ENVIRONMENTAL MATTERS
TransDigm's operations and current and/or former facilities are subject to federal, state and local environmental laws and to regulation by government agencies, including the Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of hazardous materials and pollutants, govern response actions to hazardous materials which may be or have been released to the environment, and require TransDigm to obtain and maintain permits in connection with its operations. The extensive regulatory framework imposes significant compliance burdens and risks on TransDigm. Although management believes that TransDigm's operations and its facilities are in compliance in all material respects with applicable environmental laws, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of TransDigm's operations will not require TransDigm to make significant additional expenditures to ensure compliance in the future. According to some environmental laws, a current or previous owner or operator of real property may be liable for the costs of investigations, removal or remediation of hazardous materials at such property. Those laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous materials. Persons who arrange, or are deemed to have arranged, for disposal or treatment of hazardous materials also may be liable for the costs of investigation, removal or remediation of those substances at the disposal or treatment site, regardless of whether the affected site is owned or operated by that person. Because TransDigm owns and/or operates a number of facilities, and because TransDigm arranges for the disposal of hazardous materials at many disposal sites, TransDigm may incur costs for investigation, removal and remediation, as well as, capital costs associated with compliance. Although those environmental costs have not been material in the past and are not expected to be material in the future, there can be assurance that changes in environmental laws or unexpected investigations and clean-up costs will not be material. See "Risk Factors--Potential Exposure to Environmental Liabilities." TransDigm does not currently contemplate material capital expenditures for environmental compliance remediation for fiscal 1999 or fiscal 2000.
The soil and groundwater beneath TransDigm's facility in Waco, Texas, have been impacted by releases of hazardous materials. Because the majority of the contaminants identified to date are presently below action levels prescribed by the Texas Natural Resources Conservation Commission, TransDigm does not believe the condition of the soil and groundwater at the Waco facility will require incurrence of material capital expenditures; however, there can be no assurance that additional contamination will not be discovered or that the remediation required by the Texas Natural Resources Conservation Commission will not be material to the financial condition, results of operations or cash flows of TransDigm.
PROPERTIES AND FACILITIES
TransDigm owns and operates a 130,000 square foot facility in Los Angeles, California, a 63,000 square foot facility in Cleveland, Ohio and a 219,000 square foot facility in Waco, Texas which is also TransDigm's headquarters. In addition, TransDigm leases and operates a 100,000 square foot facility in Fullerton, California. TransDigm also leases certain of its other facilities. Management believes that its machinery, plants and offices are in satisfactory operating condition, and, upon completion of its planned 10,000-20,000 square foot expansion of the AeroControlex manufacturing facility, will have sufficient capacity to meet foreseeable future needs without incurring significant additional capital expenditures.
EMPLOYEES
As of September 30, 1998, TransDigm had approximately 540 full-time employees and 45 temporary employees. Approximately 11% of TransDigm employees were represented by the United Steelworkers Union, and approximately 19% were represented by the United Automobile, Aerospace and Agricultural Implement Workers of America. Collective bargaining agreements between TransDigm and these labor unions expire on April 2002 and November 2000, respectively. TransDigm considers its relationship with its employees generally to be satisfactory and does not expect any difficulty in reaching new collective bargaining agreements.
LEGAL PROCEEDINGS
During the ordinary course of business, TransDigm is from time to time threatened with, or may become a party to, legal actions and other proceedings. While TransDigm is currently involved in some legal proceedings, management believes the results of these proceedings will not have a material effect of the results of operations of TransDigm, in part due to indemnification arrangements. TransDigm believes that its potential exposure to those legal actions is adequately covered by its aviation product and general liability insurance.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The directors, executive officers, and other key employees of TransDigm and its subsidiaries are as follows:
NAME AGE POSITION
----------------------------------------------------- --- -----------------------------------------------------
Douglas W. Peacock................................... 60 Chairman of the Board of Directors and Chief
Executive Officer
W. Nicholas Howley................................... 46 President, Chief Operating Officer and Director
John D. Peterson, Sr. ............................... 54 President, AdelWiggins Group
Raymond F. Laubenthal................................ 37 President, AeroControlex Group
Robert S. Henderson.................................. 42 President, Marathon Power Technologies Company
Peter B. Radekevich.................................. 47 Chief Financial Officer
Stephen Berger....................................... 58 Director
Muzzafar Mirza....................................... 40 Director
William Hopkins...................................... 35 Director
Thomas R. Wall, IV................................... 40 Director
John W. Paxton....................................... 62 Director
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MR. PEACOCK has been Chairman of the Board and Chief Executive Officer of TransDigm since its inception in September 1993. He is also a director of Microporous Products, L.P. Prior to joining TransDigm, Mr. Peacock spent six years with IMO Industries Inc. as Executive Vice President of IMO's Instruments and Aerocomponents Group from 1991-1993, Executive Vice President of Power Systems from 1989-1991, and managed IMO's turbomachinery business from 1987-1989. Prior to joining IMO, Mr. Peacock spent 15 years in various managerial positions at Westinghouse Electric Corp. Mr. Peacock received a B.S. degree in chemical engineering from Washington State and a Ph.D. in physical chemistry from the University of Illinois. Mr. Peacock holds an Airline Transport Pilot Rating and routinely commands flights in TransDigm's corporate aircraft.
MR. HOWLEY has been President, Chief Operating Officer and Director of TransDigm since the consummation of the Recapitalization. Mr. Howley served as Executive Vice President of TransDigm and President of AeroControlex Group from TransDigm's inception in September 1993 to the date of the consummation of the Recapitalization. Prior to joining TransDigm, Mr. Howley served as General Manager of IMO Industries Inc. Aeroproducts division, and Director of Finance for the 15 divisions of IMO's Turbomachinery, Aerospace, and Power Transmission groups. Prior to joining IMO, he held various executive positions at Lansdowne Steel/Lansco Corp., a manufacturer of defense and oil drilling products, and the Engineering and Construction Group of Raytheon Co. Mr. Howley received his B.S. in engineering from Drexel University and an MBA from the Harvard University Graduate School of Business.
MR. PETERSON has been Vice President and President of AdelWiggins Group since June 1996. From 1990 to June 1996, Mr. Peterson was President of the Aerospace Fastener Division of Huck
International. Mr. Peterson received his B.S. in marketing from Western Illinois University and an MBA from Northwestern University, Kellogg Graduate School of Management.
MR. LAUBENTHAL has been President of AeroControlex Group since November 1998. From December 1996 until November 1998, Mr. Laubenthal served as Director of Manufacturing and Engineering for the AeroControlex Group. From October 1993 to December 1996, Mr. Laubenthal served as Director of Manufacturing for the AeroControlex group. Mr. Laubenthal received a B.S. degree in mechanical engineering from Case Western Reserve University and an MBA from Northern Illinois University.
MR. HENDERSON has been President of Marathon Power Technologies Company since April 1997. From November 1994 until April 1997, he served as Manager of Operations for the AdelWiggins Group. From 1991 until 1994 Mr. Henderson served as Operations Manager at RainBird Sprinkler. Mr. Henderson received his B.A. in mathematics from Brown University and attended the Harvard University Graduate School of Business.
MR. RADEKEVICH has been Chief Financial Officer of TransDigm since TransDigm's inception in September 1993. He served as Vice Chairman and Chief Financial Officer of RDK Capital from 1990 to 1993. Prior to joining RDK Capital, Mr. Radekevich spent 16 years with General Electric in various executive and managerial positions in the field of operations, distribution and finance. Mr. Radekevich holds a bachelor of administration degree from Case Western Reserve University.
MR. BERGER has served as a Director of TransDigm since the consummation of the Transactions. He is also currently serving as chairman of Odyssey Investment Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was a general partner of Odyssey Partners, LP. From 1990 to 1993, Mr. Berger served as Chairman and CEO of FGIC, a wholly-owned subsidiary of GE Capital Corp. and subsequently became Executive Vice President of GE Capital Corp. From 1985 to 1990, Mr. Berger was Executive Director of the Port Authority of New York and New Jersey Mr. Berger presently serves as a member of the Board of Trustees of Brandeis University.
MR. MIRZA has served as a Director of TransDigm since the consummation of the Transactions. Mr. Mirza is also currently a member of Odyssey Investment Partners, LLC and has been a principal in the private equity investing group of Odyssey Partners, LP since 1993. From 1988 to 1993, Mr. Mirza was employed by the merchant banking group of GE Capital Corp.
MR. HOPKINS has served as a Director of TransDigm since the consummation of the Transactions. Mr. Hopkins is also currently a member of Odyssey Investment Partners, LLC and has been a principal in the private equity investing group of Odyssey Partners, LP since 1994. Prior to joining Odyssey Mr. Hopkins was a member of the merchant banking group of GE Capital Corp.
MR. WALL joined Kelso & Company in 1983 and has served as a Managing Director of Kelso & Company since 1990. Mr. Wall presently serves as a member of the Board of Directors of AMF Bowling, Inc., Consolidated Vision Group, Inc., Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme Fuel Company Mosler Inc., Peebles, Inc., and 21st Century Newspapers, Inc.
MR. PAXTON has served as a Director of TransDigm since the consumation of the Transactions. Mr. Paxton is also currently chairman of Odyssey Industrial Technologies, LLC, which is a joint venture with Odyssey Investment Partners, LLC and Chairman of the Board, President and Chief Executive Officer of Telxon Corporation. Prior to joining TransDigm as a Director, Mr. Paxton was a member of the Board of Directors of Paxar Corporation ('Paxar") and President of Paxar's Printing Solution Group from October 1997 to the calendar year end 1998. Mr. Paxton served as President and Chief Executive Officer of Monarch Marking Systems from October 1995 to October 1997. Prior to joining Monarch Marking Systems, Mr. Paxton joined Litton Industries ("Litton") as a Corporate Vice President in 1991 when Litton acquired Intermec Corporation. During his years at Litton, Mr. Paxton had responsibility
for the Industrial Automation Group. He became Corporate Executive Vice President and Chief Operating Officer of the Industrial Automation Systems group of Western Atlas, Inc. when Western Atlas, Inc. was spun off by Litton in March 1994. Mr. Paxton presently serves as a member of the Board of Directors of AIM, National Association of Manufacturers, World Economic Forum and Telxon Corporation.
BOARD COMMITTEES
Holdings' Board of Directors has a Compensation Committee and an Audit Committee. The Compensation Committee, which is comprised of Messrs. Berger, Mirza and Hopkins, establishes salaries, incentives and other forms of compensation for executive officers and administers incentive compensation and benefit plans provided for employees. The Audit Committee, which is comprised of Messrs. Berger, Mirza and Hopkins, reviews Holdings' and TransDigm's audit policies and oversees the engagement of the Holdings' and TransDigm's independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by TransDigm for services rendered during fiscal 1998, 1997 and 1996 to the Chief Executive Officer of TransDigm and each of the four other most highly paid executive officers of TransDigm (collectively the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------- UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) SARS COMPENSATION
--------------------------------------- ----------- ---------- ------------ ---------------- --------------- -------------
Douglas W. Peacock..................... 1998 $ 305,000 $ 2,857,500 $ -- -- $ 23,518(3)
Chairman of the Board 1997 290,000 220,000 -- 3,097 20,400
and CEO 1996 275,000 140,000 -- -- 20,200
W. Nicholas Howley..................... 1998 185,000 2,080,000 -- -- 14,446(4)
President, Chief Operating 1997 175,000 125,000 -- 1,900 13,316
Officer and Director 1996 165,000 85,000 -- -- 12,360
John D. Peterson, Sr................... 1998 175,000 280,000 -- -- 12,392(5)
President of AdelWiggins 1997 166,400 80,000 -- 800 14,216
Group 1996 160,000 25,000 -- -- 4,315
Robert S. Henderson.................... 1998 125,000 450,000 -- -- 10,663(6)
President of Marathon Power 1997 109,000 45,900 -- 200 6,192
Technologies Company 1996 103,000 28,800 -- 800 5,942
Peter B. Radekevich.................... 1998 113,000 196,250 -- -- 8,326(7)
Chief Financial 1997 108,000 40,000 -- 200 7,434
Officer 1996 102,000 25,000 -- 1,200 7,185
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(1) Bonus for fiscal year 1998 includes a one-time bonus paid by Holdings in connection with the Recapitalization.
(2) Does not include perquisites and other personal benefits because the value of these items did not exceed the lesser of $50,000 or 10% of reported salary and bonus of any of the listed executives.
(3) Includes $17,200 in contribution by TransDigm, as projected to calendar year end 1998, to a plan established under Section 401(k) of the Internal Revenue Code (the "401(k) plan") and $6,318 in company-paid life insurance.
(4) Includes $12,880 in contribution by TransDigm, as projected to calendar year end 1998, to the 401(k) plan and $1,566 in company-paid life insurance.
(5) Includes $9,800 in contribution by TransDigm, as projected to calendar year end 1998, to the 401(k) plan and $2,592 in company-paid life insurance.
(6) Includes $10,000 in contribution by TransDigm, as projected to calendar year end 1998, to the 401(k) plan and $663 in company-paid life insurance.
(7) Includes $7,320 in contribution by TransDigm, as projected to calendar year end 1998, to the 401(k) plan and $1,006 in company-paid life insurance.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
SHARES NUMBER OF SHARES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE MONEY OPTIONS/SARS
EXERCISE ON OPTIONS/SAR AT FISCAL AT
NAME PRICE EXERCISE VALUE REALIZED YEAR-END FISCAL YEAR-END
--------------------------- ----------- ----------- --------------- -------------------------- --------------------------
Douglas W. Peacock $ 100 -- $ -- Exercisable: 9,200 Exercisable: $8,666,400
Chairman of the Board and Unexercisable: 4,200 Unexercisable: 3,956,400
CEO
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 3,097 Unexercisable: 2,189,579
W. Nicholas Howley 100 -- -- Exercisable: 6,900 Exercisable: 6,499,800
President, Chief Unexercisable: 3,150 Unexercisable: 2,967,300
Operating Officer and
Director
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 1,900 Unexercisable: 1,343,300
John D. Peterson, Sr. 200 -- -- Exercisable: 1,250 Exercisable: 1,052,500
President of AdelWiggins Unexercisable: 1,250 Unexercisable: 1,052,500
Group
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 500 Unexercisable: 353,500
Robert S. Henderson 154 -- -- Exercisable: 200 Exercisable: 177,600
President of Marathon Unexercisable: 200 Unexercisable: 177,600
Power Technologies
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
Peter B. Radekevich 100 -- -- Exercisable: 400 Exercisable: 376,800
Chief Financial Officer Unexercisable: 400 Unexercisable: 376,800
200 -- -- Exercisable: 200 Exercisable: 168,400
Unexercisable: 200 Unexercisable: 168,400
335 -- -- Exercisable: -- Exercisable: --
Unexercisable: 200 Unexercisable: 141,400
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MANAGEMENT STOCKHOLDERS AGREEMENT
Together with the consummation of the Recapitalization, Holdings, Odyssey and the employee stockholders of Holdings, including the Named Executive Officers (the "Management Stockholders")
entered into a Management Stockholders' Agreement (the "Management Stockholders' Agreement") which governs the shares of common stock of Holdings (the "Common Stock") and options to purchase Common Stock, in each case, held by such persons and including the Rollover Investment and new options and shares obtained in connection with the Recapitalization, and shares acquired thereafter, including upon exercise of options. See "--Stock Option Plan."
The Management Stockholders' Agreement provides that, except for certain transfers to family members and family trusts, no Management Stockholder may transfer Common Stock until the fifth anniversary of the Recapitalization, and thereafter, any proposed transfer will be subject to Holdings' right of first refusal.
The Management Stockholders' Agreement also provides that upon termination of the employment of a Management Stockholder, that Management Stockholder will have certain put rights and Holdings will have certain call rights regarding any Common Stock or any options to purchase Common Stock, in each case, owned by him at that time.
Upon Mr. Peacock's cessation of active service as Chief Executive Officer on or after the third anniversary of the Recapitalization, if TransDigm has achieved specified financial targets, he may require Holdings to repurchase up to 80% of his Common Stock during the period, if any, for which he is serving as non-executive Chairman of the Board. See "--Employment Agreements." Mr. Peacock may thereafter require repurchase of the remaining 20% of his Common Stock on or after the fifth anniversary of the Recapitalization or his later termination of services to Holdings. Holdings will be permitted to honor its obligation to Mr. Peacock by issuing notes under certain circumstances.
If the provisions of any law, the terms of credit and financing arrangements or Holdings' financial circumstances would prevent Holdings from making a repurchase of shares pursuant to the Management Stockholders' Agreement, Holdings will not make such purchase until all such prohibitions lapse, and will then also pay the Management Stockholder a specified rate of interest on the repurchase price.
The Management Stockholders' Agreement further provides that in the event of certain types of transfers of Common Stock by Odyssey the Management Stockholders may participate in those transfers and/or Odyssey may require the Management Stockholders to transfer their shares in those transactions, in each case, on a pro rata basis.
Pursuant to the Management Stockholders' Agreement, the Management Stockholders are entitled to participate on a pro rata basis with, and on the same terms as, Odyssey in any future offering of Common Stock. Those participation rights will lapse following a public offering of Common Stock if the Common Stock so offered is then listed on a national exchange or if the public offering includes 50% or more of the outstanding Common Stock that will have been issued following the offering.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, Holdings will enter into an employment agreement with each of Messrs. Peacock and Howley. Pursuant to the agreement with Mr. Peacock, Mr. Peacock will continue to serve as Chairman of the Board and Chief Executive Officer for a period of at least five years, provided that after three years, Mr. Peacock may elect to continue his service either as Chief Executive Officer or as a non-executive Chairman. It is intended that Mr. Howley will be Mr. Peacock's successor. Pursuant to the agreement with Mr. Howley, Mr. Howley will continue to serve as President and Chief Operating Officer of Holdings for a period of at least five years. Those employment agreements also will provide specified severance benefits in the event of termination of employment under certain circumstances.
Each of those employment agreements will provide that in the event the respective executive's employment terminates by reason of death, disability, termination without "cause" or resignation with
"good reason" (all as defined in those employment agreements), Holdings will continue payment of base salary, bonus and other perquisites and benefits, in the case of Mr. Howley, for 15 months thereafter and, in the case of Mr. Peacock, for 18 months thereafter or, if terminated prior to the third anniversary of the Recapitalization, until such third anniversary, whichever is longer.
Pursuant to those employment agreements, Messrs. Peacock and Howley will receive annual base salaries no less than $330,000 and $225,000, respectively, in each case, subject to annual increases as determined by the Compensation Committee, and annual cash bonuses based on achievement of performance criteria established by the Board of Directors.
STOCK OPTION PLAN
Holdings intends to adopt the 1998 Stock Option Plan (the "Option Plan"), pursuant to which stock options may be granted to Independent Directors (as defined in the Option Plan), employees and consultants of Holdings, TransDigm and any subsidiary of Holdings or TransDigm (the "Plan Participants"). In addition, the Option Plan will govern those options retained pursuant to the Rollover Investment (the "Rollover Options"). A total of 12.5% of the fully diluted shares of Common Stock of Holdings as of the Recapitalization was reserved for issuance under the Option Plan exclusive of the Rollover Investment. The Chief Executive Officer will have discretion to select the Plan Participants and to specify the terms of such options, including the number of shares, the exercise price and the vesting and expiration of options, subject to approval by the Compensation Committee.
The Compensation Committee will have discretion under the Option Plan to adjust options to reflect certain specified events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of, or by Holdings. In addition, the Board of Directors will have the right to amend, suspend or terminate the Option Plan, subject to stockholder approval for certain amendments.
The Rollover Options are fully vested and nonforfeitable. In connection with the Recapitalization, Holdings will grant options to certain employees of TransDigm including the Named Executive Officers for the purchase of shares of Common Stock of Holdings (the "New Options"). Such New Options are intended to qualify as "incentive stock options" to the extent permitted under the Internal Revenue Code, and will have an exercise price equal to the price per share paid by Odyssey in connection with the Recapitalization. Twenty percent of each of Messrs. Peacock's and Howley's New Options will become vested as of the date of grant. Subject to the executive's continued employment with and, in the case of Mr. Peacock, continued service as non-executive Chairman of the Board of the Company, the remaining 80% of his New Options will become exercisable upon the earlier of (1) the Company's achievement of specified financial targets or (2) certain specified dates in the Option Agreement. Furthermore, in the event of a "change of control" (as defined in the Option Agreement), a specified percentage of the New Options may become exercisable based upon the terms of such transaction. The New Options generally will expire 10 years after grant and may expire earlier in the event of the executive's earlier termination of employment.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial ownership of the Common Stock of Holdings with respect to each beneficial owner of more than 5.0% of the outstanding common stock of Holdings and beneficial ownership of the Common Stock of Holdings by each director and Named Executive Officer and all directors and executive officers as a group:
COMMON STOCK
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
---------------------------------------------------------------------------------- --------- -------------
Stephen Berger.................................................................... 100,240 (7) 83.9%
--------- ---
Robert S. Henderson............................................................... 783(2) *
--------- ---
William Hopkins................................................................... 100,240 (7) 83.9
--------- ---
W. Nicholas Howley................................................................ 5,943(4) 4.8
--------- ---
Kelso (as defined in footnote (5))................................................ 18,422(5) 15.3
--------- ---
Muzzafar Mirza.................................................................... 100,240 (7) 83.9
--------- ---
Odyssey Investment Partners Fund, LLC............................................. 100,240(7) 83.9
--------- ---
Douglas W. Peacock................................................................ 6,900(8) 5.4
--------- ---
John D. Peterson.................................................................. 1,302(9) 1.1
--------- ---
Peter B. Radekevich............................................................... 587 10) *
--------- ---
Thomas R. Wall, IV................................................................ 18,422(5) 15.3
--------- ---
All officers and directors as a group (14 members)................................ 135,476 11) 99.0
--------- ---
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* Less than 1.0%
(1) Includes 100,240 shares and votes deemed to be beneficially owned by the General Partner of Odyssey (as defined), of which Mr. Berger is a senior managing member. As a result, Mr. Berger may be deemed to share voting and investment power with respect to such shares. Mr. Berger disclaims beneficial ownership of such shares.
(2) Includes 772 shares purchasable within 60 days upon the exercise of options held by Mr. Henderson.
(3) Includes 100,240 shares and votes deemed to be beneficially owned by the General Partner of Odyssey, of which Mr. Hopkins is a managing member. As a result, Mr. Hopkins may be deemed to share voting and investment power with respect to such shares. Mr. Hopkins disclaims beneficial ownership of such shares.
(4) Includes 5,790 shares purchasable within 60 days upon the exercise of options held by Mr. Howley.
(5) KIA IV-TD, LLC ("KIA IV-TD) and Kelso Equity Partners II, L.P. ("KEP II") have beneficial ownership of 17,473 and 949 shares, respectively. Due to their common control, KIA IV-TD, Kelso Partners IV, L.P., the managing member of KIA IV-TD ("KP IV" and, together with KIA IV-TD and KEP II, "Kelso"), and KEP II could be deemed to beneficially own each other's shares, but each disclaims such beneficial ownership. In addition, Mr. Wall, Joseph S. Schuchert, Frank T. Nickell, George E. Matelich, Michael B. Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr. may be deemed to share beneficial ownership of shares beneficially owned by KIA IV-TD, KP IV and KEP II by virtue of their status as general partners of KP IV, which is the managing member of KIA IV-TD, and as general partners of KEP II, but each disclaims such beneficial ownership. The address of each of KIA IV-TD, KP IV, KEP II and Messrs. Wall, Schuchert, Nickell, Matelich,
Goldberg, Wahrhaftig and Bynum is c/o Kelso & Company, 320 Park Avenue, 24th Floor, New York, New York 10022.
(6) Includes 100,240 shares and votes deemed to be beneficially owned by the General Partner of Odyssey, of which Mr. Mirza is a managing member. As a result, Mr. Mirza may be deemed to share voting and investment power with respect to such shares. Mr. Mirza disclaims beneficial ownership of such shares.
(7) The principal business address for Odyssey Investment Partners Fund, LLC is 280 Park Avenue, West Tower, 38th Floor, New York, NY 10017. The general partner of Odyssey Investment Partners Fund LLC, is Odyssey Capital Partners, LLC, a Delaware limited liability company (the "General Partner of Odyssey"). In addition to Messrs. Berger, Hopkins and Mirza, Paul D. Barnett, Brian Kwait and Brian F. Wruble are managing members of the General Partner of Odyssey and, therefore, may each be deemed to share voting and investment power with respect to 100,240 share and votes deemed to be owned by the General Partner of Odyssey. Each of Messrs. Barnett, Kwait and Wruble disclaims beneficial ownership of such shares.
(8) Includes 6,089 shares purchasable within 60 days upon the exercise of options held by Mr. Peacock and 811 shares and votes owned by TD Equity LLC, of which Mr. Peacock is the managing member. Mr. Peacock disclaims ownership of the 811 shares and votes owned by TD Equity LLC.
(9) Includes 1,270 shares purchasable within 60 days upon the exercise of options held by Mr. Peterson.
(10) Includes 568 shares purchasable within 60 days upon the exercise of options held by Mr. Radekevich.
(11) As described in footnotes (1), (3), (5), (6), (7) and (8), Messrs. Berger, Hopkins and Mirza may each be deemed to share investment and voting power with respect to 100,240 shares deemed to be beneficially owned by the General Partner of Odyssey, Mr. Wall may be deemed to share investment and voting power with respect to 18,422 shares owned by Kelso and Mr. Peacock may be deemed to share investment and voting power with respect to 811 shares owned by TD Equity LLC. Each of Messrs. Berger, Hopkins, Mirza, Wall and Peacock disclaims ownership of such shares. Excluding such shares, all officers and directors as a group beneficially own 17,030 shares or 12.5%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX ALLOCATION AGREEMENT
TransDigm and Holdings entered into a Tax Allocation Agreement concurrently with the consummation of the Recapitalization. Under the terms of the Tax Allocation Agreement, TransDigm is obligated to make payments to Holdings equal to the amount of income taxes that TransDigm would have owed in respect of federal and state income taxes on behalf of TransDigm and its subsidiaries if TransDigm and its subsidiaries were, for tax purposes, a separate consolidated group.
ONE-TIME MANAGEMENT BONUSES
Following the consummation of the Recapitalization, TransDigm paid certain members of senior management an aggregate of $5.9 million as a one-time bonus in connection with the Recapitalization. See "Management--Executive Compensation."
TERMINATION OF FINANCIAL ADVISORY SERVICES AGREEMENT
TransDigm paid $6.0 million to Kelso & Company, an affiliate of Kelso, in consideration for the termination of a Financial Advisory Services Agreement. This payment was made upon consummation of the Recapitalization.
Kelso may be deemed, collectively, to beneficially own 15.4% of the Common Stock of Holdings on a fully diluted basis. In addition, Mr. Wall, a director of Holdings and TransDigm, is a general partner of each of the Kelso entities.
KELSO STOCKHOLDERS AGREEMENT
Pursuant to the Merger Agreement, Holdings, Odyssey and KIA IV-TD and KEP II entered into a stockholders agreement (the "Stockholders Agreement") concurrently with consummation of the Recapitalization. The Stockholders Agreement provides for customary transfer restrictions, tag-along and drag-along rights, registration rights and an agreement among the parties to vote their shares of Common Stock, including the agreement of Odyssey to designate a representative of Kelso to the Board of Directors of Holdings. See also "Management" for a description of certain agreements that have been entered into with certain members of management in connection with the Recapitalization. See "-Termination of Financial Advisory Services Agreement."
ODYSSEY FINANCIAL SERVICES
As part of the Recapitalization, TransDigm paid Odyssey a fee of approximately $3.5 million. Odyssey is the majority stockholder of Holdings. In addition, Messrs. Berger, Hopkins and Mirza, each a director of Holdings and TransDigm, are managing members of the General Partner of Odyssey.
RECAPITALIZATION
As part of the Recapitalization and under the terms of the Merger Agreement, Phase II Acquisition Corp., a wholly-owned subsidiary of Odyssey, merged with and into Holdings.
Also, together with the Recapitalization and as part of the consideration for the Merger, Holdings (1) issued $20.0 million in Holdings PIK Notes and common stock of Holdings and (2) paid $215.4 million in cash, in each case, to Kelso. See "Transactions," "--Odyssey Financial Services" and "--Termination of Financial Advisory Services Agreement."
DESCRIPTION OF OTHER INDEBTEDNESS
TRANSDIGM
THE NEW CREDIT FACILITY
The New Credit Facility, as amended, consists of (1) a $30.0 million Revolving Credit Facility maturing six years from the date of the execution of the New Credit Facility (the "Execution Date") and (2) a term loan facility in an aggregate principal amount of $124.0 million, consisting of the $62.0 million Tranche A Facility maturing six years from the Execution Date and the $62.0 million Tranche B Facility maturing seven and a half years from the Execution Date.
The New Credit Facility provides that TransDigm shall repay, to the extent then outstanding, (1) with respect to the Tranche A Facility, the specified amount set forth in the New Credit Facility for each quarter beginning on August 15, 1999 and (2) with respect to the Tranche B Facility, (A) $310,000 each of the first two quarters beginning on August 15, 1999, (B) $155,000 each of the remaining quarters during the first six years after the Execution Date and (C) $9,713,333 each of the following six quarters. In addition, subject to some exceptions, the New Credit Facility requires mandatory repayment of the outstanding indebtedness under the New Credit Facility and concurrent reduction to the commitments under the New Credit Facility with the proceeds from (1) assets sales, (2) issuance of debt, (3) issuance of equity interests and capital contributions, (4) insurance and condemnation claims, (5) 50% of annual excess cash flow (as defined in the New Credit Facility) from operations in excess of a predetermined amount and (6) 100% of any purchase price adjustment in favor of TransDigm with respect to the acquisition of ZMP, in each case, by or of Holdings, TransDigm or their subsidiaries. TransDigm will have the option at any time and from time to time to prepay the outstanding indebtedness under the New Credit Facility without penalty or premium.
Indebtedness under the New Credit Facility bears interest at the sum of the
(1) Applicable Margin and (2) at the option of TransDigm either the Base Rate or
the Eurodollar Rate (as defined in the New Credit Facility). The "Base Rate"
means the higher of (i) the rate that Bankers Trust Company ("BTCo") announces
from time to time as its prime lending rate, as in effect from time to time, and
(ii) 1/2 of 1% in excess of the overnight federal funds rate. The "Applicable
Margin" means the percentage per year equal to (1) in the case of Tranche A
Facility and Revolving Credit Facility, (A) bearing an interest rate determined
by the Base Rate, 2.50% through February 16, 1999 and 2.25%, 2.00%, 1.75% or
1.50% thereafter depending on Holdings' ability to achieve the respective debt
coverage ratio specified in the New Credit Facility and (B) bearing an interest
rate determined by the Eurodollar Rate, 3.50% through February 16, 1999 and
3.25%, 3.00%, 2.75% or 2.50% thereafter depending on Holdings' ability to
achieve the respective debt coverage ratio specified in the New Credit Facility
and (2) in the case of Tranche B Facility (A) bearing an interest rate
determined by the Base Rate, 2.50% and (B) bearing an interest rate determined
by the Eurodollar Rate, 3.50%.
The New Credit Facility contains various covenants, customary for similar credit facilities or otherwise appropriate under the circumstances, that (1) restrict Holdings, TransDigm and their subsidiaries from various actions, including, among others, mergers and sales of assets, use of proceeds, granting of liens, incurrence of indebtedness, voluntary prepayment of indebtedness, including the Old Notes and the New Notes, capital expenditures, paying dividends, business activities, investments and acquisitions, transactions with affiliates, certain types of restrictions affecting subsidiaries, voluntary prepayment of other Indebtedness and amendments or modifications to instruments governing such other Indebtedness and (2) require TransDigm to achieve and maintain certain financial covenants.
The New Credit Facility includes events of default provisions that are typical for senior credit facilities or otherwise appropriate under the circumstances. All obligations under the New Credit Facility are guaranteed by Holdings and each of the subsidiaries, direct and indirect, of TransDigm. The indebtedness under the New Credit Facility are secured by a pledge of the stock of TransDigm and all
of its domestic subsidiaries and a perfected lien and security interest in assets other than real estate (tangible and intangible) of TransDigm, its direct and indirect subsidiaries and Holdings.
HOLDINGS
HOLDINGS PIK NOTES
Concurrently with the issuance of the Old Notes by TransDigm, Holdings issued $20.0 million in aggregate face value of its pay-in-kind notes due 2009 (the "Holdings PIK Notes") to KIA IV-TD and KEP II as part of the Recapitalization. The Holdings PIK Notes were issued to KIA IV-TD and KEP II together with shares of Common Stock of Holdings. The Holdings PIK Notes are unsecured obligations of Holdings, subordinated to the guarantee of the New Credit Facility by Holdings, but senior to the guarantee of each of the Old Notes and the New Notes by Holdings.
Interest on the Holdings PIK Notes accrues at an annual fixed rate of 12% and is payable semiannually in the form of additional Holdings PIK Notes for five years after their issuance. Thereafter, cash interest is payable semi-annually commencing in the year 2004. The Holdings PIK Notes are redeemable at the option of Holdings, in whole or in part, at a price equal to 100% of the principal amount of the Holdings PIK Notes for five years after their issuance and thereafter at the prices set forth in the indenture under the terms of which the Holdings PIK Notes were issued (the "Holdings Indenture"). If Holdings experiences specific kinds of changes in control, it must offer to repurchase the Holdings PIK Notes at a price equal to 101% of the principal amount of the Holdings PIK Notes.
The Holdings PIK Notes contain some covenants on a consolidated basis,
including covenants that limit (i) indebtedness, (ii) restricted payments, (iii)
distributions by subsidiaries, (iv) transactions with affiliates, (v) sales of
assets and subsidiary stock, (vi) dividend and other payment restrictions, and
(vii) mergers or consolidations. The Holdings PIK Notes contain customary events
of default and the holders of the Holdings PIK Notes have customary registration
rights commencing on the third anniversary of the closing date. The covenants
and default provisions in the Holdings Indenture are substantially similar to
those contained in the Indenture governing the Old Notes and the New Notes, but
are less restrictive in some respects.
DESCRIPTION OF THE NEW NOTES
TransDigm will issue the New Notes under an indenture (the "Indenture")
among itself, the Guarantors and State Street Bank and Trust Company, as Trustee
(the "Trustee"). The following is a summary of the material provisions of the
Indenture. It does not include all of the provisions of the Indenture. We urge
you to read the Indenture because it defines your rights. The form and terms of
the New Notes will be the same as the form and terms of the Old Notes except
that the New Notes will be freely transferable by you except as otherwise
provided in this Prospectus. See "The Exchange Offer--Purpose and Effect". The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from TransDigm.
You can find definitions of certain capitalized terms used in the following
summary under "--Certain Definitions." For purposes of this section, references
to (1) "TransDigm" means TransDigm Inc. and not its Subsidiaries or Holdings and
(2) the "Notes" mean the New Notes and the Old Notes, in each case, outstanding
at any given time and issued under the Indenture.
These New Notes will be unsecured obligations of TransDigm, ranking subordinate in right of payment to all Senior Debt of the Company.
TransDigm will issue the New Notes in fully registered form in denominations of $1,000 and integral multiples of $1,000. The Trustee will initially act as Paying Agent and Registrar. The New Notes may be presented for registration of transfer and exchange at the offices of the Registrar. TransDigm may change any Paying Agent and Registrar without notice to holders of the New Notes (the "Holders"). TransDigm will pay principal, and premium, if any, on the New Notes at the Trustee's corporate office in New York, New York. At TransDigm's option, interest also may be paid by mailing a check to the Holders registered address. Any Old Notes that remain outstanding after the completion of the Exchange Offer, together with the New Notes issued as part of the Exchange Offer, will be treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $200.0 million, of which up to $125.0 million in aggregate principal amount of the Notes will be outstanding immediately following the Exchange Offer. The Notes will mature on December 1, 2008. Additional Notes may be issued from time to time, subject to the limitations set forth under "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness." Interest on the Notes will accrue at the rate of 10 3/8% per annum and will be payable semiannually in cash on each June 1 and December 1, commencing on June 1, 1999. TransDigm will make interest payments to the persons who are registered Holders at the close of business on the May 15 and November 15 immediately preceding the applicable interest payment date. Interest on the New Notes will accrue from December 3, 1998 or from the date of the last payment of interest on the Old Notes, whichever is later. No additional interest will be paid on Old Notes tendered and accepted for exchange.
The Notes do not contain any mandatory sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, these New Notes are not redeemable before December 1, 2003. Thereafter, TransDigm may redeem the New Notes at its option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the following redemption prices, in each
case, expressed as percentages of the principal amount of the Notes, if redeemed during the twelve month period commencing on December 1 of the year set forth below.
YEAR PERCENTAGE ---------------------------------------------------------------------------------- ----------- 2003.............................................................................. 105.188% 2004.............................................................................. 103.458% 2005.............................................................................. 101.729% 2006 and thereafter............................................................... 100.000% |
In addition, TransDigm must pay all accrued and unpaid interest on the Notes redeemed.
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. On one or more occasions prior to December 1, 2001, TransDigm may use the net cash proceeds of one or more Equity Offerings to redeem up to 35% of the principal amount of the Notes, including the New Notes, issued under the Indenture at a redemption price of 110.375% of the principal amount of the Notes, plus accrued and unpaid interest on the notes, if any, to the date of redemption; PROVIDED that:
(1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after any such redemption; and
(2) TransDigm makes such redemption not more than 120 days after the consummation of such Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that TransDigm chooses to redeem less than all of the Notes, selection of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed; or
(2) on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair and appropriate. No Notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of an Equity Offering, the Trustee will select the Notes only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable. Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as TransDigm has deposited with the Paying Agent funds in satisfaction of the applicable redemption price.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt of TransDigm including its obligations under the New Credit Facility.
The holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of Senior Debt, including interest after the commencement of any bankruptcy or other like proceeding at the rate specified in the applicable Senior Debt whether or not such interest is an allowed claim in any such proceeding, before the Holders of Notes will be entitled to receive any payment with respect to the Notes in the event of any distribution to creditors of TransDigm:
(1) in a liquidation or dissolution of TransDigm;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to TransDigm or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of TransDigm's assets and liabilities.
TransDigm also may not make any payment in respect of the Notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt that permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived (so long as no other event of default exists) or 180 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days.
TransDigm must promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of TransDigm, Holders of these Notes may recover less ratably than creditors of TransDigm who are holders of Senior Debt. See "Risk Factors--Subordination."
At January 1, 1999 on a pro forma basis as if the aquisition of ZMP and the related borrowings under the New Credit Facility had occurred on January 1, 1999, the aggregate principal amount of Senior Debt outstanding of TransDigm and Holdings would have been $133.0 million and $153.2 million, respectively.
GUARANTEE
The obligations of the Company under the Notes and the Indenture will be fully and unconditionally guaranteed (the "Guarantees") on a senior subordinated basis and on a joint and several basis by Holdings and all of the direct and indirect Domestic Restricted Subsidiaries of TransDigm. The Guarantees will be subordinated in right of payment to all Senior Debt of Holdings and the Domestic Restricted Subsidiaries, respectively, to the same extent that the Notes are subordinated to Senior Debt of TransDigm. Since Holdings is a holding company with no significant operations, the Guarantee by Holdings provides little, if any, additional credit support for the Notes, and investors should not rely on the Guarantee by Holdings in evaluating an investment in the Notes.
CHANGE OF CONTROL
If a Change of Control occurs, each Holder will have the right to require that TransDigm purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount of the Notes plus accrued interest to the date of purchase. Within 30 days following the date upon which the Change of Control occurred, TransDigm must send, by first class mail, a notice to each Holder, which notice shall govern the terms
of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event within 30 days following any Change of Control, TransDigm covenants to:
(1) repay in full all Indebtedness under the New Credit Facility and all other Senior Debt the terms of which require repayment upon a Change of Control; or
(2) obtain the requisite consents under the New Credit Facility and all such
other Senior Debt to permit the repurchase of the Notes as provided below.
TransDigm's failure to comply with the covenant described in the immediately
preceding sentence shall constitute an Event of Default described in clause
(3) and not in clause (2) under "Events of Default" below.
TransDigm will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner in compliance with the Indenture.
If a Change of Control Offer is made, there can be no assurance that TransDigm will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event TransDigm is required to purchase outstanding Notes pursuant to a Change of Control Offer, TransDigm expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that TransDigm would be able to obtain such financing.
You should note that this provision will not protect you from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange Act to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that TransDigm complies with the provisions of any such securities laws or regulations, TransDigm shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. TransDigm will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively "incur") any Indebtedness, other than Permitted Indebtedness; PROVIDED, HOWEVER, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, TransDigm and the Guarantors may incur Indebtedness, including, without limitation, Acquired Indebtedness, and Restricted Subsidiaries of TransDigm that are not Guarantors may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of TransDigm would have been greater than 2.0 to 1.0.
LIMITATION ON RESTRICTED PAYMENTS. TransDigm will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of TransDigm) on or in respect of shares of TransDigm's Capital Stock to holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of TransDigm or any direct or indirect parent of TransDigm or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of TransDigm that is subordinate or junior in right of payment to the Notes; or
(4) make any Investment, other than Permitted Investments (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect thereto:
(i) a Default or an Event of Default shall have occurred and be continuing; or
(ii) TransDigm is not able to incur at least $1.00 of additional Indebtedness, other than Permitted Indebtedness, in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments, including such proposed
Restricted Payment, made subsequent to the Issue Date, other than
Restricted Payments made pursuant to clauses (2)(i), (3), (4), (5), (6),
(7), (8), (9) and (10) of the following paragraph, shall exceed the sum,
without duplication, of:
(w) 50% of the cumulative Consolidated Net Income, or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss, of TransDigm earned subsequent to the beginning of the first fiscal quarter commencing after the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus
(x) 100% of the aggregate net cash proceeds, including the fair market value of property other than cash that would constitute Marketable Securities or a Permitted Business, received by TransDigm from any Person, other than a Subsidiary of TransDigm, from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of TransDigm; plus
(y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by TransDigm from a holder of TransDigm's Capital Stock and excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds from an Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under "--Redemption--Optional Redemption Upon Equity Offerings"; plus
(z) 100% of the aggregate net proceeds, including the fair market value of property other than cash that would constitute Marketable Securities or a Permitted Business, of any (A) sale or other disposition of any Investment, other than a Permitted Investment, made by TransDigm and its Restricted Subsidiaries or (B) dividend from, or the sale of the stock of, an Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice;
(2) if no Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof, the acquisition of any shares of Capital Stock of TransDigm (the "Retired Capital Stock") either (A) solely in exchange for shares of Qualified Capital Stock of TransDigm (the "Refunding Capital Stock") or (B) through the application of net proceeds of a substantially concurrent sale for cash, other than to a Subsidiary of TransDigm, of shares of Qualified Capital Stock of TransDigm and, in the case of subclause (A) of this clause (2), if immediately prior to the retirement of the Retired Capital Stock the declaration and payment of dividends thereon was permitted under clause (5) of this paragraph, the declaration and payment of dividends on the Refunding Capital Stock in an aggregate amount per year no greater than the aggregate amount of dividends per annum that was declarable and payable on such Retired Capital Stock immediately prior to such retirement; PROVIDED that at the time of the declaration of any such dividends on the Refunding Capital Stock, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
(3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of TransDigm that is subordinate or junior in right of payment to the Notes either (A) solely in exchange for shares of Qualified Capital Stock of TransDigm, or (B) through the application of net proceeds of a substantially concurrent sale for cash, other than to a Subsidiary of TransDigm, of (a) shares of Qualified Capital Stock of TransDigm or (b) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock, other than Disqualified Capital Stock, issued after the Issue Date, including, without limitation, the declaration and payment of dividends on Refunding Capital Stock in excess of the dividends declarable and payable thereon pursuant to clause (2) of this paragraph; PROVIDED that, at the time of such issuance, TransDigm, after giving effect to such issuance on a pro forma basis, would have had a Consolidated Fixed Charge Coverage Ratio of at least 2.0 to 1.0;
(5) payments to Holdings for the purpose of permitting, and in an amount equal to the amount required to permit, Holdings to redeem or repurchase Holdings' common equity or options in respect thereof, in each case in connection with the repurchase provisions of employee stock option or stock purchase agreements or other agreements to compensate management employees; PROVIDED that all such redemptions or repurchases pursuant to this clause (5) shall not exceed $2.0 million in any fiscal year, which amount shall be increased by the amount of any net cash proceeds received from the sale since the Issue Date of Capital Stock, other than Disqualified Capital Stock, to members of TransDigm's management team that have not otherwise been applied to the payment of Restricted Payments pursuant to the terms of clause (iii) of the immediately preceding paragraph and by the cash proceeds of any "key-man" life insurance policies which are used to make such redemptions or repurchases) since the Issue Date; PROVIDED, FURTHER, that the cancellation of Indebtedness owing to TransDigm from members of management of TransDigm or any of its Restricted Subsidiaries in connection with any repurchase of Capital Stock of Holdings, or warrants or options or rights to acquire such Capital Stock, will not be deemed to constitute a Restricted Payment under the Indenture;
(6) the making of distributions, loans or advances to Holdings in an amount not to exceed $1.0 million PER ANNUM in order to permit Holdings to pay the ordinary operating expenses of Holdings, including, without limitation, directors' fees, indemnification obligations, professional fees and expenses;
(7) payments to Holdings in respect of taxes pursuant to the terms of the Tax Allocation Agreement as in effect on the Issue Date and as amended from time to time pursuant to amendments that do not increase the amounts payable by TransDigm or any of its Restricted Subsidiaries thereunder;
(8) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof;
(9) other Restricted Payments in an aggregate amount not to exceed $7.5 million; and
(10) distributions to Holdings to fund the Transactions described under "Use of Proceeds" subsequent to the issuance of the Notes.
In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended pursuant to clauses (1) and (2)(ii) shall be included in such calculation, PROVIDED such expenditures pursuant to clause (5) shall not be included to the extent of the cash proceeds received by TransDigm from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (3), (4), (5), (6), (7), (8), (9) and (10) shall be excluded from such calculation.
LIMITATION ON ASSET SALES. TransDigm will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) TransDigm or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of, as determined in good faith by TransDigm's Board of Directors;
(2) at least 75% of the consideration received by TransDigm or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; PROVIDED that the amount of:
(a) any liabilities, as shown on TransDigm's or such Restricted Subsidiary's most recent balance sheet, of TransDigm or any such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the Notes, that are assumed by the transferee of any such assets;
(b) any notes or other obligations received by TransDigm or any such Restricted Subsidiary from such transferee that are converted by TransDigm or such Restricted Subsidiary into cash within 90 days of the receipt thereof, to the extent of the cash received; and
(c) any Designated Noncash Consideration received by TransDigm or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed 5% of Total Assets at the time of the receipt of such Designated Noncash Consideration, with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value, shall be deemed to be cash for the purposes of this provision or for purposes of the second paragraph of this covenant; and
(3) upon the consummation of an Asset Sale, TransDigm shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to prepay any Senior Debt, or Indebtedness of a Restricted Subsidiary that is not a Guarantor and, in the case of any such Indebtedness under any revolving credit facility, effect a corresponding reduction in the availability under such revolving credit facility, or effect a
permanent reduction in the availability under such revolving credit facility regardless of the fact that no prepayment is required in order to do so, in which case no prepayment should be required, (B) to reinvest in Productive Assets, or (C) a combination of prepayment and investment permitted by the foregoing clauses (3)(A) and (3)(B). Pending the final application of any such Net Cash Proceeds, TransDigm or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Cash Proceeds in Cash Equivalents. On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of TransDigm or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(A), (3)(B) and (3)(C) of the preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(A), (3)(B) and (3)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by TransDigm or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis, the maximum amount of Notes that may be purchased with the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if at any time any non-cash consideration (including any Designated Noncash Consideration) received by TransDigm or any Restricted Subsidiary of TransDigm, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than $10.0 million, the application of the Net Cash Proceeds constituting such Net Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating to such initial Net Proceeds Offer Amount from all Asset Sales by TransDigm and its Restricted Subsidiaries aggregates at least $10.0 million, at which time TransDigm or such Restricted Subsidiary shall apply all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that have been so deferred to make a Net Proceeds Offer (the first date the aggregate of all such deferred Net Proceeds Offer Amounts is equal to $10.0 million or more shall be deemed to be a Net Proceeds Offer Trigger Date).
Notwithstanding the immediately preceding paragraph, TransDigm and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraph to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes Productive Assets, cash, Cash Equivalents and/or Marketable Securities; and
(2) such Asset Sale is for fair market value; PROVIDED that any consideration consisting of cash, Cash Equivalents and/or Marketable Securities received by TransDigm or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the preceding paragraph.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a PRO RATA basis, based on
amounts tendered. A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. To the extent that the aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, TransDigm may use any remaining Net Proceeds Offer Amount for general corporate purposes or for any other purpose not prohibited by the Indenture. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero.
TransDigm will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, TransDigm shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue of its compliance with the applicable securities laws and regulations.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. TransDigm will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary of TransDigm to:
(1) pay dividends or make any other distributions on or in respect of its Capital Stock;
(2) make loans or advances or pay any Indebtedness or other obligation owed to TransDigm or any other Restricted Subsidiary of TransDigm; or
(3) transfer any of its property or assets to TransDigm or any other Restricted Subsidiary of TransDigm, except for such encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) the Indenture;
(c) non-assignment provisions of any contract or any lease of any Restricted Subsidiary of TransDigm entered into in the ordinary course of business;
(d) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired;
(e) the New Credit Facility;
(f) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date;
(g) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets or Capital Stock permitted under the Indenture to any Person pending the closing of such sale;
(i) any agreement or instrument governing Capital Stock of any Person that is acquired;
(j) any Purchase Money Note or other Indebtedness or other contractual requirements of a Securitization Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Entity;
(k) other Indebtedness or Permitted Subsidiary Preferred Stock outstanding on the Issue Date or permitted to be issued or incurred under the Indenture; PROVIDED that any such restrictions are
ordinary and customary with respect to the type of Indebtedness being incurred or Preferred Stock being issued (under the relevant circumstances);
(l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
(m) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (l) above; PROVIDED that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of TransDigm's Board of Directors (evidenced by a Board Resolution) whose judgment shall be conclusively binding, not materially more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. TransDigm will not permit any of its Restricted Subsidiaries to issue any Preferred Stock, other than to TransDigm or to a Restricted Subsidiary of TransDigm, or permit any Person, other than TransDigm or a Restricted Subsidiary of TransDigm, to own any Preferred Stock of any Restricted Subsidiary of TransDigm, other than Permitted Subsidiary Preferred Stock. The provisions of this covenant will not apply to any of the Guarantors.
LIMITATION ON LIENS. TransDigm will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets or any proceeds therefrom, of TransDigm or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, in each case to secure Indebtedness or trade payables, unless:
(1) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured, except for:
(a) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt;
(c) Liens securing the Notes;
(d) Liens of TransDigm or a Wholly Owned Restricted Subsidiary of TransDigm on assets of any Restricted Subsidiary of TransDigm;
(e) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness that was secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; PROVIDED, HOWEVER, that such Liens do not extend to or cover any categories of property or assets of TransDigm or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and
(f) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. TransDigm will not, and will not permit any Restricted Subsidiary that is a Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, and subordinate in right of payment to any other Indebtedness of TransDigm or such Guarantor, as the case may be.
MERGER CONSOLIDATION AND SALE OF ASSETS. TransDigm will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of or cause or permit any Restricted Subsidiary of TransDigm to sell, assign, transfer, lease, convey or otherwise dispose of, all or substantially all of TransDigm's assets, in each case, determined on a consolidated basis for TransDigm and TransDigm's Restricted Subsidiaries, whether as an entirety or substantially as an entirety to any Person unless:
(1) either:
(a) TransDigm shall be the surviving or continuing corporation; or
(b) the Person, if other than TransDigm, formed by such consolidation or into which TransDigm is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of TransDigm and of TransDigm's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and
(y) shall expressly assume, by supplemental indenture in form and substance satisfactory to the Trustee, executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of TransDigm to be performed or observed;
(2) except in the case of a merger of TransDigm with or into a Wholly Owned Restricted Subsidiary of TransDigm and except in the case of a merger entered into solely for the purpose of reincorporating TransDigm in another jurisdiction, immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred in connection with or in respect of such transaction), TransDigm or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness pursuant to the "Limitation on Incurrence of Additional Indebtedness" covenant;
(3) except in the case of a merger of TransDigm with or into a Wholly Owned Restricted Subsidiary of TransDigm and except in the case of a merger entered into solely for the purpose of reincorporating TransDigm in another jurisdiction, immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above, including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred and any Lien granted in connection with or in respect of the transaction, no Default or Event of Default shall have occurred or be continuing; and
(4) TransDigm or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of TransDigm the Capital Stock of which constitutes all or substantially all of the properties and assets of TransDigm, shall be deemed to be the transfer of all or substantially all of the properties and assets of TransDigm. However, transfer of assets between or among TransDigm and its Restricted Subsidiaries will not be subject to the foregoing covenant.
The Indenture provides that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of TransDigm in accordance with the foregoing, in which TransDigm is not the continuing corporation, the successor Person formed by such consolidation or into which TransDigm is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, TransDigm under the Indenture and the Notes with the same effect as if such surviving entity had been named as such and that, in the event of a conveyance, lease or transfer, the conveyor, lessor or transferor will be released from the provisions of the Indenture.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. TransDigm will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to occur any transaction or series of related transactions, including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service, with, or for the benefit of, any of its Affiliates (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of TransDigm; PROVIDED, HOWEVER, that for a transaction or series of related transactions with an aggregate value of $2.5 million or more, at TransDigm's option, either:
(1) a majority of the disinterested members of the Board of Directors of TransDigm shall determine in good faith that such Affiliate Transaction is on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of TransDigm or
(2) the Board of Directors of TransDigm or any such Restricted Subsidiary party to such Affiliate Transaction shall have received an opinion from a nationally recognized investment banking, appraisal or accounting firm that such Affiliate Transaction is on terms not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of TransDigm;
and PROVIDED, FURTHER, that for an Affiliate Transaction with an aggregate value of $10.0 million or more the Board of Directors of TransDigm or any such Restricted Subsidiary party to such Affiliate Transaction shall have received an opinion from a nationally recognized investment banking, appraisal or accounting firm that such Affiliate Transaction is on terms not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of TransDigm.
The restrictions set forth in the first paragraph of this covenant shall not apply to:
(1) reasonable fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of TransDigm or any Restricted Subsidiary of TransDigm as determined in good faith by TransDigm's Board of Directors or senior management;
(2) transactions exclusively between or among TransDigm and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby, including pursuant to any amendment thereto, in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date;
(4) Restricted Payments or Permitted Investments permitted by the Indenture;
(5) transactions effected as part of a Qualified Securitization Transaction;
(6) the payment of customary annual management, consulting and advisory fees and related expenses to the Permitted Holders and their Affiliates made pursuant to any financial advisory, financing, underwriting or placement agreement or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which are approved by the Board of Directors of TransDigm or such Restricted Subsidiary in good faith;
(7) payments or loans to employees or consultants that are approved by the Board of Directors of TransDigm in good faith;
(8) sales of Qualified Capital Stock;
(9) the existence of, or the performance by TransDigm or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement, including any registration rights agreement or purchase agreement related thereto, to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by TransDigm or any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (9) to the extent that the terms of any such amendment or new agreement are not disadvantageous to the Holders of the Notes in any material respect; and
(10) transactions permitted by and complying with, the provisions of the "Merger, Consolidation and Sale of Assets" covenant.
FUTURE GUARANTEES BY RESTRICTED SUBSIDIARIES. TransDigm will not create or acquire another Domestic Restricted Subsidiary unless such Domestic Restricted Subsidiary executes and delivers a supplemental indenture to the Indenture, providing for a senior subordinated guarantee of payment of the Notes by such Restricted Subsidiary (the "Guarantee").
Notwithstanding the foregoing, any such Guarantee by a Domestic Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon any sale or other disposition, by merger or otherwise, to any Person which is not a Restricted Subsidiary of TransDigm of all of TransDigm's Capital Stock in, or all or substantially all of the assets of, such Domestic Restricted Subsidiary; PROVIDED that such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Indenture. A form of such Guarantee will be attached as an exhibit to the Indenture.
CONDUCT OF BUSINESS. The Indenture provides that TransDigm will not, and will not permit any of its Restricted Subsidiaries to, engage in any businesses a majority of whose revenues are not derived from businesses that are the same or reasonably similar, ancillary or related to, or a reasonable extension, development or expansion of, the businesses in which TransDigm and its Restricted Subsidiaries are engaged on the Issue Date.
REPORTS TO HOLDERS. The Indenture provides that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, TransDigm will furnish to the Holders of Notes:
(1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if TransDigm were required to file those Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of TransDigm and its consolidated Subsidiaries, showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of
TransDigm and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of TransDigm, and, with respect to the annual information only, a report thereon by TransDigm's certified independent accountants and
(2) all current reports that would be required to be filed with the Commission on Form 8-K if TransDigm were required to file such reports, in each case, within the time periods specified in the Commission's rules and regulations. For so long as Holdings is a guarantor of the Notes, the Indenture permits TransDigm to satisfy its obligations under this covenant by furnishing financial information relating to Holdings; PROVIDED that the same is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to Holdings, on the one hand, and the information relating to TransDigm and its Restricted Subsidiaries on a stand-alone basis, on the other hand.
In addition, following the consummation of this exchange offer, whether or not required by the rules and regulations of the Commission, TransDigm will file a copy of all those information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations, unless the Commission will not accept such a filing, and make such information available to securities analysts and prospective investors upon request. In addition, TransDigm has agreed that, for so long as any Old Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d) (4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days, whether or not such payment shall be prohibited by the subordination provisions of the Indenture;
(2) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise, including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer on the date specified for such payment in the applicable offer to purchase and whether or not such payment shall be prohibited by the subordination provisions of the Indenture;
(3) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after TransDigm receives written notice specifying the default and demanding that such default be remedied from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes, except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement;
(4) the failure to pay at final stated maturity, after giving effect to any applicable grace periods and any extensions of the grace periods, the principal amount of any Indebtedness of TransDigm or any Restricted Subsidiary of TransDigm other than a Securitization Entity, which failure continues for at least 20 days, or the acceleration of the final stated maturity of any such Indebtedness, which acceleration remains uncured or unrescinded for at least 20 days, if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, in each case, with respect to which the 20-day period described above has passed, aggregates $5.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $5.0 million shall have been rendered against TransDigm or any of its Significant Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or
(6) certain events of bankruptcy affecting TransDigm or any of its Significant Subsidiaries.
If an Event of Default, other than an Event of Default specified in clause
(6) above with respect to TransDigm, shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to TransDigm and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same:
(1) shall become immediately due and payable or
(2) if there are any amounts outstanding under the New Credit Facility, shall become immediately due and payable upon the first to occur of an acceleration under the New Credit Facility or 5 business days after receipt by TransDigm and the Representative under the New Credit Facility of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (6) above with respect to TransDigm occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration;
(3) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid;
(4) if TransDigm has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the type described in clause (6) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee.
Under the Indenture, TransDigm is required to provide an officers' certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
TransDigm may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that TransDigm shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for:
(1) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due;
(2) TransDigm's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and TransDigm's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, TransDigm may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) TransDigm must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, TransDigm shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that
(a) TransDigm 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, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, TransDigm shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the
Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit, other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing, or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture, other than a Default or an Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing, or any other material agreement or instrument to which TransDigm or any of its Subsidiaries is a party or by which TransDigm or any of its Subsidiaries is bound;
(6) TransDigm shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by TransDigm with the intent of preferring the Holders over any other creditors of TransDigm or with the intent of defeating, hindering, delaying or defrauding any other creditors of TransDigm or others;
(7) TransDigm shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with;
(8) TransDigm shall have delivered to the Trustee an opinion of counsel to the effect that:
(a) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Indenture; and
(b) after the 91st 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
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2) above with respect to a Legal Defeasance need not be delivered if all Notes not therefore delivered to the Trustee for cancellation (1) have become due and payable, or (2) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of TransDigm.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect, except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture, as to all outstanding Notes when
(1) either:
(a) all the Notes theretofore authenticated and delivered, except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by TransDigm and thereafter repaid to TransDigm or discharged from such trust, have been delivered to the Trustee for cancellation or
(b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, pursuant to an optional redemption notice or otherwise, and TransDigm has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from TransDigm directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; and
(2) TransDigm has paid all other sums payable under the Indenture by TransDigm,
The Trustee will acknowledge the satisfaction and discharge of the Indenture if TransDigm has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, TransDigm and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may:
(1) reduce the amount of Notes whose Holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in the provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Notes arises thereunder, amend, change or modify in any material respect the obligation of TransDigm to make and consummate a Change of Control Offer in the event of a Change of Control or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred; or
(7) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Notes in a manner which adversely affects the Holders.
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 but 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.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of TransDigm, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of TransDigm or at the time it merges or consolidates with or into TransDigm or any of its Subsidiaries or that is assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of TransDigm or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. Notwithstanding the foregoing, no Person, other than TransDigm or any Subsidiary of TransDigm, in whom a Securitization Entity makes an Investment in connection with a Qualified Securitization Transaction shall be deemed to be an Affiliate of TransDigm or any of its Subsidiaries solely by reason of such Investment.
"ASSET ACQUISITION" means (a) an Investment by TransDigm or any Restricted Subsidiary of TransDigm in any other Person pursuant to which such Person shall become a Restricted Subsidiary of TransDigm, or shall be merged with or into TransDigm or any Restricted Subsidiary of TransDigm, or (b) the acquisition by TransDigm or any Restricted Subsidiary of TransDigm of the assets of any Person, other than a Restricted Subsidiary of TransDigm, other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance, transfer, lease, other than operating leases entered into in the ordinary course of business, assignment or other transfer for value by TransDigm or any of its Restricted Subsidiaries in each case, including any Sale and Leaseback Transaction to any Person other than TransDigm or a Restricted Subsidiary of TransDigm of:
(1) any Capital Stock of any Restricted Subsidiary of TransDigm, or
(2) any other property or assets of TransDigm or any Restricted Subsidiary of TransDigm other than in the ordinary course of business; PROVIDED, HOWEVER, that Asset Sales or other dispositions shall not include:
(a) a transaction or series of related transactions for which TransDigm or its Restricted Subsidiaries receive aggregate consideration of less than $1.0 million;
(b) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of TransDigm as permitted under "--Certain Covenants--Merger, Consolidation and Sale of Assets" or any disposition that constitutes a Change of Control;
(c) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof;
(d) disposals or replacements of obsolete equipment in the ordinary course of business;
(e) the sale, lease, conveyance, disposition or other transfer by TransDigm or any Restricted Subsidiary of assets or property to one or more Restricted Subsidiaries in connection with Investments permitted under the "Limitation on Restricted Payments" covenant or pursuant to any Permitted Investment; and
(f) sales of accounts receivable, equipment and related assets, including contract rights, of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Entity for the fair market value thereof, including cash in an amount at least equal to 75% of the fair market value thereof as determined in accordance with GAAP. For the purposes of this clause (f), Purchase Money Notes shall be deemed to be cash.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents, however designated and whether or not voting, of corporate stock, including each class of Common Stock and Preferred Stock, of such Person and
(2) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million;
(5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and
(6) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (1) through (5) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following events:
(1) any sale, lease, exchange or other transfer in each case, in one transaction or a series of related transactions, of all or substantially all of the assets of TransDigm or Holdings to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), other than to the Permitted Holders or their Related Parties or any Permitted Group;
(2) the approval by the holders of Capital Stock of TransDigm or Holdings, as the case may be, of any plan or proposal for the liquidation or dissolution of TransDigm or Holdings, as the case may be, whether or not otherwise in compliance with the provisions of the Indenture;
(3) any Person or Group, other than the Permitted Holders or their Related Parties or any Permitted Group, shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 40% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of TransDigm or Holdings at a time where the Permitted Holders and their Related Parties in the aggregate own a lesser percentage of the aggregate ordinary voting power represented by such issued and outstanding Capital Stock; or
(4) the first day on which a majority of the members of the Board of Directors of TransDigm or Holdings are not Continuing Directors.
"COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents, however designated and whether voting or non-voting, of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the sum, without duplication, of such Person's:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes and foreign withholding taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period;
(b) Consolidated Interest Expense;
(c) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period, other than normal accruals in the ordinary course of business, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP; and
(d) any cash charges resulting from the Transactions that are incurred prior to the six month anniversary of the Issue Date.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four-Quarter Period") ending prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio for which financial statements are available (the "Transaction Date") to Consolidated Fixed Charges of such Person and, in the case of TransDigm and the Guarantors, for the Four-Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness or the issuance of any Designated Preferred Stock of such Person or any of its Restricted Subsidiaries, and the application of the proceeds of such incurrence, repayment or issuance, giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness or the issuance or redemption of other Preferred Stock and the application of the proceeds of such incurrence, repayment, issuance or redemption, other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to revolving credit facilities, occurring during the Four-Quarter Period or at any time subsequent to the last day of the Four-Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment or issuance or redemption, as the case may be and the application of the proceeds of such incurrence, repayment, issuance or redemption, had occurred on the first day of the Four-Quarter Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions and other operating improvements that have occurred or are reasonably expected to occur, all as determined in accordance with Regulation S-X promulgated under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale or other disposition and without regard to clause (4) of the definition of Consolidated Net Income) occurring during the Four-Quarter Period or at any time subsequent to the last day of the Four-Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or other disposition or Asset Acquisition, including the incurrence or assumption of any such Acquired Indebtedness, occurred on the first day of the Four-Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such other Indebtedness that was so guaranteed.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator, but not the numerator, of this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and
(2) notwithstanding clause (1) of this paragraph, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of:
(1) Consolidated Interest Expense; PLUS
(2) the product of (x) the amount of all cash dividend payments on any series of Preferred Stock of such Person times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal; PLUS
(3) the product of (x) the amount of all dividend payments on any series of Permitted Subsidiary Preferred Stock times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal; PROVIDED that with respect to any series of Preferred Stock that was not paid cash dividends during such period but that is eligible to be paid cash dividends during any period prior to the maturity date of the Notes, cash dividends shall be deemed to have been paid with respect to such series of Preferred Stock during such period for purposes of this clause (3).
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum of, without duplication:
(1) the aggregate of all cash and non-cash interest expense with respect to all outstanding Indebtedness of such Person and its Restricted Subsidiaries, including the net costs associated with Interest Swap Obligations, for such period determined on a consolidated basis in conformity with GAAP, but excluding amortization or write-off of debt issuance costs;
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; and
(3) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate net income or loss of TransDigm and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP and without any deduction in respect of Preferred Stock dividends; PROVIDED that there shall be excluded therefrom:
(1) gains and losses from Assets Sales, without regard to the $1.0 million limitation set forth in the definition of Asset Sale, and the related tax effects according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP;
(3) all extraordinary, unusual or nonrecurring charges, gains and losses, including, without limitation, all restructuring costs and any expense or charge related to the repurchase of Capital Stock or warrants or options to purchase Capital Stock, and the related tax effects according to GAAP;
(4) the net income or loss of any Person acquired in a pooling of interests transaction accrued prior to the date it becomes a Restricted Subsidiary of TransDigm or is merged or consolidated with or into TransDigm or any Restricted Subsidiary of TransDigm;
(5) the net income but not loss of any Restricted Subsidiary of TransDigm to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of TransDigm of that income is prohibited by contract, operation of law or otherwise;
(6) the net loss of any Person, other than a Restricted Subsidiary of TransDigm;
(7) the net income of any Person, other than a Restricted Subsidiary of TransDigm, except to the extent of cash dividends or distributions paid to TransDigm or a Restricted Subsidiary of TransDigm by such Person;
(8) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets; and
(9) any non-cash compensation charges, including any arising from existing stock options resulting from any merger or recapitalization transaction.
For purposes of clause (iii)(w) of the first paragraph of the "Limitation on Restricted Payments" covenant, Consolidated Net Income shall be reduced by any cash dividends paid with respect to any series of Designated Preferred Stock.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash charges and expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, excluding any such charges that require an accrual of or a reserve for cash payments for any future period other than accruals or reserves associated with mandatory repurchases of equity securities.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of TransDigm or Holdings who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors by any of the Permitted Holders or with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election.
"CREDIT FACILITIES" means one or more debt facilities, including, without limitation, the New Credit Facility, or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing, including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables, and/or letters of credit or banker's acceptances.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect TransDigm or any Restricted Subsidiary of TransDigm against fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means any noncash consideration received by TransDigm or one of its Restricted Subsidiaries in connection with an Asset Sale that is designated as Designated Noncash Consideration pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of TransDigm or such Restricted Subsidiary at the time of such Asset Sale. Any particular item of Designated Noncash Consideration will cease to be considered to be outstanding once it has been sold for cash or Cash Equivalents. At the time of receipt of any Designated Noncash Consideration, TransDigm shall deliver an Officers' Certificate to the Trustee which shall state the fair market value of such Designated Noncash Consideration and shall state the basis of such valuation, which shall be a report of a nationally recognized investment banking, appraisal or accounting firm with respect to the receipt in one or a series of related transactions of Designated Noncash Consideration with a fair market value in excess of $10.0 million.
"DESIGNATED PREFERRED STOCK" means Preferred Stock that is so designated as Designated Preferred Stock, pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of TransDigm, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (iii)(x) of the first paragraph of the "Limitation on Restricted Payments" covenant.
"DESIGNATED SENIOR DEBT" means
(1) Indebtedness under or in respect of the New Credit Facility and
(2) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by TransDigm.
"DISQUALIFIED CAPITAL STOCK" means that portion of 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 at the option of the holder of that security, or upon the happening of any event, other than an event which would constitute a Change of Control, matures, excluding any maturity as the result of an optional redemption by the issuer of that security, or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder of that security (except, in each case, upon the occurrence of a Change of Control) on or prior to the final maturity date of the Notes.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of TransDigm that is incorporated under the laws of the United States or any state thereof or the District of Columbia.
"EQUITY OFFERING" means any offering of Qualified Capital Stock of Holdings or TransDigm; provided that:
(1) in the event of an offering by Holdings, Holdings contributes to the capital of TransDigm the portion of the net cash proceeds of such offering necessary to pay the aggregate redemption price plus accrued interest to the redemption date of the Notes to be redeemed pursuant to the provisions described under "--Redemption--Optional Redemption upon Equity Offerings" and,
(2) in the event such equity offering is not in the form of a public offering registered under the Securities Act, the proceeds received by TransDigm directly or indirectly from such offering are not less than $10.0 million.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 or any successor statute or statutes to the Securities Exchange Act of 1934.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of TransDigm acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of TransDigm delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect from time to time.
"GUARANTEE" means:
(1) the guarantee of the Notes by Holdings and the Domestic Restricted Subsidiaries of TransDigm; and
(2) the guarantee of the Notes by any Restricted Subsidiary required under the terms of the "Future Guarantees by Restricted Subsidiaries" covenant.
"GUARANTOR" means any Restricted Subsidiary that incurs a Guarantee; provided that upon the release and discharge of such Restricted Subsidiary from its Guarantee in accordance with the Indenture, such Restricted Subsidiary shall cease to be a Guarantor.
"HEDGING AGREEMENT" means any agreement with respect to the hedging of price risk associated with the purchase of commodities used in the business of TransDigm and its Restricted Subsidiaries, so long as any such agreement has been entered into in the ordinary course of business and not for purposes of speculation.
"INDEBTEDNESS" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business;
(5) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (1) through (5) above and clause (8) below;
(7) all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of that Disqualified Capital Stock as if that Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if that price is based upon, or measured by, the fair market value of that Disqualified Capital Stock, that fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of that Disqualified Capital Stock. For the purposes of calculating the amount of Indebtedness of a Securitization Entity outstanding as of any date, the face or notional amount of any interest in receivables or equipment that is outstanding as of that date shall be deemed to be Indebtedness but any such interests held by Affiliates of such Securitization Entity shall be excluded for purposes of that calculation.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to any arrangement with any other Person, whereby directly or indirectly, that Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit, including, without limitation, a guarantee, 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 by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by TransDigm and its Restricted Subsidiaries in accordance with normal trade practices of TransDigm or such Restricted Subsidiary, as the case may be. If TransDigm or any Restricted Subsidiary of TransDigm sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of TransDigm such that, after giving effect to any such sale or disposition, such Restricted Subsidiary is no longer a Restricted Subsidiary of TransDigm or, in the case of a Restricted Subsidiary that is not Wholly Owned Restricted Subsidiary of TransDigm, such Restricted Subsidiary has a minority interest that is held by an Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm, TransDigm shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means December 3, 1998, the date of original issuance of the Old Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind, including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest.
"MARKETABLE SECURITIES" means publicly traded debt or equity securities that are listed for trading on a national securities exchange and that were issued by a corporation whose debt securities are rated in one of the three highest rating categories by either S&P or Moody's.
"MOODY'S" means Moody's Investors Service, Inc.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents, other than the portion of any such deferred payment constituting interest, received by TransDigm or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees and sales commissions;
(2) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements; and
(3) appropriate amounts to be provided by TransDigm or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by TransDigm or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale.
"NEW CREDIT FACILITY" means the Credit Agreement dated as of the Issue Date among TransDigm, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as administrative agent, together with the related documents to the Credit Agreement, including, without
limitation, any guarantee agreements and security documents, in each case, as those agreements may be amended, including any amendment and restatement of those agreements, supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring, including increasing the amount of available borrowings under those agreements, or adding Restricted Subsidiaries of TransDigm as additional borrowers or guarantors under those agreements) all or any portion of the Indebtedness under that agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means any business, including stock or assets of that business, that derives a majority of its revenues from the business engaged in by TransDigm and its Restricted Subsidiaries on the Issue Date and/or activities that are reasonably similar, ancillary or related to, or a reasonable extension, development or expansion of, the businesses in which TransDigm and its Restricted Subsidiaries are engaged on the Issue Date.
"PERMITTED GROUP" means any group of investors that is deemed to be a "person," as such term is used in Section 13(d)(3) of the Exchange Act, by virtue of the Stockholders Agreements, as the same may be amended, modified or supplemented from time to time, provided that no single Person, together with its Affiliates, other than the Permitted Holders and their Related Parties, is the "beneficial owner," as such term is used in Section 13(d) of the Exchange Act, directly or indirectly, of more than 50% of the voting power of the issued and outstanding Capital Stock of TransDigm or Holdings, as applicable, that is "beneficially owned" (as defined above) by such group of investors.
"PERMITTED HOLDERS" means Odyssey Investment Partners Fund, LP, its Affiliates and any general or limited partners of Odyssey Investment Partners Fund, L.P.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(1) Indebtedness under the Notes in an aggregate principal amount not to exceed $125.0 million;
(2) Indebtedness of TransDigm or any of its Restricted Subsidiaries incurred pursuant to one or more Credit Facilities in an aggregate principal amount at any time outstanding not to exceed $155.0 million, less:
(A) the aggregate amount of Indebtedness of Securitization Entities at the time outstanding, less
(B) the amount of all mandatory principal payments actually made by TransDigm or any such Restricted Subsidiary since the Issue Date with the Net Proceeds of an Asset Sale in respect of term loans under a Credit Facility, excluding any such payments to the extent refinanced at the time of payment, and
(C) further reduced by any repayments of revolving credit borrowings under a Credit Facility with the Net Cash Proceeds of an Asset Sale that are accompanied by a corresponding commitment reduction thereunder; PROVIDED that the amount of Indebtedness permitted to be incurred pursuant to the Credit Facilities in accordance with this clause (2) shall be in addition to any Indebtedness permitted to be incurred pursuant to the Credit Facilities in reliance on, and in accordance with, clauses (7), (13) and (14) below;
(3) other indebtedness of TransDigm and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon;
(4) Interest Swap Obligations of TransDigm or any of its Restricted Subsidiaries covering Indebtedness of TransDigm or any of its Restricted Subsidiaries; PROVIDED that any Indebtedness to which any such Interest Swap Obligations correspond is otherwise permitted to be incurred under the Indenture; and PROVIDED, FURTHER, that such Interest Swap Obligations are entered into, in the judgment of TransDigm, to protect TransDigm or any of its Restricted Subsidiaries from fluctuation in interest rates on its outstanding Indebtedness;
(5) Indebtedness of TransDigm or any Restricted Subsidiary under Hedging Agreements and Currency Agreements;
(6) the incurrence by TransDigm or any of its Restricted Subsidiaries of intercompany Indebtedness between or among TransDigm and any such Restricted Subsidiaries; PROVIDED, HOWEVER, that:
(a) if TransDigm is the obligor on such Indebtedness and the payee is a Restricted Subsidiary that is not a Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and
(b) (1) any subsequent issuance or transfer of Capital Stock that results in any such Indebtedness being held by a Person other than TransDigm or a Restricted Subsidiary thereof and
(2) any sale or other transfer of any such Indebtedness to a Person that is not either TransDigm or a Restricted Subsidiary of TransDigm, other than by way of granting a Lien permitted under the Indenture or in connection with the exercise of remedies by a secured creditor shall be deemed, in each case, to constitute an incurrence of such Indebtedness by TransDigm or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
(7) Indebtedness, including Capitalized Lease Obligations, incurred by TransDigm or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property, whether real or personal, or equipment, whether through the direct purchase of assets or the Capital Stock of any person owning such assets, in an aggregate principal amount outstanding not to exceed $5.0 million;
(8) Refinancing Indebtedness;
(9) guarantees by TransDigm and its Restricted Subsidiaries of each other's Indebtedness; PROVIDED that such Indebtedness is permitted to be incurred under the Indenture and PROVIDED, FURTHER, that in the event such Indebtedness, other than Acquired Indebtedness, is incurred pursuant to the Consolidated Fixed Charge Coverage Ratio, such guarantees are by TransDigm or a Guarantor only;
(10) Indebtedness arising from agreements of TransDigm or a Restricted Subsidiary of TransDigm providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of TransDigm, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; PROVIDEDthat the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by TransDigm and its Restricted Subsidiaries in connection with such disposition;
(11) obligations in respect of performance and surety bonds and completion guarantees provided by TransDigm or any Restricted Subsidiary of TransDigm in the ordinary course of business;
(12) the incurrence by a Securitization Entity of Indebtedness in a Qualified Securitization Transaction that is not recourse to TransDigm or any Subsidiary of TransDigm, except for Standard Securitization Undertakings;
(13) Indebtedness incurred by TransDigm or any of the Guarantors in connection with the acquisition of a Permitted Business which Indebtedness is incurred on or prior to September 30, 1999; PROVIDED that on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof and the use of proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio of TransDigm would be greater than the greater of (x) the Consolidated Fixed Charge Coverage Ratio of TransDigm immediately prior to the incurrence of such Indebtedness and (y) the Consolidated Fixed Charge Coverage Ratio of TransDigm on the Issue Date;
(14) additional Indebtedness of TransDigm and its Restricted Subsidiaries in an aggregate principal amount does not exceed $10.0 million at any one time outstanding, which amount may, but need not, be incurred in whole or in part under a Credit Facility;
(15) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently, except in the case of daylight overdrafts, drawn against insufficient funds in the ordinary course of business; PROVIDED, HOWEVER, that such indebtedness is extinguished within five business days of incurrence; and
(16) Indebtedness of TransDigm or any of its Restricted Subsidiaries represented by letters of credit for the account of TransDigm or such Restricted Subsidiary, as the case may be, issued in the ordinary course of business of TransDigm or such Restricted Subsidiary, including, without limitation, in order to provide security for workers' compensation claims or payment obligations in connection with self-insurance or similar requirements in the ordinary course of business and other Indebtedness with respect to workers' compensation claims, self-insurance obligations, performance, surety and similar bonds and completion guarantees provided by TransDigm or any Restricted Subsidiary of TransDigm in the ordinary course of business.
For purposes of determining compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (16) above or is entitled to be incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, TransDigm shall, in its sole discretion, classify, or later reclassify, such item of Indebtedness in any manner that complies with such covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant.
"PERMITTED INVESTMENTS" means:
(1) Investments by TransDigm or any Restricted Subsidiary of TransDigm in any Restricted Subsidiary of TransDigm (other than a Restricted Subsidiary of TransDigm in which an Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm holds a minority interest) (whether existing on the Issue Date or created after the Issue Date) or any Person (including by means of any transfer of cash or other property) if as a result of that Investment that Person shall become a Restricted Subsidiary of TransDigm, other than Restricted Subsidiary of TransDigm in which an Affiliate of TransDigm that is not a Restricted Subsidiary of TransDigm holds a minority interest,
or that will merge with or consolidate into TransDigm or a Restricted Subsidiary of TransDigm and Investments in TransDigm by any Restricted Subsidiary of TransDigm;
(2) investments in cash and Cash Equivalents;
(3) loans and advances to employees and officers of TransDigm and its Restricted Subsidiaries for bona fide business purposes in an aggregate principal amount not to exceed $5.0 million at any one time outstanding;
(4) Currency Agreements, Hedging Agreements and Interest Swap Obligations entered into in the ordinary course of business and otherwise in compliance with the Indenture;
(5) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in good faith settlement of delinquent obligations of such trade creditors or customers;
(6) Investments made by TransDigm or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant;
(7) Investments existing on the Issue Date;
(8) accounts receivable created or acquired in the ordinary course of business;
(9) guarantees by TransDigm or a Restricted Subsidiary of TransDigm permitted to be incurred under the Indenture;
(10) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (10) that are at that time outstanding, not to exceed $10.0 million, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value;
(11) any Investment by TransDigm or a Subsidiary of TransDigm in a Securitization Entity or any Investment by a Securitization Entity in any other Person in connection with a Qualified Securitization Transaction; provided that any Investment in a Securitization Entity is in the form of a Purchase Money Note or an equity interest; and
(12) Investments the payment for which consists exclusively of Qualified Capital Stock of TransDigm.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either:
(a) not delinquent; or
(b) contested in good faith by appropriate proceedings and as to which TransDigm or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen and repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any
Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations, exclusive of obligations for the payment of borrowed money;
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of TransDigm or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease Obligation;
(7) purchase money Liens to finance property or assets of TransDigm or any Restricted Subsidiary of TransDigm acquired, constructed or improved in the ordinary course of business; PROVIDED, HOWEVER, that
(a) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of TransDigm or any Restricted Subsidiary of TransDigm other than the property and assets so acquired and
(b) the Lien securing such Indebtedness shall be created within 90 days of such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of TransDigm or any of its Restricted Subsidiaries, including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture;
(12) Liens securing Indebtedness under Currency Agreements and Hedging Agreements;
(13) Liens incurred in the ordinary course of business of TransDigm or any Restricted Subsidiary with respect to obligations that do not in the aggregate exceed $5.0 million at any one time outstanding;
(14) Liens on assets transferred to a Securitization Entity or an assets of a Securitization Entity, in either case incurred in connection with a Qualified Securitization Transaction;
(15) leases or subleases granted to others that do not materially interfere with the ordinary course of business of TransDigm and its Restricted Subsidiaries;
(16) Liens arising from filing Uniform Commercial Code financing statements regarding leases;
(17) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods;
(18) Liens securing Acquired Indebtedness incurred in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant;
(19) Liens placed upon assets of a Restricted Subsidiary of TransDigm that is not a Guarantor to secure Indebtedness of such Restricted Subsidiary that is otherwise permitted under the Indenture; and
(20) Liens existing on the Issue Date, together with any Liens securing Indebtedness incurred in reliance on clause (8) of the definition of Permitted Indebtedness in order to refinance the Indebtedness secured by Liens existing on the Issue Date; PROVIDED that the Liens securing the refinancing Indebtedness shall not extend to property other than that pledged under the Liens securing the Indebtedness being refinanced.
"PERMITTED SUBSIDIARY PREFERRED STOCK" means any series of Preferred Stock of a Restricted Subsidiary of TransDigm that constitutes Qualified Capital Stock and has a fixed dividend rate, the liquidation value of all series of which, when combined with the aggregate amount of Indebtedness of TransDigm and its Restricted Subsidiaries incurred pursuant to clause (14) of the definition of Permitted Indebtedness, does not exceed $5.0 million.
"PERSON" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision of a governmental agency.
"PREFERRED STOCK" of any Person means any Capital Stock of that Person that has preferential rights to any other Capital Stock of that Person with respect to dividends or redemptions or upon liquidation.
"PRODUCTIVE ASSETS" means assets, including Capital Stock, that are used or usable by TransDigm and its Restricted Subsidiaries in Permitted Businesses.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity evidencing a line of credit, which may be irrevocable, from TransDigm or any Subsidiary of TransDigm in connection with a Qualified Securitization Transaction to a Securitization Entity, which note shall be repaid from cash available to the Securitization Entity other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest and principal and amounts paid in connection with the purchase of newly generated receivables or newly acquired equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of transactions that may be entered into by TransDigm or any of its Restricted Subsidiaries pursuant to which TransDigm or any of its Subsidiaries may sell, convey or otherwise transfer to:
(1) a Securitization Entity, in the case of a transfer by TransDigm or any of its Restricted Subsidiaries; and
(2) any other Person, in the case of a transfer by a Securitization Entity, or may grant a security interest in any accounts receivable or equipment, whether now existing or arising or acquired in the future, of TransDigm or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable and equipment, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable and equipment, proceeds of such accounts receivable and equipment and other assets, including contract rights, which are customarily transferred or in respect of which security interests are customarily granted in connection with assets securitization transactions involving accounts receivable and equipment.
"RECAPITALIZATION" means the recapitalization of Holdings consummated on the Issue Date.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or
replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing, modification, replacement, restatement, refunding, deferral, extension, substitution, supplement, reissuance or resale of existing or future Indebtedness, other than intercompany Indebtedness, including any additional Indebtedness incurred to pay interest or premiums required by the instruments governing such existing or future Indebtedness as in effect at the time of issuance thereof ("Required Premiums") and fees in connection therewith; PROVIDED that any such event shall not:
(1) directly or indirectly result in an increase in the aggregate principal amount of Permitted Indebtedness, except to the extent such increase is a result of a simultaneous incurrence of additional Indebtedness:
(a) to pay Required Premiums and related fees; or
(b) otherwise permitted to be incurred under the Indenture; and
(2) create Indebtedness with a Weighted Average Life to Maturity at the time that Indebtedness is incurred that is less than the Weighted Average Life to Maturity at such time of the Indebtedness being refinanced, modified, replaced, renewed, restated, refunded, deferred, extended, substituted, supplemented, reissued or resold.
"RELATED PARTY" with respect to any Permitted Holder means:
(a) (1) any spouse, sibling, parent or child of such Permitted Holder; or
(2) the estate of any Permitted Holder during any period in which that estate holds Capital Stock of TransDigm for the benefit of any Person referred to in clause (a)(1); or
(b) any trust, corporation, partnership, limited liability company or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially owning an interest of more than 50% of which consist of, or the sole managing partner or managing member of which is, one or more Permitted Holders and/or such other Persons referred to in the immediately preceding clause (a).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; PROVIDED that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to TransDigm or a Restricted Subsidiary of any property, whether owned by TransDigm or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by TransDigm or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of TransDigm, or another Person in which TransDigm or any Subsidiary of TransDigm makes an Investment and to which TransDigm or any Subsidiary of TransDigm transfers accounts receivable or equipment and related assets which engages in no activities other than in connection with the financing of accounts receivable or equipment and
which is designated by the Board of Directors of TransDigm (as provided below) as a Securitization Entity:
(1) no portion of the Indebtedness or any other Obligations, contingent or otherwise, of which:
(a) is guaranteed by TransDigm or any Restricted Subsidiary of TransDigm (excluding guarantees of Obligations, other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings;
(b) is recourse to or obligates TransDigm or any Restricted Subsidiary of TransDigm in any way other than pursuant to Standard Securitization Undertakings; or
(c) subjects any property or asset of TransDigm or any Restricted Subsidiary of TransDigm directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings;
(2) with which neither TransDigm nor any Restricted Subsidiary of TransDigm has any material contract, agreement, arrangement or understanding other than on terms no less favorable to TransDigm or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of TransDigm, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity; and
(3) to which neither TransDigm nor any Restricted Subsidiary of TransDigm has any obligations to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of TransDigm shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution of TransDigm giving effect to such designation and an Officers' Certificate certifying that such designation complied with foregoing conditions.
"SENIOR DEBT" means the principal of, premium, if any, and interest, including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect to that Senior Debt, whether or not such interest is an allowed claim under applicable law, on any Indebtedness of TransDigm or any Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest, including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect to that Senior Debt, whether or not such interest is an allowed claim under applicable law, on, and all other amounts owing in respect of:
(x) all monetary obligations of every nature of TransDigm or any Guarantor under the New Credit Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations and guarantees of those Interest Swap Obligations; and
(z) all obligations and guarantees of those obligations under Currency Agreements and Hedging Agreements, in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(i) any Indebtedness of TransDigm or a Guarantor to TransDigm or to a Subsidiary of TransDigm;
(ii) other than the Holdings PIK Notes, any Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of TransDigm or any Subsidiary of TransDigm, including, without limitation, amounts owed for compensation, other than a shareholder who is also a lender or an Affiliate of a lender under the Credit Facilities, including the New Credit Facility;
(iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) any liability for federal, state, local or other taxes owed or owing by TransDigm;
(vi) that portion of any Indebtedness incurred in violation of the Indenture provisions set forth under "Limitation on Incurrence of Additional Indebtedness" but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of that obligation or their representative and the Trustee shall have received an Officer's Certificate of TransDigm to the effect that the incurrence of such Indebtedness does not or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not violate such provisions of the Indenture;
(vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to TransDigm; and
(viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of TransDigm.
"SIGNIFICANT SUBSIDIARY," with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties, covenants and indemnities entered into by TransDigm or any subsidiary of TransDigm which are reasonably customary in an accounts receivable or equipment transaction.
"STOCKHOLDERS AGREEMENTS" means those certain stockholders agreements entered into in connection with the Recapitalization.
"SUBSIDIARY," with respect to any Person, means:
(i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly by such Person; or
(ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.
"TAX ALLOCATION AGREEMENT" means the tax allocation agreement dated as of the Issue Date between Holdings and TransDigm.
"TOTAL ASSETS" means the total consolidated assets of TransDigm and its Restricted Subsidiaries, as set forth on TransDigm's most recent consolidated balance sheet.
"U.S. SUBSIDIARY" means any Subsidiary of TransDigm that is incorporated under the laws of the United States or any State thereof or the District of Columbia.
"UNRESTRICTED SUBSIDIARY" of any Person means:
(1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary, including any newly acquired or newly formed Subsidiary, to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, TransDigm or any other Subsidiary of TransDigm that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED that:
(1) TransDigm certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant; and
(2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of TransDigm or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to that designation, TransDigm is able to incur at least $1.00 of additional Indebtedness, other than Permitted Indebtedness, in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant and (y) immediately before and immediately after giving effect to such designation, no Default or Event of 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.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness; into
(2) the sum of the total of the products obtained by multiplying;
(a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Wholly Owned Subsidiary of such Person which at the time of determination is a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person of which all the outstanding voting securities, other than, in the case of a Restricted Subsidiary, that is incorporated in a jurisdiction other than a State in the United States or the District of Columbia, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law, are owned by such Person or any Wholly Owned Subsidiary of such Person.
REGISTRATION RIGHTS
THE SUMMARY SET FORTH BELOW OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY, ALL THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT.
TransDigm, the Initial Guarantors and the initial purchasers entered into the Registration Rights Agreement on December 3, 1998 (the "Issue Date") under the terms of which each of TransDigm and the Initial Guarantors agreed that they will, at their expense, for the benefit of holders of the Old Notes (the "Holders");
- within 60 days after the Issue Date (the "Filing Date"), file a registration statement on an appropriate registration form (the "Exchange Offer Registration Statement") with respect to a registered offer (the "Exchange Offer") to exchange the Old Notes for these New Notes, guaranteed on a senior subordinated basis by the Guarantors, which New Notes will have terms substantially identical in all material respects to the Old Notes; and
- cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the Issue Date. Upon the Exchange Offer Registration Statement being declared effective, TransDigm will offer these New Notes in exchange for surrender of the Old Notes. TransDigm will keep the Exchange Offer open for not less than 30 days after the date notice of the Exchange Offer is mailed to the Holders. For each of the Old Notes surrendered to TransDigm in to the Exchange Offer, the Holder who surrendered that Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Interest on each New Note will accrue (1) from the later of (A) the last interest payment date on which interest was paid on the Old Note surrendered in exchange for the New Note, or (B) if the Old Note is surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of that exchange and as to which interest will be paid, the date of that interest payment date or (2) if no interest has been paid on that Old Note, from the Issue Date.
If, (1) because of any change in law or in currently prevailing interpretations of the Staff of the Commission, TransDigm is not permitted to effect an exchange offer, (2) the Exchange Offer is not consummated by June 6, 1999 or (3) in certain circumstances, certain holders of unregistered Old Notes so request, or (4) in the case of any Holder that participates in the exchange offer, that Holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws, other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act, then in each case, TransDigm will (A) promptly deliver to the Holders and the Trustee written notice of that event and (B) at its sole expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the Old Notes (the "Shelf Registration Statement"); and (b) use its best efforts to keep effective the Shelf Registration Statement until the earlier of two years after its effective date or such time as all of the applicable Old Notes have been sold under the Shelf Registration Statement. TransDigm will, in the event that a Shelf Registration Statement is filed, provide to each Holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement for the Old Notes has become effective and take other actions as are required to permit unrestricted resales of the Old Notes. A Holder that sells Old Notes relying on the Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to some of the civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to that Holder.
If TransDigm fails to comply with the above provisions or if the Exchange Offer Registration Statement or the Shelf Registration Statement fails to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable in respect of the Old Notes as follows:
- if (A) neither the Exchange Offer Registration Statement or Shelf Registration Statement is filed with the Commission on or prior to the applicable filing date or (B) notwithstanding that TransDigm has consummated or will consummate an exchange offer, TransDigm is required to file a Shelf Registration Statement and that Shelf Registration Statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing dates, Additional Interest shall accrue on the principal amount of the Old Notes at a rate of 0.50% per year for the first 90 days immediately following each such filing date, such Additional Interest rate increasing by an additional 0.50% per year at the beginning of each subsequent 90-day period; or
- if (A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is declared effective by the Commission on or prior to 90 days after the applicable filing deadline set for that filing in the Registration Rights Agreement or (B) notwithstanding that TransDigm has consummated or will consummate an exchange offer, TransDigm is required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the Commission on or prior to the 90th day following the filing date deadline set for such filing in the Registration Rights Agreement, then, commencing on the day after such 90th day following the filing deadline set for such filing in the Registration Rights Agreement, Additional Interest shall accrue on the principal amount of the Old Notes at a rate of 0.50% per year for the first 90 days immediately following such date, that Additional Interest rate increasing by an additional 0.50% per year at the beginning of each subsequent 90-day period; or
- if (A) TransDigm has not exchanged New Notes for all Old Notes validly tendered in accordance with the terms of the exchange offer on or prior to the 185th day after the Issue Date or (B) if applicable, the Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date, unless at that time all Old Notes have been disposed of under the Shelf Registration Statement, then Additional Interest shall accrue on the principal amount of the Old Notes at a rate of 0.50% per year for the first 90 days commencing on (x) the 185th day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, that Additional Interest rate increasing by an additional 0.50% per year at the beginning of each subsequent 90-day period;
However, the Additional Interest rate on the Old Notes may not accrue under more than one of the foregoing clauses at any one time and at no time shall the aggregate amount of Additional Interest accruing exceed in the aggregate 1.0% per year; and (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement, (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement, or (3) upon the exchange of New Notes for all Old Notes tendered, or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective. Additional Interest on the Old Notes as a result of that clause, as the case may be, shall cease to accrue.
Any amounts of Additional Interest will be payable in cash on the original interest payment dates for the Old Notes.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully registered form without interest coupons.
Except as described herein under the heading "-Certificated Securities," New Notes will initially be represented by a permanent global New Note in fully registered form without interest coupons (the "Global Note") and will be deposited with the Trustee as custodian for DTC and registered in the name of a nominee of such depositary.
THE GLOBAL NOTE
TransDigm expects that according to procedures established by DTC (A) upon the issuance of the Global Note, DTC or its custodian will credit, on its internal system, the principal amount of the individual beneficial interests represented by the Global Note to the respective accounts of persons who have accounts with that depositary and (B) ownership of beneficial interests in the Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee and the records of participants. Ownership of beneficial interests in the Global Notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the New Notes, DTC or that nominee, as the case may be, will be considered the sole owner or holder of the New Notes represented by the Global Note for all purposes under the Indenture. No beneficial owner of an interest in the Global Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner of that Global Note. None of TransDigm, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests.
TransDigm expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest on the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of DTC or its nominee. TransDigm also expects that payments by participants to owners of beneficial interests in the Global Note held through those participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Those payments will be the responsibility of those participants.
Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same-day funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell New Notes to persons in states that require physical delivery of the New Notes, or to pledge such securities, that holder must transfer its interest in the Global Note, in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised TransDigm that it will take any action permitted to be taken by a holder of New Notes, including the presentation of New Notes for exchange as described below, only at the direction of one or more participants to whose accounts the DTC interests in the Global Note are credited and only in respect of that portion of the aggregate principal amount of New Notes as to which that participant or those participants has or have given that direction. However, if there is an Event of
Default under the Indenture applicable to the Global Note, DTC will exchange the Global Note for Certificated Securities, which it will distribute to its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of DTC, it is under no obligation to perform those procedures and those procedures may be discontinued at any time. Neither TransDigm nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
CERTIFICATED SECURITIES
Certificated securities shall be issued in exchange for the Old Notes in the Exchange Offer or for beneficial interest in the Global Note, in each case, if requested by a Holder of such Old Note or such beneficial interests, respectively. In addition, certificated securities shall be issued in exchange for beneficial interests in the Global Note if DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by TransDigm within 90 days.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material U.S. federal income tax aspects of the exchange offer to holders of the Old Notes. This discussion is summary for general information only and does not consider all aspects of the Old Notes in light of such holder's personal circumstances. This discussion also does not address the U.S. federal income tax consequences to holders subject to special treatment under the U.S. federal income tax laws, such as dealers in securities, or foreign currency, tax-exempt entities, banks, thrifts, insurance companies, persons that hold the Old Notes as part of a "straddle", a "hedge" against currency risk or a "conversion transaction"; persons that have a "functional currency" other than the U.S. dollar, and investors in pass-through entities. In addition, this discussion does not prescribe any tax consequences arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and presupposed regulations thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and judicial decision now in effect, all of which are subject to change, possibly on a retroactive basis. TransDigm has not and will not seek any rulings or opinions from the IRS or counsel with respect to the matters discussed below. There can be no assurance that the IRS will not take positions concerning the tax consequences of the exchange offer which are difference from those discussed herein.
HOLDERS OF THE OLD NOTES SHOULD CONSULT THEIR OWN ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION, TO THE EXCHANGE OFFER IN LIGHT OF THEIR PARTICULAR SITUATIONS.
The exchange of Old Notes for New Notes under the terms of the exchange offer should not constitute a taxable exchange. As a result, a holder (A) should not recognize taxable gains of loss as a result of exchanging Old Notes for New Notes under the terms of the exchange offer, (B) the holding period of the New Notes should include the holding period of the Old Notes exchanged for the New Notes and (C) the adjusted tax basis of the New Notes should be the same as the adjusted tax basis, immediately before the exchange of the Old Notes exchange for the New Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in the exchange offer must acknowledge that it will deliver a prospectus together with any resale of those New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in the resales of New Notes received in exchange for Old Notes where those Old Notes were acquired as a result of market-making activities or other trading activities. TransDigm has agreed that for a period of up to 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer that requests it in the letter of transmittal for use in any such resale.
TransDigm and the Guarantors will not receive any proceeds from any sale of New Notes by broker-dealers or any other persons. New 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 New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New 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 those New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New 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.
TransDigm has agreed to pay all expenses incident to TransDigm's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders of Old Notes including any broker-dealers, and certain parties related to such holders, against certain types of liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated financial statements of TransDigm Holding Company as of September 30, 1998 and 1997, and for each of the three years in the period ended September 30, 1998, included in this prospectus and the related financial statement schedule included elsewhere in the Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Marathon Power Technologies Company as of December 31, 1996 and 1995 and for each of the two years in the period ended December 31, 1996 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of ZMP, Inc. as of June 26, 1998, and for the year then ended, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for TransDigm by Latham & Watkins, New York, New York.
INDEX TO FINANCIAL STATEMENTS
TRANSDIGM HOLDING COMPANY Report of Deloitte & Touche LLP, Independent Auditors................................ F-2 Consolidated Balance Sheets as of September 30, 1998 and 1997........................ F-3 Consolidated Statements of Income and Retained Earnings (Deficit) for each of the three years in the period ended September 30, 1998................................. F-4 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1998................................................................. F-5 Notes to Consolidated Financial Statements for each of the three years in the period ended September 30, 1998........................................................... F-6 Unaudited Consolidated Balance Sheet as of January 1, 1999........................... F-19 Unaudited Consolidated Statements of Operations for the thirteen weeks ended January 1, 1999 and December 26, 1997...................................................... F-20 Unaudited Consolidated Statement of Changes in Stockholders' Equity for the thirteen weeks ended January 1, 1999........................................................ F-21 Unaudited Consolidated Statements of Cash Flows for the thirteen weeks ended January 1, 1999 and December 26, 1997...................................................... F-22 Notes to Unaudited Consolidated Financial Statements for the thirteen weeks ended January 1, 1999 and December 26, 1997.............................................. F-23 MARATHON POWER TECHNOLOGIES COMPANY Report of PricewaterhouseCoopers LLP, Independent Accountants........................ F-26 Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-27 Consolidated Statements of Operations and Retained Earnings for each of the two years in the period ended December 31, 1996.............................................. F-28 Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 1996.................................................................. F-29 Notes to Consolidated Financial Statements for each of the two years in the period ended December 31, 1996............................................................ F-30 ZMP, INC. Report of Deloitte & Touche LLP, Independent Auditors................................ F-37 Consolidated Balance Sheet as of June 26, 1998....................................... F-38 Consolidated Statement of Income and Retained Earnings for the year ended June 26, 1998............................................................................... F-39 Consolidated Statement of Cash Flows for the year ended June 26, 1998................ F-40 Notes to Consolidated Financial Statements for the year ended June 26, 1998.......... F-41 Unaudited Consolidated Balance Sheet as of December 25, 1998......................... F-47 Unaudited Consolidated Statements of Income for the twenty-six weeks ended December 25, 1998 and December 26, 1997..................................................... F-48 Unaudited Consolidated Statement of Stockholders' Equity for the twenty-six weeks ended December 25, 1998............................................................ F-49 Unaudited Consolidated Statements of Cash Flows for the twenty-six weeks ended December 25, 1998 and December 26, 1997............................................ F-50 Notes to Unaudited Consolidated Financial Statements for the twenty-six weeks ended December 25, 1998 and December 26, 1997............................................ F-51 |
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of TransDigm Holding Company
We have audited the accompanying consolidated balance sheets of TransDigm Holding Company and its subsidiaries (the "Company") as of September 30, 1998 and 1997, and the related consolidated statements of income and retained earnings (deficit) and of cash flows for each of the three years in the period ended September 30, 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, such consolidated financial statements present fairly, in all material respects, the financial position of TransDigm Holding Company and its subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, in 1998, the Company retroactively changed its method of accounting for put warrants.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998 (except for Note 18 for which the date is December 3, 1998)
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
ASSETS (NOTE 9)
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 19,486 $ 5,397
Accounts receivable--Net (Note 4)....................................................... 12,530 12,475
Inventories (Note 5).................................................................... 18,280 17,410
Deferred income taxes (Note 11)......................................................... 3,799 3,902
Prepaid expenses and other.............................................................. 165 313
---------- ----------
Total current assets................................................................ 54,260 39,497
PROPERTY, PLANT AND EQUIPMENT--Net (Note 6)............................................... 21,951 21,022
INTANGIBLE ASSETS--Net (Note 7)........................................................... 35,294 37,508
DEBT ISSUE COSTS--Net..................................................................... 606 873
DEFERRED INCOME TAXES (Note 11)........................................................... 3,674 3,069
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9).............................................. $ 5,000 $ 5,000
Accounts payable........................................................................ 5,667 5,275
Accrued liabilities (Note 8)............................................................ 10,239 12,702
Put warrants (Notes 9 and 17)........................................................... 16,700 --
---------- ----------
Total current liabilities........................................................... 37,606 22,977
LONG-TERM DEBT--Less current portion (Note 9)............................................. 40,000 45,000
PUT WARRANTS (Notes 9 and 17)............................................................. -- 10,160
NON-CURRENT PORTION OF ACCRUED PENSION COSTS (Note 10).................................... 1,752 1,219
---------- ----------
Total liabilities................................................................... 79,358 79,356
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY:
Capital stock (Note 12)................................................................. 24,281 24,352
Retained earnings (deficit)............................................................. 12,900 (1,237)
Minimum pension liability adjustment (Note 10).......................................... (754) (502)
---------- ----------
Total stockholders' equity.......................................................... 36,427 22,613
---------- ----------
TOTAL..................................................................................... $ 115,785 $ 101,969
---------- ----------
---------- ----------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
(DOLLARS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
---------- --------- ---------
NET SALES (Note 4).............................................................. $ 110,868 $ 78,159 $ 62,897
COST OF SALES (Including charge of $242 in 1998 and $666 in 1997 due to
inventory purchase accounting adjustment) (Note 2)............................ 59,395 49,303 41,874
---------- --------- ---------
GROSS PROFIT.................................................................... 51,473 28,856 21,023
---------- --------- ---------
OPERATING EXPENSES:
Selling and administrative.................................................... 10,473 7,561 6,459
Amortization of intangibles................................................... 2,438 2,089 3,838
Research and development...................................................... 1,724 1,116 836
---------- --------- ---------
Total operating expenses.................................................. 14,635 10,766 11,133
---------- --------- ---------
INCOME FROM OPERATIONS.......................................................... 36,838 18,090 9,890
INTEREST EXPENSE--NET........................................................... 3,175 3,463 4,510
WARRANT PUT VALUE ADJUSTMENT (Note 17).......................................... 6,540 4,800 2,160
---------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS............................... 27,123 9,827 3,220
INCOME TAX PROVISION (Note 11).................................................. 12,986 5,193 2,045
---------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS................................................ 14,137 4,634 1,175
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $975
(Note 9)...................................................................... -- 1,462 --
---------- --------- ---------
NET INCOME...................................................................... 14,137 3,172 1,175
---------- --------- ---------
RETAINED EARNINGS (DEFICIT) BEGINNING OF YEAR:
As previously reported........................................................ -- (1,985) (4,537)
Accounting change (Note 17)................................................... -- (2,424) (1,047)
---------- --------- ---------
As restated................................................................... (1,237) (4,409) (5,584)
---------- --------- ---------
RETAINED EARNINGS (DEFICIT), END OF YEAR........................................ $ 12,900 $ (1,237) $ (4,409)
---------- --------- ---------
---------- --------- ---------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
OPERATING ACTIVITIES:
Net income.................................................................. $ 14,137 $ 3,172 $ 1,175
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 4,029 3,677 3,485
Amortization of intangibles............................................... 2,438 2,089 3,838
Amortization of debt discount and debt issue costs........................ 267 757 1,267
Warrant put value adjustment.............................................. 6,540 4,800 2,160
Deferred income taxes..................................................... (341) (1,733) 839
Extraordinary charge for early extinguishment of debt (Note 9)............ -- 1,462 --
Changes in assets and liabilities, net of effects from acquisition of
business (Note 2):
Accounts receivable..................................................... (821) (1,343) 2,790
Inventories............................................................. (870) 337 1,794
Prepaid expenses and other assets....................................... 148 787 (361)
Accounts payable........................................................ 392 1,233 1,224
Accrued and other liabilities........................................... (2,464) 2,230 484
---------- ---------- ----------
Net cash provided by operating activities................................. 23,455 17,468 18,695
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures........................................................ (5,061) (2,285) (2,494)
Acquisition of Marathon Power Technologies Company, net of cash acquired of
$748 (Note 2)............................................................. 766 (40,875) --
---------- ---------- ----------
Net cash used in investing activities....................................... (4,295) (43,160) (2,494)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from term loan net of fees of $873................................. -- 49,127 --
Net repayments under revolving credit loans................................. -- -- (6,690)
Repayment of term and subordinated notes including prepayment charge of $867
in 1997 (Note 9).......................................................... (5,000) (20,867) (6,500)
Proceeds from issuance of capital stock..................................... -- 67 115
Purchase of capital stock................................................... (71) (174) (400)
---------- ---------- ----------
Net cash provided by (used in) financing activities......................... (5,071) 28,153 (13,475)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 14,089 2,461 2,726
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 5,397 2,936 210
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 19,486 $ 5,397 $ 2,936
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest...................................... $ 3,640 $ 2,600 $ 3,483
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for income taxes.................................. $ 13,490 $ 5,468 $ 700
---------- ---------- ----------
---------- ---------- ----------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holding") through its wholly-owned operating subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary mechanical components servicing the aircraft, mining, marine and other manufacturing industries. TransDigm along with its wholly-owned subsidiary, Marathon Power Technologies Company ("Marathon"), offers a broad line of component products including tube connectors, valves, batteries, static inverters, pumps, quick disconnects, clamps and ball bearing and sliding controls. Holding has no operations, liabilities or assets except for its investment in TransDigm.
On August 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity formed by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holding entered into a definitive agreement and plan of merger which agreement was amended on November 9, 1998 (the "Merger Agreement" or the "Merger"). Pursuant to the terms of the Merger, Acquiror will be merged with and into Holding, with Holding being the surviving corporation in the Merger (the "Surviving Corporation"). In the Merger, holders of Holding's outstanding common stock will be entitled to receive, in exchange for each outstanding share of common stock (except for shares held directly or indirectly by Holding or the Rolled Shares, as defined below) the "Per Share Merger Consideration" as defined in the Merger Agreement. The aggregate consideration payable pursuant to the Merger, including amounts payable to holders of options and warrants, is expected to be approximately $299.7 million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso Equity Partners II, LP (collectively "Kelso") will retain approximately 15.4% of the Surviving Corporation's outstanding common stock (the "Rolled Shares") subject to adjustment for certain transactions prior to closing. In addition, certain members of management of Holding agreed, in connection with and as a condition to entering into the Merger Agreement, to rollover stock options with an estimated gross and net value of approximately $17.2 million and $13.7 million, respectively.
The Merger is intended to be treated as a recapitalization for financial reporting purposes which will have no impact on the historical basis of Holding's consolidated assets and liabilities. The Merger is subject to customary closing conditions, including the termination or expiration of the relevant waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, Holding having a minimum consolidated net worth, as defined, at closing of not less than $52 million and funding of committed financing. Odyssey has received financing commitments for the transactions from Bankers Trust Corporation, whose commitments are subject to certain conditions.
Simultaneously with the Merger, Holding and TransDigm will refinance all of its existing debt (Note 9). The Merger, the refinancing, and payment of fees and expenses are expected to be funded by (i) existing cash balances, (ii) investments by Odyssey of $100.2 million, (iii) funds from a new $120 million Senior Credit Facility, (iv) funds from $125 million senior subordinated notes and (v) Holding PIK notes and additional common stock of $20 million issued to certain stockholders. After consummation of the Merger, Holding anticipates that it will have approximately $27.0 million available for working capital, certain permitted acquisitions and for general corporate purposes under the new Senior Credit Facility.
Upon consummation of the Merger, Odyssey and its co-investors will own approximately 73.7% of the Surviving Corporation's common stock and Kelso and other continuing stockholders will own approximately 26.3% of the outstanding shares of Holdings' common stock on a fully diluted basis.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. DESCRIPTION OF THE BUSINESS AND MERGER (CONTINUED) During each of the years ended September 30, 1998, 1997 and 1996, TransDigm paid Kelso a management fee of approximately $0.1 million.
2. ACQUISITION
On August 8, 1997, TransDigm acquired all of the outstanding common stock of Marathon for approximately $41.6 million in cash (including acquisition expenses), $4 million of which was placed into two $2 million escrow accounts (an environmental escrow and an indemnity escrow) to indemnify TransDigm in the event certain defined environmental and other costs were incurred by Marathon or TransDigm subsequent to the acquisition. At September 30, 1997, a post-closing purchase price adjustment of approximately $.8 million was due from the seller (see Note 4), which was received during November 1997 from the indemnity escrow. The remainder of the indemnity escrow was released to the seller during the year ended September 30, 1998. The environmental escrow account expires after the occurrence of certain defined events in the Stock Purchase Agreement. During September 1998, the seller filed a lawsuit against the Company to release the environmental escrow alleging that the Company had violated the requirements of the Stock Purchase Agreement relating to the investigation of the presence of certain contaminants at the Marathon facility in Texas (Note 15). The Company has filed counter claims against the seller and the ultimate outcome of this matter cannot presently be determined.
The acquisition has been accounted for as a purchase. Accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition, as follows:
Current assets..................................................... $ 8,176
Property and equipment............................................. 9,519
Intangible and other assets........................................ 28,859
Current liabilities................................................ (4,308)
Other liabilities.................................................. (1,389)
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Net............................................................ $ 40,857
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The acquisition was financed with available cash of approximately $10.9 million and the proceeds of senior term debt of approximately $30 million. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $28.9 million was recognized as goodwill.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
2. ACQUISITION (CONTINUED) Marathon's results of operations have been included in Holdings' financial statements since the date of the acquisition. The following table summarizes the unaudited consolidated pro forma results of operations, as if the acquisition had occurred at the beginning of the following periods:
UNAUDITED
YEAR ENDED SEPTEMBER
30,
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1997 1996
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(DOLLARS IN
THOUSANDS)
Net sales............................................................... $ 96,075 $ 82,425
Income before income taxes and extraordinary items...................... 11,220 9,190
Net income.............................................................. 3,894 1,522
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Pro forma net income for the year ended September 30, 1997 includes an extraordinary loss from extinguishment of debt (net of income taxes of $975) of $1,462. Pro forma net income for the year ended September 30, 1996 includes an extraordinary gain from Marathon's extinguishment of debt (net of income taxes of $135) of $230.
This pro forma information does not purport to be indicative of the results that actually would have been obtained if the operations had been combined during the periods presented and is not intended to be a projection of future results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--The accompanying consolidated financial statements include the accounts of TransDigm Holding Company and subsidiaries (collectively the "Company"). All significant intercompany balances and transactions have been eliminated. Because TransDigm Holding Company has no operations of its own and, prior to the Recapitalization, had no assets or liabilities other than its equity interest in TransDigm, the consolidated financial statements of TransDigm Holding Company for the three year period ended September 30, 1998 are identical to the historical consolidated financial statements of TransDigm.
REVENUE RECOGNITION--Revenue is recognized when products are shipped to the customer. Any anticipated losses on contracts are charged to earnings when identified.
CASH EQUIVALENTS--The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS--The Company reserves for amounts determined to be uncollectible based on specific identification and historical experience.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost of inventories is determined by the average cost and the first-in, first-out (FIFO) methods. In accordance with industry practice, all inventories are classified as current assets even though a portion of the inventories is not expected to be realized within one year.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates based on the estimated useful lives of the assets.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEBT ISSUE COSTS AND DISCOUNTS--The cost of obtaining financing for the acquisition as well as debt discounts are amortized using the interest method over the respective terms of the related debt issues.
INTANGIBLE ASSETS--Intangible assets are amortized on a straight-line basis over their respective estimated useful lives ranging from 2 to 40 years. The Company assesses the recoverability of intangibles by determining whether the amortization over the remaining life can be recovered through projected undiscounted cash flows from future operations.
INCOME TAXES--The Company accounts for income taxes using an asset and liability approach. Deferred taxes are recorded for the difference between the book and tax basis of various assets and liabilities.
PRODUCT WARRANTY COSTS--The Company provides a one year warranty on certain products beginning on the date the product is installed on an aircraft. A provision for estimated sales returns and the cost of repairs is recorded at the time of sale and periodically adjusted to reflect actual experience.
ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES
Accounts receivable consist of the following at September 30 (dollars in thousands):
1998 1997
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Due from U.S. government or prime contractors under
U.S. government programs.............................................. $ 1,217 $ 773
Commercial customers.................................................... 11,578 11,439
Marathon post-closing purchase price adjustment (Note 2)................ -- 766
Allowance for uncollectible amounts..................................... (265) (503)
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Accounts receivable--net................................................ $ 12,530 $ 12,475
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The Company's sales and receivables are concentrated in the aircraft industry. The Company's customers consist primarily of original equipment manufacturers of aircraft and aircraft subassemblies, commercial airlines, distributors, and various agencies of the United States government, including the U.S. military.
For the year ended September 30, 1998, two customers represented approximately 20% and 14%, respectively, of the Company's net sales. One customer represented approximately 15% of the Company's net sales during the year ended September 30, 1997 and a group of related customers represented approximately 11% of the Company's net sales for the year ended September 30, 1996.
Export sales to customers, primarily in Western Europe, were $17.8 million in 1998, $15.5 million in 1997 and $12.3 million in 1996.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
4. ACCOUNTS RECEIVABLE, MAJOR CUSTOMERS AND EXPORT SALES (CONTINUED) Approximately 9.6% of the Company's receivables at September 30, 1998 were due from one customer and approximately 14.5% of the receivables were due from entities which principally operate outside of the United States. Credit is extended based on an evaluation of the customer's financial condition and collateral is generally not required.
5. INVENTORIES
Inventories consist of the following at September 30 (dollars in thousands):
1998 1997
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Work-in-progress and finished goods............................................... $ 10,577 $ 14,913
Raw materials and purchased component parts....................................... 12,038 6,268
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Total........................................................................... 22,615 21,181
Reserve for excess and obsolete inventory......................................... (4,335) (3,771)
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Inventories--net.................................................................. $ 18,280 $ 17,410
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6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30 (dollars in thousands):
1998 1997
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Land and improvements........................................................... $ 4,683 $ 4,667
Buildings and improvements...................................................... 8,125 7,575
Machinery and equipment......................................................... 26,198 21,977
Construction in progress........................................................ 150 265
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Total......................................................................... 39,156 34,484
Accumulated depreciation........................................................ (17,205) (13,462)
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Property, plant and equipment--net.............................................. $ 21,951 $ 21,022
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7. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the following at September 30 (dollars in thousands):
1998 1997
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Goodwill.................................................................................... $ 33,341 $ 34,155
Technology and other........................................................................ 1,953 3,353
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Total....................................................................................... $ 35,294 $ 37,508
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Accumulated amortization of intangibles was $16.5 million at September 30, 1998 and $14 million at September 30, 1997.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (dollars in thousands):
1998 1997
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Compensation and related benefits....................................... $ 3,993 $ 4,025
Estimated losses on uncompleted contracts............................... 3,012 3,733
Sales returns and repairs............................................... 1,391 1,797
Environmental costs..................................................... 280 683
Income taxes............................................................ 380 266
Interest................................................................ 135 350
Other................................................................... 1,048 1,848
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Total................................................................... $ 10,239 $ 12,702
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9. DEBT
SUMMARY--The Company's long-term debt consists of the following at September
30 (dollars in thousands):
1998 1997
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Term loans.............................................................. $ 45,000 $ 50,000
Current maturities...................................................... (5,000) (5,000)
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Long-term portion....................................................... $ 40,000 $ 45,000
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REVOLVING CREDIT, SWING LINE, AND TERM LOANS--During the year ended September 30, 1997, the Company obtained a new $70 million credit facility with a group of financial institutions which consist of a $20 million revolving credit line (including $1 million of available swing line loans) and $50 million of term loans. At September 30, 1998, the Company had $20 million of borrowings (the entire revolving credit line) available under the credit facility. Any amounts borrowed under the revolving credit and swing line loans mature in the year 2003 and amounts borrowed under the term loans mature on various dates through the year 2003.
Borrowings under the credit facility bear interest at the Company's option of (1) the Alternate Base Rate plus .25% or (2) the LIBO rate for Eurodollar loans plus 1.25%, payable quarterly. The Alternate Base Rate is equal to the highest of (a) the Prime Rate, (b) the Base CD Rate plus 1% or (c) the Federal Funds Effective Rate plus .5%. The interest rate on outstanding borrowings at September 30, 1998 was approximately 6.9%.
Any amounts borrowed under the credit facility are collateralized by substantially all of the tangible assets of the Company. The agreement also contains a number of restrictive covenants that, among other things, limit the ability of the Company to incur indebtedness, pay dividends, engage in mergers and consolidations, engage in transactions with affiliates, make capital expenditures, engage in sales of assets or the stock of a subsidiary company and make certain investments. The agreement also requires the maintenance of a minimum net worth as well as debt to adjusted earnings, interest coverage, and other ratios. The Company is in compliance with all financial covenants of the credit facility as of September 30, 1998.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
9. DEBT (CONTINUED) The maturities of the Company's term loans are as follows: 1999--$5 million; 2000 through 2003-- $10 million each year.
SUBORDINATED NOTES--During the year ended September 30, 1997, the Company redeemed, in advance of their scheduled maturity, outstanding subordinated notes which had a carrying value at the time of the redemption of approximately $19.3 million ($20 million principal balance net of an unamortized discount of approximately $.7 million). As a result of the redemption, the Company recognized an extraordinary loss of approximately $1.5 million (net of a current income tax benefit of approximately $1 million) on the early extinguishment of debt which included prepayment costs of approximately $.8 million and the write-off of the remaining unamortized debt issue costs of approximately $1 million. The subordinated notes bore interest at an annual rate of 13%, payable semi-annually.
The subordinated notes included detachable warrants to purchase approximately 16,000 shares of non-voting common stock of TransDigm Holding Company at a price of $.10 per share which were not affected by the redemption of the subordinated notes. The warrants are not exercisable except in connection with the following triggering events: public offering of TransDigm Holding Company's common stock, a business combination in which the Company is not the surviving entity, and a change of control (see Note 1). If no transaction constituting a triggering event is consummated prior to July 31, 1999, warrant holders have the right to exercise a put option requiring the Company to repurchase all of the warrants at their then appraised fair market value. If the warrant holders have not exercised their put option prior to September 30, 2001, then TransDigm Holding Company will have the right to call the warrants at their then appraised fair market value.
10. RETIREMENT PLANS
The Company has two non-contributory, defined benefit pension plans which together cover all of its union employees. The plans provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute actuarially determined amounts allowable under Internal Revenue Service regulations. The plans' assets consist primarily of guaranteed investment contracts with an insurance company.
Net periodic pension cost of the defined benefit plans consists of the following for the years ended September 30 (dollars in thousands):
1998 1997 1996
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Service cost--benefits earned during the period..................... $ 86 $ 74 $ 72
Interest cost on projected benefit obligation....................... 306 288 262
Actual return on plan assets........................................ (190) (136) (130)
Net amortization and deferral....................................... 94 101 28
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Net periodic pension cost........................................... $ 296 $ 327 $ 232
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TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
10. RETIREMENT PLANS (CONTINUED) The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets at September 30 (dollars in thousands).
1998 1997
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Actuarial present value of benefit obligation, substantially
all vested............................................................... $ 4,969 $ 4,096
Plan assets at fair value.................................................. 2,817 2,232
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Projected benefit obligation in excess of plan assets...................... 2,152 1,864
Unrecognized net loss from past experience different from that assumed..... (1,196) (791)
Unamortized prior service cost............................................. (226) (98)
Adjustment required to recognize additional minimum liability.............. 1,422 889
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Accrued pension cost recognized in the consolidated balance sheets (current
and long-term portions).................................................. $ 2,152 $ 1,864
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The assumptions used to determine net periodic pension cost as well as the funded status are:
1998 1997
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Discount rate................................................................... 6.5% 7.5%
Long-term rate of return on plan assets......................................... 7.5% 7.5%
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The provisions of Financial Accounting Standards Board Statement No. 87, "Employers' Accounting for Pensions" require recognition in the balance sheet of an additional minimum liability and related intangible asset (limited by the amount of unamortized prior service cost) for pension plans with accumulated benefits in excess of plan assets. At September 30, 1998 and 1997, an additional liability of $1.4 million and $.9 million, respectively, is reflected in the consolidated balance sheets. At September 30, 1998 and 1997, the liability exceeded the unrecognized prior service cost resulting in a charge to stockholders' equity, net of taxes, of $.8 million and $.5 million, respectively.
The Company also sponsors a defined contribution employee savings plan which covers substantially all of the Company's non-union employees. Under the plan, the Company contributes a percentage of employee compensation and matches a portion of employee contributions to the plan. The cost recognized for such contributions under this plan for the years ended September 30, 1998, 1997 and 1996 was approximately $.6 million in all years.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the years ended September 30 (dollars in thousands):
1998 1997 1996
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Current......................................................... $ 13,327 $ 6,926 $ 2,897
Deferred........................................................ (341) (1,733) 839
Benefit of operating loss carryforward.......................... -- -- (1,691)
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Total........................................................... $ 12,986 $ 5,193 $ 2,045
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The difference between the provision for income taxes at the federal statutory income tax rate and the tax shown in the consolidated statements of income and retained earnings (deficit) for the years ended September 30 is as follows (dollars in thousands):
1998 1997 1996
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Tax at statutory rate of 35% (34% in 1997 and 1996)............. $ 9,493 $ 3,341 $ 1,095
State and local income taxes.................................... 1,053 445 160
Nondeductible warrant put value adjustment...................... 2,289 1,632 734
Benefit from foreign sales corporation.......................... (349) (394) --
Nondeductible goodwill amortization............................. 353 70 --
Other--net...................................................... 147 99 56
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Provision for income taxes...................................... $ 12,986 $ 5,193 $ 2,045
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The components of the deferred tax assets at September 30 consist of the following (dollars in thousands):
1998 1997
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CURRENT ASSET:
Estimated losses on uncompleted contracts.................................. $ 1,175 $ 1,300
Employee benefits.......................................................... 649 743
Sales returns and repairs.................................................. 548 541
Other accrued liabilities.................................................. 1,427 1,318
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Total...................................................................... $ 3,799 $ 3,902
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NON-CURRENT ASSET:
Intangible assets.......................................................... $ 3,724 $ 3,638
Retirement obligations..................................................... 596 401
Property, plant and equipment.............................................. (646) (970)
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Total...................................................................... $ 3,674 $ 3,069
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TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY
CAPITAL STOCK--Authorized capital stock of the Company consists of 900,000 shares of common stock (voting), par value $.01 per share and 100,000 shares of Class A (non-voting) common stock. At September 30, 1998, outstanding common shares were 236,120 of voting common stock and 13,750 of Class A non-voting common stock. There was no change in the number of outstanding Class A non-voting shares during the years ended September 30, 1998, 1997 and 1996.
During the years ended September 30, 1998, 1997, and 1996, the Company issued voting common shares, principally to employees and members of its board of directors, as follows (dollars in thousands):
1998 1997 1996
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Number of shares........................................................ -- 200 575
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Proceeds................................................................ -- $ 67 $ 115
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During the years ended September 30, 1998, 1997, and 1996, the Company also repurchased certain voting common shares, principally from terminated employees, as follows (dollars in thousands):
1998 1997 1996
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Number of shares....................................................... 175 410 1,085
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Acquisition cost....................................................... $ 71 $ 174 $ 400
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STOCK OPTIONS--The Company has certain stock option plans for its employees. The options generally vest upon the earlier of: (1) the occurrence of certain events such as the achievement of certain earnings targets or a change in the control of the Company or (2) certain specified dates in the option agreements. A summary of the status of the Company's stock option plans as of September 30, 1998, 1997 and 1996 and changes during the years then ended is presented below:
1998 1997 1996
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WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
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Outstanding at beginning of year....... 37,467 $ 158 31,150 $ 116 36,700
Granted................................ -- -- 7,597 324 4,900
Exercised.............................. -- -- (220) 145 (5,090)
Forfeited.............................. -- -- (1,060) 147 (5,360)
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Outstanding at end of year............. 37,467 158 37,467 158 31,150
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Exercisable at end of year............. 19,670 113 17,121 110 14,792
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WEIGHTED-AVERAGE
EXERCISE PRICE
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Outstanding at beginning of year....... $ 105
Granted................................ 200
Exercised.............................. 100
Forfeited.............................. 100
Outstanding at end of year............. 116
Exercisable at end of year............. 106
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TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
12. STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding at September 30, 1998:
OPTIONS OUTSTANDING
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WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
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$100............................................. 25,170 5.8 17,020
154............................................. 400 6.8 200
200............................................. 4,900 7.5 2,450
335............................................. 6,997 8.5
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37,467 19,670
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The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. No compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method specified in Statement of Financial Accounting Standards No. 123, the Company's net income for the years ended September 30, 1998 and 1997 would have been reduced by approximately $115,000 in both years.
The weighted average fair value of options granted during fiscal 1997 and 1996 was $950,000 and $340,000, respectively. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in both fiscal 1997 and 1996: risk-free interest rates ranging from 6.25% to 6.85%, expected life of seven years, expected volatility and dividend yield of 0%.
13. LEASES
TransDigm leases office space for its corporate headquarters and one of its divisions. The lease requires rental payments of approximately $200,000 per year through the initial term of the lease, which expires in 1999. TransDigm may also be required to share in the operating costs of the facility under certain conditions. TransDigm has the option to renew the lease for an additional five years beyond the expiration of the initial lease term. TransDigm also has commitments under operating leases for vehicles and equipment. Rental expense was $599,000 in 1998, $540,000 in 1997, and $570,000 in 1996. Future, minimum rental commitments at September 30, 1998 under operating leases having initial or remaining non-cancelable lease terms exceeding one year are $383,000 in 1999, $166,000 in 2000, $79,000 in 2001, and $29,000 in 2002.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts receivable and payable, and accrued liabilities approximate their fair value due to the short-term maturities of these assets and liabilities. The Company also believes that the aggregate fair value of its term loans approximates its carrying amount because the interest rates on the debt are reset on a frequent basis to reflect current market rates.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
15. CONTINGENCIES
ENVIRONMENTAL--The soil and groundwater beneath the Company's facility in Waco, Texas have been impacted by releases of hazardous materials. The resulting contaminants of concern have been delineated and characterized. Because the majority of these contaminants are presently below action levels prescribed by the Texas Natural Resources Conservation Commission ("TNRCC"), and because an escrow (Note 2) was previously funded to cover the cost of remediation that TNRCC might require for those contaminants currently in excess of action limits, management does not believe the condition of the soil and groundwater at the Waco facility will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings, management believes the results of these proceedings will not have a material effect on the financial condition, results of operations or cash flows of the Company. During the ordinary course of business, the Company is from time to time threatened with, or may become a party to, legal actions and other proceedings. The Company believes that its potential exposure to such legal actions is adequately covered by its aviation product and general liability insurance.
16. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." The statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company's other comprehensive income consists of the minimum pension liability adjustment. If the Company had adopted SFAS No. 130, comprehensive income would have been reduced by $252,000, $122,000, and $177,000 in 1998, 1997, and 1996, respectively. The Company will adopt this standard during fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." The statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments such as a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. The Company will adopt this standard during fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." The statement requires an enterprise to disclose certain information about its pension and postretirement benefits, including a reconciliation of beginning and ending balances of the benefit obligation, the funded status of the plans, and the amount of net periodic benefit cost recognized. The Company will adopt this standard during fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
16. NEW ACCOUNTING STANDARDS (CONTINUED) hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The Company will adopt this standard during fiscal 2000.
While management has not completed its analysis of these new accounting standards, the adoption of these standards is not expected to have a material effect on the Company's financial statements.
17. ACCOUNTING CHANGE
In connection with the planned registration of the Senior Subordinated Notes described in Note 1 with the Securities and Exchange Commission ("Commission"), the Company has retroactively adopted a new method of accounting for the put warrants issued in 1993 (see Note 9). The Company adopted the new method to comply with the requirements of the Commission for put warrants. Under the new method of accounting, the Company has recorded a liability for the estimated put value of the warrants and is recognizing changes in the estimated put value in earnings. Previously, the Company recognized the warrants as a component of stockholders' equity and adjusted the carrying value of the warrants on a straight-line basis for the difference between their original recorded amount of $1.6 million and their estimated put value in July 1999, with an offsetting charge to the Company's retained earnings (deficit). The Company has restated its 1997 and 1996 consolidated financial statements for this change in accordance with the provisions of Accounting Principles Board Opinion No. 20, "Accounting Changes." The significant effects of the change in accounting on the Company's consolidated statements of income and retained earnings (deficit) are as follows (dollars in thousands):
1997 1996
--------- ---------
As previously reported:
Income before extraordinary loss......................................... $ 9,434 $ 3,335
Net income............................................................... 7,972 3,335
As restated:
Income before extraordinary loss......................................... 4,634 1,175
Net income............................................................... 3,172 1,175
|
Because the Merger described in Note 1 constitutes a "triggering event" pursuant to the terms of the warrants, the warrant holders will be permitted to exercise their put option in connection with the closing of the transaction. Accordingly, the Company has adjusted the carrying value of the warrants in the accompanying September 30, 1998 consolidated balance sheet to their estimated fair value.
18. SUBSEQUENT EVENT
The Merger described in Note 1 was completed on December 3, 1998.
* * * * * * *
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
UNAUDITED
JANUARY 1,
1999
-----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................................... $ 2,103
Accounts receivable, net........................................................................... 14,403
Inventories........................................................................................ 18,180
Refundable income taxes............................................................................ 7,692
Deferred income taxes and other.................................................................... 3,992
-----------
Total current assets........................................................................... 46,370
PROPERTY, PLANT AND EQUIPMENT--Net................................................................... 21,709
INTANGIBLE ASSETS--Net............................................................................... 34,649
DEBT ISSUE COSTS--Net................................................................................ 11,101
DEFERRED INCOME TAXES AND OTHER...................................................................... 4,332
-----------
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................................................. $ 4,700
Accounts payable................................................................................... 5,554
Accrued liabilities................................................................................ 9,362
-----------
Total current liabilities...................................................................... 19,616
LONG-TERM DEBT--Less current portion................................................................. 231,500
OTHER LIABILITIES.................................................................................... 2,410
-----------
Total liabilities.............................................................................. 253,526
-----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK.............................................................................. 800
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Capital stock...................................................................................... 100,624
Retained earnings (deficit)........................................................................ (236,035)
Accumulated other comprehensive income............................................................. (754)
-----------
Total stockholders' equity (deficit)........................................................... (136,165)
-----------
TOTAL................................................................................................ $ 118,161
-----------
-----------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
UNAUDITED
THIRTEEN WEEKS ENDED
-------------------------
JANUARY 1, DECEMBER 26,
1999 1997
----------- ------------
NET SALES.............................................................................. $ 28,194 $ 26,104
COST OF SALES.......................................................................... 14,937 14,707
----------- ------------
GROSS PROFIT........................................................................... 13,257 11,397
----------- ------------
OPERATING EXPENSES:
Selling and administrative........................................................... 2,685 2,669
Amortization of intangibles.......................................................... 645 635
Research and development............................................................. 448 339
Merger expenses...................................................................... 39,593 --
----------- ------------
Total operating expenses......................................................... 43,371 3,643
----------- ------------
INCOME (LOSS) FROM OPERATIONS.......................................................... (30,114) 7,754
INTEREST EXPENSE--Net.................................................................. 2,276 1,046
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES...................................................... (32,390) 6,708
INCOME TAX PROVISON (BENEFIT).......................................................... (7,566) 2,590
----------- ------------
NET INCOME (LOSS)...................................................................... $ (24,824) $ 4,118
----------- ------------
----------- ------------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
UNAUDITED
THIRTEEN WEEKS ENDED JANUARY 1, 1999
-----------------------------------------------------
ACCUMULATED
RETAINED OTHER
CAPITAL EARNINGS COMPREHENSIVE
STOCK (DEFICIT) INCOME TOTAL
---------- ----------- --------------- -----------
BALANCE, OCTOBER 1, 1998................................... $ 24,281 $ 12,900 $ (754) $ 36,427
ISSUANCE OF CAPITAL STOCK.................................. 100,200 100,200
PAYMENT OF CONSIDERATION IN RECAPITALIZATION............... (23,857) (224,111) (247,968)
NET LOSS................................................... -- (24,824) -- (24,824)
---------- ----------- ----- -----------
BALANCE, JANUARY 1, 1999................................... $ 100,624 $ (236,035) $ (754) $ (136,165)
---------- ----------- ----- -----------
---------- ----------- ----- -----------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
UNAUDITED
THIRTEEN WEEKS ENDED
--------------------------
JANUARY 1, DECEMBER 26,
1999 1997
------------ ------------
OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (24,824) $ 4,118
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation..................................................................... 954 1,020
Amortization of intangibles...................................................... 645 635
Amortization of debt issue costs................................................. 766 70
Interest deferral on Holdings PIK Notes.......................................... 200 --
Changes in assets and liabilities:
Accounts receivable............................................................ (1,873) (1,069)
Inventories.................................................................... 100 611
Refundable income taxes........................................................ (7,692) --
Prepaid expenses and other assets.............................................. (28) (237)
Accounts payable............................................................... (113) (369)
Accrued liabilities............................................................ (870) 1,706
------------ ------------
Net cash provided by (used in) operating activities.............................. (32,735) 6,485
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures............................................................... (712) (628)
Marathon acquisition, post-closing purchase price adjustment....................... 766
------------ ------------
Net cash provided by (used in) investing activities.............................. (712) 138
------------ ------------
FINANCING ACTIVITIES:
Proceeds from subordinated notes, net of fees of $6,155............................ 118,845 --
Proceeds from new credit facility, net of fees of $4,765........................... 87,832 --
Proceeds from Holdings PIK Notes and common stock, net of fees of $341............. 19,659 --
Payment of consideration in recapitalization--common stock and warrants............ (263,875) --
Net repayments under revolving credit loans........................................ (1,597) --
Repayment of term notes............................................................ (45,000) --
Proceeds from issuance of capital stock............................................ 100,200 --
Purchase of capital stock.......................................................... -- (20)
------------ ------------
Net cash provided by (used in) financing activities.............................. 16,064 (20)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (17,383) 6,603
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................... 19,486 5,397
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 2,103 $ 12,000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................................... $ 1,293 $ 350
------------ ------------
------------ ------------
Cash paid during the period for income taxes....................................... $ 506 $ 68
------------ ------------
------------ ------------
|
See notes to consolidated financial statements.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holdings Company ("Holdings") through its wholly owned operating subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary mechanical components servicing the aircraft, mining, marine and other manufacturing industries. TransDigm along with its wholly-owned subsidiary, Marathon Power Technologies Company ("Marathon"), offers a broad line of component products including tube connectors, valves, batteries, static inverters, pumps, quick disconnects, clamps and ball bearings and sliding controls.
On December 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity formed by affiliates of Odyssey Investment Partners, LP ("Odyssey") and Holdings consummated a definitive agreement and plan of merger (the "Merger Agreement" or the "Merger"). Pursuant to the terms of the Merger, Acquiror was merged with and into Holdings, with Holdings being the surviving corporation in the Merger (the "Surviving Corporation"). In the Merger, owners of Holdings' outstanding common stock received, in exchange for each outstanding share of common stock (except for shares held directly or indirectly by Holdings or the Rolled Shares, as defined below), the "Per Share Merger Consideration" as defined in the Merger Agreement. The aggregate consideration payable pursuant to the Merger, including amounts payable to holders of options and warrants, was approximately $299.7 million.
In connection with the Merger, Kelso Investment Associates IV, LP and Kelso Equity Partners II, LP (collectively "Kelso") retained approximately 15.4% of the Surviving Corporation's outstanding common stock (the "Rolled Shares"). In addition, certain members of management of Holdings agreed, in connection with and as a condition to entering into the Merger Agreement, to rollover stock options with an estimated gross and net value of approximately $17.2 million and $13.7 million, respectively. The Merger was treated as a recapitalization (the "Recapitalization") for financial reporting purposes, which had no impact on the historical basis of Holdings' consolidated assets and liabilities.
Simultaneously with the Merger, Holdings and TransDigm (collectively with Marathon, the "Company") refinanced all of its existing debt. The Merger, the refinancing, and payment of fees and expenses were funded by (i) existing cash balances, (ii) investments by Odyssey of $100.2 million, (iii) funds from a new $120 million Senior Credit Facility, (iv) funds from $125 million Senior Subordinated Notes and (v) Holdings PIK Notes of $20 million issued to certain stockholders. At January 1, 1999, Holdings had $29.0 million available for working capital, certain permitted acquisitions and general corporate purposes under the new Senior Credit Facility.
Separate financial statements of TransDigm are not presented since the Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect subsidiaries of TransDigm, and since Holdings has no operations or assets separate from its investment in TransDigm.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented. The results of operations for the thirteen weeks ended January 1, 1999 are not necessarily indicative of the results to be expected for the full year.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories is determined by the average cost and the first-in, first-out (FIFO) methods. Inventories consist of the following (in thousands):
JANUARY 1,
1999
-----------
Work-in-progress and finished goods............................................... $ 10,051
Raw materials and purchased component parts....................................... 12,775
-----------
Total......................................................................... 22,826
Reserve for excess and obsolete inventory......................................... (4,646)
-----------
Inventories--net.................................................................. $ 18,180
-----------
-----------
|
4. INCOME TAXES
Income tax expense (benefit) as a percentage of income (loss) before income taxes was (23.3)% for the first quarter of fiscal 1999 compared to 38.6% for the first quarter of fiscal 1998. The tax benefit recorded for the first quarter of fiscal 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization.
5. REDEEMABLE COMMON STOCK
The redeemable common stock represents the estimated value of common stock held by management shareholders which have certain put rights.
6. CONTINGENCIES
ENVIRONMENTAL--The soil and goundwater beneath the Company's facility in Waco, Texas have been impacted by releases of hazardous materials. The resulting contaminants of concern have been delineated and characterized. Because the majority of these contaminants are presently below action levels prescribed by the Texas Natural Resources Conservation Commission ("TNRCC"), and because an escrow was previously funded to cover the cost of remediation that TNRCC might require for those contaminants currently in excess of action limits, management does not believe the condition of the soil and groundwater at the Waco facility will require incurrence of material expenditures.
OTHER--While the Company is currently involved in certain legal proceedings, management believes the results of these proceedings will not have a material effect on the financial condition, results of operations or cash flows of the Company. During the ordinary course of business, the Company is from time to time threatened with, or may become a party to, legal actions and other proceedings. The Company believes that its potential exposure to such legal actions is adequately covered by its aviation product and general liability insurance.
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THIRTEEN WEEKS ENDED JANUARY 1, 1999 AND DECEMBER 26, 1997
7. NEW ACCOUNTING STANDARD
The Company adopted the provisions of Statement No. 130 of the Financial Accounting Standards Board "Reporting Comprehensive Income" during the thirteen weeks ended January 1, 1999. Accordingly, the Company's accumulated other comprehensive income, consisting solely of its minimum pension liability adjustment, is reported separately in the accompanying consolidated balance sheet and statement of changes in stockholders' equity. There were no changes in accumulated other comprehensive income during the thirteen weeks ended January 1, 1999 and December 26, 1997.
8. SUBSEQUENT EVENT
On April 23, 1999, TransDigm acquired ZMP, Inc, including all of its outstanding common stock, for $41 million. The purchase price is subject to adjustment for changes in working capital and other matters as defined in the merger agreement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Marathon Power Technologies Company
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and retained earnings and of cash flows present fairly, in all material respects, the financial position of Marathon Power Technologies Company and its subsidiary at December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
January 17, 1997
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31,
--------------------
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 326 $ 79
Accounts receivable, less allowance for doubtful accounts of $25 and $24 at December 31,
1996 and 1995, respectively............................................................. 2,419 2,636
Inventories............................................................................... 3,191 3,076
Deferred income taxes..................................................................... 321 292
Prepaid income taxes...................................................................... 40 119
Other current assets...................................................................... 68 67
--------- ---------
Total current assets.................................................................. 6,365 6,269
Property, plant and equipment............................................................. 6,496 6,570
--------- ---------
Total assets.......................................................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 776 $ 719
Accrued expenses.......................................................................... 2,108 2,238
Short-term debt........................................................................... 518 476
Current maturities of long-term debt...................................................... 475 --
--------- ---------
Total current liabilities............................................................. 3,877 3,433
--------- ---------
Deferred income taxes....................................................................... 339 216
Long-term debt.............................................................................. 2,025 5,000
--------- ---------
Total long-term liabilities........................................................... 2,364 5,216
--------- ---------
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, $.01 par value; 50,000 shares authorized, 30,000 shares issued and
outstanding............................................................................. 1 1
Capital in excess of par value............................................................ 2,999 2,999
Retained earnings......................................................................... 3,628 1,198
Treasury stock, at cost; 75 shares........................................................ (8) (8)
--------- ---------
Total shareholders' equity............................................................ 6,620 4,190
--------- ---------
Total liabilities and shareholders' equity.......................................... $ 12,861 $ 12,839
--------- ---------
--------- ---------
|
The accompanying notes are an integral part of these financial statements.
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Net sales................................................................................... $ 20,065 $ 18,072
Cost of goods sold.......................................................................... 11,833 11,280
--------- ---------
Gross profit................................................................................ 8,232 6,792
Selling expenses............................................................................ 1,286 1,024
General and administrative expenses......................................................... 3,100 2,959
--------- ---------
Income from operations...................................................................... 3,846 2,809
Interest expense............................................................................ (403) (644)
--------- ---------
Income before income taxes and extraordinary items.......................................... 3,443 2,165
Provision for income taxes.................................................................. (1,243) (759)
--------- ---------
Income before extraordinary items........................................................... 2,200 1,406
Extraordinary gain on extinguishment of debt, net of income taxes........................... 230 --
--------- ---------
Net income.................................................................................. 2,430 1,406
Retained earnings (accumulated deficit), beginning of period................................ 1,198 (208)
--------- ---------
Retained earnings, end of period............................................................ $ 3,628 $ 1,198
--------- ---------
--------- ---------
|
The accompanying notes are an integral part of these financial statements.
MARATHON POWER TECHNOLOGIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income................................................................................. $ 2,430 $ 1,406
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary gain on early extinguishment of debt, net of income taxes................ (230) --
Depreciation and amortization.......................................................... 766 673
Deferred income tax provision.......................................................... 94 175
Other.................................................................................. (4) --
Changes in operating assets and liabilities:
Accounts receivable.................................................................... 217 (500)
Inventories............................................................................ (246) 604
Prepaid income taxes................................................................... 79 (119)
Other current assets................................................................... (1) 126
Accounts payable....................................................................... 57 313
Accrued expenses....................................................................... (130) (293)
Income taxes payable................................................................... -- (45)
--------- ---------
Net cash provided by operating activities............................................ 3,032 2,340
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions.................................................... (702) (363)
Property, plant and equipment dispositions................................................. 10 --
--------- ---------
Net cash used in investing activities................................................ (692) (363)
--------- ---------
Cash flows from financing activities:
Net increase of line of credit............................................................. 42 476
Repayment of long-term debt................................................................ (2,125) (3,000)
Other...................................................................................... (10) --
Acquisition of treasury stock.............................................................. -- (8)
--------- ---------
Net cash used in financing activities................................................ (2,093) (2,532)
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 247 (555)
Cash and cash equivalents at beginning of period............................................. 79 634
--------- ---------
Cash and cash equivalents at end of period................................................... $ 326 $ 79
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................. $ 459 $ 672
--------- ---------
--------- ---------
Income taxes............................................................................. $ 1,198 $ 748
--------- ---------
--------- ---------
|
The accompanying notes are an integral part of these financial statements.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FORMATION
Marathon Power Technologies Company ("Company") was organized in March 1994 and purchased substantially all of the net assets of Marathon Power Technologies, a wholly-owned subsidiary of American Premier Underwriters, Inc., on May 19, 1994. The Company, located in Waco, Texas, manufactures vented and sealed nickel cadmium rechargeable batteries which are used in aviation and consumer electrical equipment. The Company also manufactures static inverters, used largely in the aviation industry, which convert DC power into AC power, as well as other items, such as battery chargers. The Company maintains a subsidiary in the United Kingdom used primarily for distribution of vented products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION--The financial statements include the accounts of the Company and its wholly-owned subsidiary after elimination of intercompany transactions and balances. Certain reclassifications were made to conform prior year amounts to the current year presentation.
USE OF ESTIMATES--Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions about reported amounts of assets and liabilities; disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Management must also make estimates and judgments about future results of operations related to specific elements of the business in assessing recoverability of assets and recorded values of liabilities. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand and short-term investments with original maturities of three months or less.
CREDIT CONCENTRATIONS--The Company sells products chiefly to aviation companies and/or suppliers to aviation companies, generally on an unsecured basis. The Company provides estimated reserves against accounts receivable for collection losses.
INVENTORIES--Inventories are stated at the lower of cost or market, cost being determined on a first-in first-out basis.
PROPERTY PLANT AND EQUIPMENT--Property, plant and equipment, including assets under capital lease, are carried at acquisition cost. Depreciation and amortization are computed on the straight-line basis over the estimated remaining useful lives of the assets (ranging from 2 to 30 years) and the remaining term of capital leases, respectively. Repair and maintenance expenditures are charged to operations as incurred, and expenditures for major renewals and betterments are capitalized. When units of property are disposed, the cost and related accumulated depreciation are removed from the accounts, and the resulting gains or losses are included in operations.
REVENUE RECOGNITION--Sales revenue and related cost of sales are recognized as products are shipped to customers. In the normal course of business, the Company provides for product defects through the issuance of one to two year warranties covering its products. The costs associated with these warranties are accrued at the time of sale which totaled $130,000 and $232,000 in 1996 and 1995, respectively.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES--Deferred income taxes are provided for differences between tax laws and financial accounting standards regarding the recognition and measurement of assets, liabilities, revenues and expenses. Such differences result principally from different methods of purchase price allocation for tax and financial accounting purposes and depreciation.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Management believes the recorded values of financial instruments approximate their current fair values as such items are current in nature and/or generally bear variable interest rates which adjust yield to derive current market value.
STOCK-BASED COMPENSATION--In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123") was issued. This statement requires the fair value of stock options and other stock-based compensation issued to employees to either be included as compensation in the statement of operations, or the pro forma effect on net income of such compensation expense to be disclosed in the footnotes to the Company's financial statements commencing with the Company's year ending December 31, 1996. The Company has adopted SFAS 123 on a disclosure basis only. As such, implementation of SFAS 123 is not expected to impact the Company's consolidated balance sheet or consolidated statement of operations.
3. INVENTORIES
Inventories comprise the following (dollars in thousands):
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Raw materials.............................................................. $ 887 $ 716
Work-in-process............................................................ 1,601 1,731
Finished goods............................................................. 703 629
--------- ---------
$ 3,191 $ 3,076
--------- ---------
--------- ---------
|
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following (dollars in thousands):
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Land....................................................................... $ 693 $ 693
Building and improvements.................................................. 3,379 3,370
Machinery and equipment.................................................... 3,550 3,258
Other...................................................................... 678 294
--------- ---------
8,300 7,615
Less accumulated depreciation and amortization............................. 1,804 1,045
--------- ---------
$ 6,496 $ 6,570
--------- ---------
--------- ---------
|
Routine repairs and maintenance charged to expense were $108,000 and $161, 000 for the years ended December 31, 1996 and 1995, respectively.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities comprise the following (dollars in thousands):
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Customer rebates........................................................... $ 690 $ 200
Compensation............................................................... 583 788
Warranty................................................................... 435 535
Other...................................................................... 400 715
--------- ---------
$ 2,108 $ 2,238
--------- ---------
--------- ---------
|
6. LONG-TERM DEBT
Long-term debt comprises the following (dollars in thousands):
DECEMBER 31,
--------------------
1996 1995
--------- ---------
$3,000 revolving credit facility with a bank, bearing interest at 0.25%
above prime at December 31, 1996 (8.5%) and 1.0% above prime at December
31, 1995 (9.5%) on the outstanding balance, principal and interest
payable upon deposit of available funds, available until June 1999....... $ 518 $ 476
Note payable to a bank, bearing interest at 0.25% above prime at December
31, 1996 (8.5%) and 1.0% above prime at December 31, 1995 (9.5%) payable
in varying installments through June 1999................................ 2,500 2,500
Subordinated note payable to a corporation, interest payable quarterly at
9.0%, principal due in two installments through May 2000................. -- 2,500
--------- ---------
3,018 5,476
Less current maturities.................................................... 993 476
--------- ---------
$ 2,025 $ 5,000
--------- ---------
--------- ---------
|
The Company's revolving credit facility includes an additional $750,000 overadvance facility under which no borrowings were outstanding in 1996 or 1995. The overadvance facility will be reduced to $500,000, $250,000 and $0 on January 1, April 1, and July 1 of 1997, respectively. The Company pays a commitment fee of .25% per annum of the daily average of the unused portion of the revolving credit facility. Prior to October 1996, the commitment fee paid was .5%.
The above debt is secured by the Company's assets and common stock and is restricted by certain financial covenants including capital base, debt ratio and current ratio requirements, among others.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED) In 1996, the Company extinguished its $2,500,000 subordinated note payable for a cash payment of $2,125,000, obtained from a combination of operating cash flows and an increase in borrowings under the line of credit. The difference between the carrying amount of the note and the cash paid to the holder of such borrowings (and related expenses of $10,000) was recorded as an extraordinary gain on the early extinguishment of debt of $365,000 ($230,000 net of income taxes). The effective tax rate for the extraordinary gain was 37.0%.
Aggregate maturities of long-term debt as of December 31, 1996 are as follows (dollars in thousands):
1997................................................................ $ 993
1998................................................................ 900
1999................................................................ 1,125
2000................................................................ --
2001................................................................ --
---------
$ 3,018
---------
---------
|
7. INCOME TAXES
Income tax provision comprises the following (in thousands):
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Current
Federal.................................................................... $ 1,060 $ 536
State...................................................................... 154 48
--------- ---------
Total current............................................................ 1,214 584
--------- ---------
Deferred:
Federal.................................................................... 25 156
State...................................................................... 4 19
--------- ---------
Total deferred........................................................... 29 175
--------- ---------
Provision for income taxes before extraordinary gain..................... 1,243 759
Income tax expense from extraordinary gain................................... 135 --
--------- ---------
Total provision for income taxes......................................... $ 1,378 $ 759
--------- ---------
--------- ---------
|
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED) The effective tax rate on earnings before income taxes and extraordinary items was different than the federal statutory tax rate. The following summary reconciles the federal statutory tax rate and provision with the actual effective rate and provision:
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Federal income tax expense................................................. 34.0% 34.0%
State taxes, net of federal expense........................................ 3.0% 3.1%
Disallowed meals and entertainment......................................... 0.2% 1.4%
Valuation allowance........................................................ -- (2.8%)
Other...................................................................... (1.1%) (0.7%)
--- ---
36.1% 35.0%
--- ---
--- ---
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's net deferred tax assets and liabilities comprise the following (dollars in thousands):
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Deferred tax assets and liabilities
Accruals and reserves...................................................... $ 321 $ 292
Asset allocation difference................................................ (339) (216)
--------- ---------
Net deferred tax asset (liability)....................................... $ (18) $ 76
--------- ---------
--------- ---------
|
8. SALES TO MAJOR CUSTOMERS
The Company made sales to various U.S. governmental agencies representing 14.0% and 7.0% of net sales in 1996 and 1995, respectively. Sales to two of the Company's nongovernmental customers represent 25.6% and 22.8%, respectively, of net sales in 1996 and 31.3% and 29.5% respectively, in 1995. These customers also represented 20.4% and 34.6%, respectively, of outstanding trade receivables at December 31, 1996 and 28.0% and 22.6%, respectively, at December 31, 1995. In the normal course of business, the Company extends credit on open account to its customers, including U.S. governmental agencies and distributors of the Company's products. Extensions of credit to all customers are closely monitored and no significant credit losses have occurred during the years ended December 31, 1996 and 1995.
9. RESEARCH AND DEVELOPMENT
The Company is engaged in several research and development projects. Costs associated with these projects are charged to operations when incurred. Research and development costs are included in general and administrative expenses and totaled $362,000 and $279,000 in 1996 and 1995, respectively.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company paid management fees of $200,000 and $181,000 during 1996 and 1995, respectively, which are included in general and administrative expenses, to its principal shareholder under an agreement which calls for quarterly installments equal to 1.0% of quarterly net sales. Included in accrued liabilities other (Note 5) are management fees payable of $51,000 and $46,000 as of December 31, 1996 and 1995, respectively.
Included in treasury stock at December 31, 1996 and 1995 are 75 shares of the Company's common stock which were repurchased from a former employee during 1995 for approximately $8,000.
11. STOCK OPTIONS
The Company established an incentive stock option plan in 1994 under which options to acquire an aggregate of 3,000 shares of the Company's common stock may be granted to employees and consultants of the Company. The plan requires that the exercise price for each stock option be not less than 100% of the fair market value of common stock at the time the option is granted. Both nonqualified stock options and incentive stock options, as defined by the Internal Revenue Code of 1986, as amended, may be granted under the plan. The options are nontransferable and are cancelable if the optionee's employment or other association with the Company is terminated for any reason. The plan and all underlying options terminate on January 1, 2005 or earlier. As of December 31, 1996 and 1995, options of 2,681 and 2,531, respectively, had been granted under the plan.
NUMBER OF EXERCISE
OPTIONS PRICE
----------- -----------
Options granted (initially) in 1995..................................... 2,531 $ 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1995........................................ 2,531 100
Options granted in 1996................................................. 150 100
Exercised............................................................. -- --
Canceled/Expired...................................................... -- --
----- -----
Outstanding at December 31, 1996........................................ 2,681 $ 100
----- -----
----- -----
|
As of December 31, 1996 and 1995, options for 1,609 and 1,012 shares, respectively, were exercisable under the Company's stock option plan.
The fair market values of options as of their grant dates were approximately $49 and $42 per option in December 1996 and 1995, respectively, based on comparison of the fair market value of the underlying shares and the net present value of the exercise price over the period of exercisability at a risk free market rate of 7.9% and 5.7%, respectively. No dividend payments or volatility in stock prices were assumed in the fair market value calculations.
No compensation expense was recorded during 1996 or 1995 for options issued under the plan since the Company accounts for such transactions in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Had the Company included the stock-based compensation in the consolidated statement of operations, $17,000 and $28,000 in additional employee compensation expenses, net of the effect of income taxes, would have been recorded in 1996 and 1995, respectively. This would result in pro forma net income of $2,413,000 and $1,378,000, respectively.
MARATHON POWER TECHNOLOGIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFITS
The Company sponsors a defined contribution retirement plan for Company employees. Employees are eligible to participate in the plan on the first day of the calendar quarter following their employment date. The Company makes annual contributions to the plan equal to 50% of the employees contribution (up to a maximum of 6% of each employee's compensation). The Company's expense under this plan was $68,000 and $62,000 in 1996 and 1995, respectively.
The Company sponsors a self-funded employee welfare benefit plan which provides comprehensive medical benefits to Company employees and their dependents. All full-time employees become eligible on the first day of the month following the month in which they complete 30 days of service. The Company incurred expenses of $366,000 and $304,000 under this plan during the years ended December 31, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES
Under the terms of the May 19, 1994 asset purchase agreement, the Company is indemnified for any preacquisition environment remediation costs. The Company had accrued $36,000 and $25,000 at December 31, 1996 and 1995, respectively, for additional hazardous waste disposal costs.
The Company is party to certain legal proceedings incidental to its business. Certain claims arising in the ordinary course of business have been filed or are pending against the Company. Management does not believe the outcome of any of these proceedings will materially affect the Company's financial position or results of operations. Under the terms of the May 19, 1994 asset purchase agreement, the Company is indemnified for any preacquisition legal costs. The Company accrues for claims that are both probable and for which expected loss can be reasonably estimated.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ZMP, Inc.
Glendale, California
We have audited the accompanying consolidated balance sheet of ZMP, Inc. and subsidiary (the "Company") as of June 26, 1998, and the related consolidated statements of income and retained earnings and of cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 26, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
August 26, 1998
(except for Note 9 as to which the date is April 23, 1999)
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 26,
1998
---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................ $ 1,267
Accounts receivable, net of allowance for doubtful accounts of $150.................................. 5,788
Inventories, net..................................................................................... 10,264
Deferred income taxes (Note 5)....................................................................... 1,988
Other current assets................................................................................. 616
---------
Total current assets............................................................................... 19,923
---------
EQUIPMENT AND IMPROVEMENTS:
Construction-in-progress............................................................................. 3,542
Machinery and equipment.............................................................................. 3,184
Furniture and fixtures............................................................................... 1,103
---------
7,829
Less accumulated depreciation and amortization....................................................... (3,514)
---------
Equipment and improvements, net.................................................................... 4,315
---------
OTHER ASSETS (Note 8).................................................................................. 424
GOODWILL, net (Note 2)................................................................................. 13,737
DEFERRED INCOME TAXES (Note 5)......................................................................... 126
---------
TOTAL.................................................................................................. $ 38,525
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................................................... $ 1,863
Accrued liabilities.................................................................................. 2,278
Income taxes payable (Note 5)........................................................................ 415
---------
Total current liabilities.......................................................................... 4,556
---------
OTHER LIABILITIES (Note 8)............................................................................. 424
---------
SENIOR SUBORDINATED NOTES PAYABLE (Note 4)............................................................. 15,196
---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 1 and 7):
Common stock, $.001 par value; 100,000 shares authorized; 100,000 shares issued and outstanding
Additional paid-in capital........................................................................... 16,139
Retained earnings (quasi-reorganization effective June 29, 1996--$10,889 of accumulated deficit was
charged against additional paid-in-capital).......................................................... 2,210
---------
Total stockholders' equity......................................................................... 18,349
---------
TOTAL.................................................................................................. $ 38,525
---------
---------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
YEAR ENDED
JUNE 26,
1998
-----------
NET SALES............................................................................................ $ 34,154
COST OF SALES........................................................................................ 22,421
-----------
GROSS PROFIT......................................................................................... 11,733
-----------
OPERATING EXPENSES:
Selling, general and administrative (Note 8)....................................................... 6,976
Amortization (Note 2).............................................................................. 687
Facility relocation (Note 1)....................................................................... 503
-----------
Total operating expenses....................................................................... 8,166
-----------
OPERATING INCOME..................................................................................... 3,567
INTEREST EXPENSE, net (Note 4)....................................................................... 1,496
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES............................................................. 2,071
PROVISION FOR INCOME TAXES (Note 5).................................................................. 1,098
-----------
NET INCOME........................................................................................... 973
RETAINED EARNINGS, BEGINNING OF YEAR................................................................. 1,237
-----------
RETAINED EARNINGS, END OF YEAR....................................................................... $ 2,210
-----------
-----------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED
JUNE 26, 1998
-------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................................... $ 973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................. 1,172
Deferred income taxes.......................................................................... (302)
Loss on disposal of assets..................................................................... 1
Interest deferral on senior subordinated notes payable......................................... 1,693
Changes in operating assets and liabilities:
Accounts receivable.......................................................................... (967)
Inventories.................................................................................. (1,978)
Other current assets......................................................................... (360)
Accounts payable............................................................................. (194)
Accrued liabilities.......................................................................... 468
Income taxes payable......................................................................... (85)
Other liabilities............................................................................ 41
------
Net cash provided by operating activities.................................................. 462
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements.......................................................... (3,827)
Purchases of investments......................................................................... (41)
------
Net cash used in investing activities...................................................... (3,868)
------
NET DECREASE IN CASH AND CASH EQUIVALENTS.......................................................... (3,406)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................................... 4,673
------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................................. $ 1,267
------
------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................................................... $ --
------
------
Income taxes................................................................................... $ 1,030
------
------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 26, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS--ZMP, Inc. (the "Company" or "ZMP"), through its wholly-owned subsidiary, Adams Rite Aerospace (ARA), designs and manufactures specialized parts and systems for the aerospace industry. The Company operates only in this industry segment and does not have significant foreign operations.
Effective June 29, 1996, the Company adopted a plan to recapitalize the Company and restructure the senior subordinated notes payable. Under this plan, the Company exchanged 9,308 shares of common stock for all of the previously outstanding Series AA, Series A and Series B preferred stock. The Company also issued 90,692 shares of common stock as payment of $9,766,000 of senior subordinated notes payable and accrued interest to the majority stockholder. Additionally, the terms of the remaining senior subordinated notes payable were amended to accrue interest at 12%, payable semiannually on December 31 and June 30, with the principal due on December 31, 1998. On June 8, 1998, ZMP signed an agreement to extend the maturity date of the senior subordinated notes payable to December 31, 1999. The Company accounted for the recapitalization as a deficit reclassification quasi-reorganization and eliminated the prior accumulated deficit against additional paid-in capital. The fair value of the Company's net assets exceeded the book value and, therefore, no adjustment to carrying values was recorded.
On February 23, 1998, the Company relocated its primary operating facility from Glendale, California to a 100,000-square-foot facility located in Fullerton, California.
CONSOLIDATION POLICY--The accompanying consolidated financial statements include the accounts of ZMP and ARA. All significant intercompany accounts and transactions have been eliminated in consolidation.
REPORTING PERIOD--The Company's fiscal year is the 52 or 53 week period ending on the Friday nearest June 30. Fiscal 1998 contained 52 weeks.
REVENUE RECOGNITION, CONCENTRATION OF CREDIT RISK AND EXPORT SALES--The Company recognizes revenue from product sales upon shipment. Substantially all of the Company's accounts receivable are due from companies in the aerospace industry located throughout the United States and internationally. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are generally due within 30 days; however, some European customers have payment terms ranging from 60 to 90 days. Export sales to customers, primarily in western Europe, were $6.5 million for the year ended June 26, 1998.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents.
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES--Inventories are stated at the lower of cost or market, with cost being determined on a first-in, first-out basis. Inventories consist of the following (dollars in thousands):
JUNE 26,
1998
---------
Raw materials...................................................................... $ 9,554
Work-in-process.................................................................... 1,844
Finished goods..................................................................... 1,272
---------
12,670
Less allowance for obsolete inventory.............................................. (2,406)
---------
Total.............................................................................. $ 10,264
---------
---------
|
EQUIPMENT AND IMPROVEMENTS--Equipment and improvements are stated at cost. Depreciation of equipment is provided for using the straight-line and accelerated methods over the estimated useful lives of the equipment, which range from three to ten years. Amortization of leasehold improvements is provided for using the straight-line method over the shorter of the lease term or the useful life of the improvement.
IMPAIRMENT--The Company reviews the recoverability of long-term and intangible assets to determine if there has been any impairment. This assessment is performed based on the estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the future cash flows (undiscounted and without interest charges) were less than the carrying value, a writedown would be recorded to reduce the related asset to its estimated fair value.
MAJOR CUSTOMERS--During fiscal 1998, the Company had sales to one customer representing 20% of net sales. Accounts receivable from such customer represent 14% of total receivables at June 26, 1998.
INCOME TAXES--Deferred income taxes represent the tax consequences of differences between the income tax bases of assets and liabilities and their bases for financial reporting purposes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
LITIGATION--The Company does not anticipate that adverse outcomes in currently pending litigation would have a material adverse effect on its business, results of operations or financial condition.
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
2. GOODWILL
Goodwill is being amortized over 30 years using the straight-line method and consists of the following (dollars in thousands):
JUNE 26,
1998
---------
Goodwill........................................................................... $ 20,692
Less accumulated amortization...................................................... (6,955)
---------
Total.............................................................................. $ 13,737
---------
---------
|
3. LINE OF CREDIT
ARA maintains a revolving line of credit which provides for maximum borrowings of $2,000,000, limited to 80% of eligible accounts receivable, as defined, and includes a sub-limit feature for the issuance of commercial letters of credit in an amount not to exceed $1,000,000. Borrowings under the revolving credit facility bear interest at the bank's prime rate plus .25% (8.75% at June 26, 1998). The revolving credit facility was not utilized by ARA during the year ended June 26, 1998.
4. SENIOR SUBORDINATED NOTES PAYABLE
Senior subordinated notes payable to the majority stockholder consist of the following (dollars in thousands):
JUNE 26,
1998
---------
12% senior subordinated notes, interest payable semiannually, principal payable at
December 31, 1999, unsecured, including deferred interest of $3,196,000 at June 26,
1998............................................................................... $ 15,196
---------
---------
|
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
5. INCOME TAXES
The provision for income taxes is summarized as follows (dollars in thousands):
YEAR ENDED
JUNE 26,
1998
-----------
Current:
Federal........................................................................ $ 1,076
State.......................................................................... 324
-----------
1,400
-----------
Deferred:
Federal........................................................................ (225)
State.......................................................................... (77)
-----------
(302)
-----------
Provision for income taxes....................................................... $ 1,098
-----------
-----------
|
The difference between the provision for income taxes at the federal (statutory) income tax rate and the tax shown in the consolidated statement of income and retained earnings is as follows (dollars in thousands):
YEAR ENDED
JUNE 26,
1998
-----------
Tax at statutory rate of 35%..................................................... $ 725
State franchise taxes............................................................ 270
Nondeductible goodwill amortization.............................................. 196
Benefit from foreign sales corporation........................................... (75)
Other--net....................................................................... (18)
-----------
Provision for income taxes....................................................... $ 1,098
-----------
-----------
|
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
5. INCOME TAXES (CONTINUED)
The components of deferred income tax assets consist of the following (dollars in thousands):
YEAR ENDED
JUNE 26,
1998
-----------
CURRENT ASSETS:
Inventories.................................................................... $ 1,450
Warranty costs................................................................. 84
Bad debt allowances............................................................ 65
Compensation and other accrued expenses........................................ 389
-----------
Total............................................................................ $ 1,988
-----------
-----------
NON-CURRENT ASSETS:
Equipment and improvements..................................................... $ 161
Other.......................................................................... (35)
-----------
Total............................................................................ $ 126
-----------
-----------
|
6. COMMITMENTS AND CONTINGENCIES
The Company leases its primary operating facility under a 15-year operating lease. Such lease includes a minimum escalation clause based on the Consumer Price Index.
Future minimum lease commitments for all operating leases are as follows (dollars in thousands):
FISCAL YEAR ENDING:
-------------------------------------------------------------------------------------
1999................................................................................. $ 540
2000................................................................................. 540
2001................................................................................. 556
2002................................................................................. 573
2003................................................................................. 590
Thereafter........................................................................... 6,571
---------
Total................................................................................ $ 9,370
---------
---------
|
Total rent expense, net of sublease income, was $551,000 for the year ended June 26, 1998. Sublease income for the year ended June 26, 1998 was approximately $55,000.
The Company recorded a deferred rent liability of $87,000 as of June 26, 1998 in conjunction with its operating lease.
7. STOCKHOLDERS' EQUITY
On August 3, 1998, the Company entered into a series of agreements with its Chief Executive Officer. The agreements provide, amongst other things, for a warrant grant to the Chief Executive Officer, whereby the executive will be granted the right to purchase 8,695 shares of common stock at a price of $39.41 per share. The warrant vested immediately with respect to 5,435 shares and the
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 26, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
remaining portion of the warrant vests over three years, with immediate vesting of all warrants upon a change of control, as defined.
8. RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company sponsors a defined contribution retirement plan that covers substantially all of its employees. Contributions to the plan are at the discretion of management and may be discontinued at any time. There are no other postretirement benefits. Included in the consolidated statement of income and retained earnings are expenses for the retirement plan of $127,000 for the year ended June 26, 1998.
The Company also has a deferred compensation agreement with a key employee that provides for payment from a trust upon retirement or other termination of employment. The Company may at any time make additional deposits of cash or other property in trust to the plan.
As of June 26, 1998, the plan assets are invested primarily in mutual funds and are subject to reinvestment as determined by the key employee. Based on the nature of the investments and the ability of the key employee to alter the investment strategy, such plan assets have been classified as trading securities as defined in Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Additionally, the plan assets are classified as noncurrent based on the key employee's intent of maintaining the assets within the plan for a minimum of one year.
9. SUBSEQUENT EVENT
On April 23, 1999, TransDigm Inc. acquired ZMP, Inc., including all of its outstanding common stock, for $41 million. The purchase price is subject to adjustment for changes in working capital and other matters as defined in the merger agreement.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
DECEMBER 25,
1998
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 3,687
Accounts receivable--net.......................................................................... 5,935
Inventories, net (Note 3)......................................................................... 10,188
Deferred income taxes............................................................................. 1,988
Other current assets.............................................................................. 84
------------
Total current assets.......................................................................... 21,882
------------
EQUIPMENT AND IMPROVEMENTS, NET..................................................................... 4,681
GOODWILL, net....................................................................................... 13,394
OTHER ASSETS........................................................................................ 550
------------
TOTAL............................................................................................... $ 40,507
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 1,645
Accrued liabilities............................................................................... 1,742
Income taxes payable.............................................................................. 422
------------
Total current liabilities..................................................................... 3,809
------------
OTHER LIABILITIES................................................................................... 424
------------
SENIOR SUBORDINATED NOTES PAYABLE................................................................... 16,128
------------
COMMITMENTS AND CONTINGENCIES....................................................................... --
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 108,695 shares authorized; 105,435 shares issued and outstanding... --
Additional paid-in capital........................................................................ 17,167
Retained earnings ($10,889 of accumulated deficit was charged against
additional paid-in-capital)..................................................................... 2,979
------------
Total stockholders' equity.................................................................... 20,146
------------
TOTAL............................................................................................... $ 40,507
------------
------------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
UNAUDITED
TWENTY-SIX
WEEKS ENDED
--------------------------
DECEMBER 25, DECEMBER 26,
1998 1997
------------ ------------
NET SALES............................................................................ $ 20,061 $ 17,774
COST OF SALES........................................................................ 12,896 11,854
------------ ------------
GROSS PROFIT......................................................................... 7,165 5,920
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses....................................... 3,527 3,528
Amortization expense............................................................... 343 343
Stock compensation expense (Note 4)................................................ 814 --
Merger expenses (Note 1)........................................................... 164 --
------------ ------------
Total operating expenses....................................................... 4,848 3,871
------------ ------------
OPERATING INCOME..................................................................... 2,317 2,049
INTEREST EXPENSE, net................................................................ 881 716
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES............................................. 1,436 1,333
PROVISION FOR INCOME TAXES........................................................... 667 707
------------ ------------
NET INCOME........................................................................... $ 769 $ 626
------------ ------------
------------ ------------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 25, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
COMMON ADDITIONAL
STOCK PAID-IN RETAINED
SHARES CAPITAL EARNINGS TOTAL
------------- ----------- ----------- ---------
BALANCE, JUNE 27, 1998................................................ 100 $ 16,139 $ 2,210 $ 18,349
NET INCOME............................................................ 769 769
ISSUANCE OF COMMON STOCK WARRANTS..................................... 814 814
EXERCISE OF COMMON STOCK WARRANTS..................................... 5 214 214
--- ----------- ----------- ---------
BALANCE, DECEMBER 25, 1998............................................ 105 $ 17,167 $ 2,979 $ 20,146
--- ----------- ----------- ---------
--- ----------- ----------- ---------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
UNAUDITED
TWENTY-SIX
WEEKS ENDED
----------------------------
DECEMBER 25, DECEMBER 26,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 769 $ 626
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 667 523
Stock compensation expense (Note 4).............................................. 814
Interest deferral on senior subordinated notes payable........................... 932 828
Changes in operating assets and liabilities:
Accounts receivable............................................................ 356 (305)
Inventories.................................................................... 76 (715)
Other current assets........................................................... 532 49
Accounts payable............................................................... (218) (344)
Accrued and other current liabilities.......................................... (519) (284)
------ ------
Net cash provided by operating activities.................................... 3,409 378
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements............................................ (690) (611)
Loans made to Executive............................................................ (503) --
Purchases of investments........................................................... (10) (45)
------ ------
Net cash used in investing activities........................................ (1,203) (656)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock warrants.................................................. 214
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 2,420 (278)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................... 1,267 4,673
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................. $ 3,687 $ 4,395
------ ------
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................................... $ -- $ --
------ ------
------ ------
Income taxes..................................................................... $ 666 $ 1,033
------ ------
------ ------
|
See notes to consolidated financial statements.
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 25, 1998 AND DECEMBER 26, 1997
1. DESCRIPTION OF BUSINESS AND MERGER
ZMP, Inc. (the "Company" or "ZMP"), through its wholly owned subsidiary, Adams Rite Aerospace ("ARA"), designs and manufactures specialized parts and systems for the aerospace industry.
On April 23, 1999, TransDigm Inc. acquired all of the outstanding common stock of ZMP for $41 million. The purchase price is subject to adjustment for changes in working capital and other matters as defined in the merger agreement. Expenses relating to the merger are shown separately on the accompanying consolidated statements of income.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented. The results of operations for the twenty-six weeks ended December 25, 1998 are not necessarily indicative of the results to be expected for the full year.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories is determined by the first-in, first-out (FIFO) method. Inventories consist of the following (dollars in thousands):
DECEMBER 25,
1998
------------
Raw materials................................................................... $ 9,204
Work-in-process................................................................. 1,840
Finished goods.................................................................. 1,429
------------
Total......................................................................... 12,473
Reserve for excess and obsolete inventory....................................... (2,285)
------------
Inventories--net................................................................ $ 10,188
------------
------------
|
4. STOCK COMPENSATION EXPENSE
On August 3, 1998, the Company entered into a series of agreements with its Chief Executive Officer (the "Executive"). Under the agreements, the Executive was granted the right to purchase 8,695 shares of common stock at a price of $39.41 per share. The stock warrants vest over three years, with immediate vesting of all warrants upon a change of control, such as the merger described in Note 1. Compensation expense representing the difference between the fair value of common stock and the warrant price was recognized by the Company as a result of the warrant agreements and is presented separately on the accompanying consolidated statement of income for the twenty-six weeks ended December 25, 1998.
In conjunction with the warrant grant, the Company provided the Executive with a $288,000 loan evidenced by a demand note, bearing interest at 5.0%, and collateralized by the Company's common stock held by the Executive, to pay for the tax consequences, to the Executive, related to the warrant
ZMP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 25, 1998 AND DECEMBER 26, 1997
4. STOCK COMPENSATION EXPENSE (CONTINUED)
grant. Additionally, in December 1998, the Company provided the Executive with a second $214,000 loan evidenced by a demand note, bearing interest at the Internal Revenue Service's permitted minimum interest rate (4.28% at December 25, 1998), and collateralized by the Company's common stock held by the Executive. The second loan was intended to provide the Executive with sufficient funds to retire a commercial loan obtained by the Executive in conjunction with the exercise of 5,435 warrants that immediately vested upon the warrant grant. Both loans are included in accounts receivable in the accompanying balance sheet.
5. LINE OF CREDIT
In September 1998, ARA renewed a revolving line of credit through July 2000 which provides for maximum borrowings of $2,000,000, limited to 80% of eligible accounts receivable, as defined, and includes a sub-limit feature for the issuance of commercial letters of credit in an amount not to exceed $1,000,000. Borrowings under the revolving credit facility bear interest at the bank's prime rate plus .25% (7.75% at December 25, 1998). The revolving credit facility was not utilized by ARA during the two 26 week periods ended December 25, 1998 and December 26, 1997. The availability of funds under the revolving credit facility terminates upon a change of control of the Company.
PROSPECTUS
TRANSDIGM INC.
OFFER TO EXCHANGE ITS
10 3/8% SENIOR SUBORDINATED NOTES
DUE 2008 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
DEALER PROSPECTUS DELIVERY OBLIGATION
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware ("DGCL") provides that a corporation has the power to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party 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 the corporation) against the expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the defense of any action by reason of being or having been directors or officers, if such person shall have acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, provided that such person had no reasonable cause to believe his conduct was unlawful, except that, if such action shall be in the right of the corporation, no such indemnification shall be provided as to any claim, issue or matter as to which such person shall have been judged to have been liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware (the "Court of Chancery"), or any court in such suit or action was brought, shall determine upon application that, despite the liability judgment, but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Chancery or such other court shall deem proper.
Accordingly, each of (i) the Restated Certificate of Incorporation (dated September 28, 1993) and the amendments thereto (dated December 21, 1993) of TransDigm Holding Company (filed herewith as Exhibits 3.1 and 3.2, respectively), (ii) the Certificate of Incorporation (dated July 2, 1993) and the amendments thereto (dated July 22, 1993) of TransDigm Inc. (filed herewith as Exhibits 3.4 and 3.5, respectively), (iii) the Certificate of Incorporation (dated March 28, 1994) and the amendments thereto (dated May 18, 1994 and May 24, 1994) of Marathon Power Technologies Company (filed herewith as Exhibits 3.7, 3.8 and 3.9, respectively), (iv) the Amended and Restated Articles of Incorporation (dated April 23, 1999) of ZMP, Inc. (filed herewith as Exhibit 3.10) and (v) the Articles of Incorporation (dated July 30, 1986) and the amendments thereto (dated September 12, 1986, January 27, 1992, December 31, 1992 and August 11, 1997) of Adams Rite Aerospace, Inc. (filed herewith as Exhibits 3.12, 3.13, 3.14, 3.15 and 3.16, respectively), provide that subject to certain exceptions, TransDigm Holding Company, TransDigm Inc., Marathon Power Technologies Company, ZMP, Inc. and Adams Rite Aerospace, Inc. (collectively, the "Co-Registrants" and, individually, the "Co-Registrant") shall indemnify each of its respective director or officer against any and all expenses (including attorneys' fees), judgments, fines, excise taxes assessed with respect to any employee benefit plan, or penalties and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of such Co-Registrant), to which such director or officer is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that such director or officer is, was or at any time becomes a director or officer of such Co-Registrant, or is, or was serving, or at any time serves at the request of such Co-Registrant as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. The Restated Certificate of Incorporation or the Certificate of Incorporation, as applicable, and the amendments thereto also provide that the respective Co-Registrant shall advance expenses (including attorneys' fees) actually and reasonably incurred by its director or officer in defending any proceeding and any judgments, fines or amounts to be paid in settlement thereof. The Restated Certificate of Incorporation or the Certificate of Incorporation, as applicable, and the amendments thereto provide, however, that the foregoing provisions shall not require the respective Co-Registrant to pay any indemnity (i) for which payment is actually made to such director or officer under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such
II-1
insurance; (ii) for which such director or officer is indemnified by the respective Co-Registrant pursuant to applicable law or otherwise than pursuant to the Restated Certificate of Incorporation or the Certificate of Incorporation, as applicable, of the respective Co-Registrant; (iii) for an accounting of profits made from the purchase or sale by such director or officer of securities of the respective Co-Registrant within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; (iv) on account of such director's or officer's conduct which is finally adjudged by a court to have been knowingly fraudulent, deliberately dishonest or willful misconduct; or (v) if a final decision by a court having jurisdiction in the matter shall determine that such indemnity is not lawful. Such indemnification shall not be deemed exclusive of any other rights to which a director or officer seeking indemnification may be entitled under any statute, the Bylaws, other provisions of the Restated Certificate of Incorporation or the Certificate of Incorporation, as applicable, of the respective Co-Registrant, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such director's or officer's official capacity and as to action in any other capacity while holding such office.
Furthermore, a director of a Co-Registrant shall not be liable to the
respective Co-Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the respective Co-Registrant or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) for the unlawful payment of a
dividend, unlawful stock purchase or unlawful redemption, (d) for any
transaction from which the director derived an improper personal benefit, or
such exemption from liability or limitation thereof is not permitted under the
DGCL as currently in effect or as the same may hereafter be amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA
Acquisition Corporation, ZMP, Inc. and TCW Special Placements Fund II.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of
TransDigm Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with
and into TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm
Acquisition, Inc. (TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and
into TransDigm Inc.
|
II-2
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power
Technologies Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc.
3.11 Agreement of Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP, Inc.
3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace,
Inc.).
3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP
Acquisition Corporation (Adams Rite Aerospace, Inc.).
3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Sabre
International, Inc. (Adams Rite Aerospace, Inc.).
*3.17 Bylaws of TransDigm Holding Company.
*3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
3.20 Amended and Restated Bylaws of ZMP, Inc.
3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc.
*4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000
aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8%
Senior Subordinated Notes due 2008.
4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State
Street Bank and Trust Company, as trustee.
*4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company
and Marathon Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston
Corporation.
*4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company and State Street Bank and Trust
Company, as trustee, relating to $20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior Notes
due 2009.
*4.7 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.6 hereto).
|
II-3
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II, L.P.
*4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers
Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc., TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent,
and the various financial institutions parties thereto.
4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
*4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the
administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
*4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc.,
TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust
Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
5.1 Opinion of Latham & Watkins regarding the validity of the New Notes.
*10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity
Partners II, L.P.
*10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund and certain employee stockholders of TransDigm Holding Company.
*10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc.
*10.4 TransDigm Inc. Senior Executive Benefits Plan.
|
II-4
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*10.5 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
*21.1 Subsidiaries of TransDigm Holding Company.
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc., Marathon Power Technologies, ZMP, Inc.
and Adams Rite Aerospace, Inc. (included on signature pages to this Registration Statement on Form S-4).
*25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
|
* Previously filed
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
Each of the undersigned Co-Registrants hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the respective Co-Registrant pursuant to the foregoing provisions described under Item 20 above, or otherwise, the respective Co-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 of indemnification against such liabilities (other than the payment by the respective Co-Registrant of expenses incurred or paid by a director, officer or controlling person of such Co-Registrant in the successful defense of any action, suit paid by a director, officer or controlling person of such Co-Registrant in the successful defense of any action, suit or proceeding) is asserted against such Co-Registrant by such director, officer or controlling person in connection with the securities being registered, such Co-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 of 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.
II-5
Each of the undersigned Co-Registrants hereby undertakes (i) to respond to requests for information that is incorporated by reference into this Prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, 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 undertaking also includes documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request.
Each of the undersigned Co-Registrants 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.
Each of the undersigned Co-Registrants hereby undertakes 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 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
Each of the undersigned Co-Registrants hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the application form.
Each of the undersigned Co-Registrants hereby undertakes that every
prospectus: (i) that is filed pursuant to the immediately preceding paragraph or
(ii) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933, as amended, and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Each of the undersigned Co-Registrants hereby undertakes 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 exchange offer.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, each of the Co-Registrants has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waco, State of Texas, on April 23, 1999.
TRANSDIGM INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
TRANSDIGM HOLDING COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
ZMP, INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
ADAMS RITE AEROSPACE, INC.
By: /s/ PETER B. RADEKEVICH
-----------------------------------------
Peter B. Radekevich
CHIEF FINANCIAL OFFICER
|
II-7
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of TransDigm Inc., a Delaware corporation (the "Company"), for himself and not for one another, does hereby constitute and appoint Peter B. Radekevich, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement with respect to the proposed issuance, offer, exchange and delivery by the Company of its registered 10 3/8% Senior Subordinated Notes due 2008, or any registration statement for this offering that is to be effective upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chief Executive Officer
* (Principal Executive
------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
------------------------------ (Principal Executive April 23, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
------------------------------ Director April 23, 1999
Stephen Berger
*
------------------------------ Director April 23, 1999
William Hopkins
*
------------------------------ Director April 23, 1999
Muzzafar Mirza
*
------------------------------ Director April 23, 1999
John W. Paxton
*
------------------------------ Director April 23, 1999
Thomas R. Wall, IV
|
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
|
II-8
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of TransDigm Holding Company, a Delaware corporation ("Holdings"), for himself and not for one another, does hereby constitute and appoint Peter B. Radekevich, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement with respect to the proposed issuance, offer, exchange and delivery by Holdings of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior Subordinated Notes due 2008, or any registration statement for this offering that is to be effective upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chief Executive Officer
* (Principal Executive
------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
President and Chief
* Operating Officer
------------------------------ (Principal Executive April 23, 1999
W. Nicholas Howley Officer) and Director
* Chief Financial Officer
------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
------------------------------ Director April 23, 1999
Stephen Berger
*
------------------------------ Director April 23, 1999
William Hopkins
*
------------------------------ Director April 23, 1999
Muzzafar Mirza
*
------------------------------ Director April 23, 1999
John W. Paxton
*
------------------------------ Director April 23, 1999
Thomas R. Wall, IV
|
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
|
II-9
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of Marathon Power Technologies Company, a Delaware corporation ("Marathon"), for himself and not for one another, does hereby constitute and appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement with respect to the proposed issuance, offer, exchange and delivery by Marathon of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior Subordinated Notes due 2008, or any registration statement for this offering that is to be effective upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chief Executive Officer
* (Principal Executive
------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
*
------------------------------ President (Principal April 23, 1999
Robert S. Henderson Executive Officer)
* Chief Financial Officer
------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
*
------------------------------ Director April 23, 1999
W. Nicholas Howley
|
*By: /s/ PETER B.
RADEKEVICH
------------------------
Peter B. Radekevich
Attorney-in-fact
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II-10
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of ZMP, Inc., a California corporation ("ZMP"), for himself and not for one another, does hereby constitute and appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement with respect to the proposed issuance, offer, exchange and delivery by ZMP of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior Subordinated Notes due 2008, or any registration statement for this offering that is to be effective upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chief Executive Officer
/s/ DOUGLAS W. PEACOCK (Principal Executive
------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
/s/ W. NICHOLAS HOWLEY President (Principal
------------------------------ Executive Officer) and April 23, 1999
W. Nicholas Howley Director
/s/ PETER B. RADEKEVICH Chief Financial Officer
------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
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II-11
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of Adams Rite Aerospace, Inc., a California corporation ("Adams Rite Aerospace"), for himself and not for one another, does hereby constitute and appoint Peter Radekevich, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement with respect to the proposed issuance, offer, exchange and delivery by Adams Rite Aerospace of its guarantee of TransDigm Inc.'s registered 10 3/8% Senior Subordinated Notes due 2008, or any registration statement for this offering that is to be effective upon the filing pursuant to rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chief Executive Officer
/s/ DOUGLAS W. PEACOCK (Principal Executive
------------------------------ Officer) and Chairman of April 23, 1999
Douglas W. Peacock the Board
/s/ W. NICHOLAS HOWLEY President (Principal
------------------------------ Executive Officer) and April 23, 1999
W. Nicholas Howley Director
/s/ PETER B. RADEKEVICH Chief Financial Officer
------------------------------ (Principal Financial and April 23, 1999
Peter B. Radekevich Accounting Officer)
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II-12
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of TransDigm Holding Company
We have audited the consolidated balance sheets of TransDigm Holding Company and its subsidiaries (the "Company") as of September 30, 1998 and 1997 and the related consolidated statements of income and retained earnings (deficit) and of cash flows for each of the three years in the period ended September 30, 1998 and have issued our report thereon dated November 9, 1998 (December 3, 1998 as to Note 18); such consolidated financial statements and report are included in this Registration Statement No. 333-71397. Our audits also included the consolidated financial statement schedule of the Company, shown on page II-12. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 9, 1998
II-13
TRANSDIGM HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
COLUMN C
--------------------------
COLUMN B ADDITIONS COLUMN D
----------- -------------------------- ------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO DEDUCTIONS -------------
--------------------------------------------- BEGINNING COSTS AND MARATHON FROM BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACQUISITION RESERVE(1) END OF PERIOD
--------------------------------------------- ----------- ------------- ----------- ------------- -------------
YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts............ $ 503 $ (165) -- $ 73 $ 265
Reserve for excess and obsolete
inventory................................ 3,771 773 -- 209 4,335
Sales returns and repairs.................. 1,797 273 -- 679 1,391
Environmental.............................. 683 (158) -- 245 280
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 403 $ 149 $ 25 $ 74 $ 503
Reserve for excess and obsolete
inventory................................ 2,299 914 785 227 3,771
Sales returns and repairs.................. 1,155 792 748 898 1,797
Environmental.............................. 15 118 550 -- 683
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts............ $ 421 $ 158 $ -- $ 176 $ 403
Reserve for excess and obsolete
inventory................................ 2,375 411 -- 487 2,299
Sales returns and repairs.................. 1,436 398 -- 679 1,155
Environmental.............................. 18 -- -- 3 15
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(1) For the allowance for doubtful accounts and the reserve for excess and obsolete inventory, the amounts in this column represent charge-offs net of recoveries. For the sales returns and repairs and environmental accrued liabilities, the amounts primarily represent expenditures charged against liabilities.
II-14
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm
Holding Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition
Corp. and TransDigm Holding Company.
2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA
Acquisition Corporation, ZMP, Inc. and TCW Special Placements Fund II.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of
TransDigm Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with
and into TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm
Acquisition, Inc. (TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and
into TransDigm Inc.
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power
Technologies Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition
Corp. (Marathon Power Technologies Company).
3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc.
3.11 Agreement of Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP, Inc.
3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace,
Inc.).
3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP
Acquisition Corporation (Adams Rite Aerospace, Inc.).
3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite
Products, Inc. (Adams Rite Aerospace, Inc.).
3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Sabre
International, Inc. (Adams Rite Aerospace, Inc.).
*3.17 Bylaws of TransDigm Holding Company.
*3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
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EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
3.20 Amended and Restated Bylaws of ZMP, Inc.
3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc.
*4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000
aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8%
Senior Subordinated Notes due 2008.
4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State
Street Bank and Trust Company, as trustee.
*4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit
4.1 hereto).
*4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes")
(included in Exhibit 4.1 hereto).
*4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company
and Marathon Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston
Corporation.
*4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company and State Street Bank and Trust
Company, as trustee, relating to $20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior Notes
due 2009.
*4.7 Specimen Certificate of 12% Pay-in-Kind Senior due 2008 (included in Exhibit 4.6 hereto).
*4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II, L.P.
*4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers
Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc. and TransDigm
Holding Company and Bankers Trust Company, as the administrative agent, and the various financial
institutions parties thereto.
4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent,
and the various financial institutions parties thereto.
4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding
Company and Bankers Trust Company, as the administrative agent, and the various financial institutions
parties thereto.
*4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
*4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in
Exhibit 4.9 hereto).
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EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--------- ---------------------------------------------------------------------------------------------------------
*4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit
Agreement.
*4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the
administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
*4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc.,
TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust
Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto).
5.1 Opinion of Latham & Watkins regarding the validity of the New Notes.
*10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity
Partners II, L.P.
*10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey
Investment Partners Fund and certain employee stockholders of TransDigm Holding Company.
*10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc.
*10.4 TransDigm Inc. Senior Executive Benefits Plan.
*10.5 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Cash Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, less Capital Expenditures to Cash Interest
Expense.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA.
*21.1 Subsidiaries of TransDigm Holding Company.
23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
*24.1 Power of Attorney of TransDigm Holding Company, TransDigm Inc., Marathon Power Technologies, ZMP, Inc.
and Adams Rite Aerospace, Inc. (included on signature pages to this Registration Statement on Form
S-4).
*25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
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* Previously filed
Exhibit 2.3
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 31, 1999
BY AND AMONG
ZMP, INC.,
TRANSDIGM INC.,
ARA ACQUISITION CORPORATION
AND
TCW SPECIAL PLACEMENTS FUND II,
AS SHAREHOLDERS' REPRESENTATIVE
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") dated as of March 31, 1999 is made and entered into by and among TRANSDIGM INC. ("BUYER"), ARA ACQUISITION CORPORATION, a California corporation and wholly owned subsidiary of Buyer ("ACQUISITION"), ZMP, INC., a California corporation (the "COMPANY"), and TCW SPECIAL PLACEMENTS FUND II, a California limited partnership, solely in its capacity as Shareholders' Representative.
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Buyer, Acquisition, and the Company have approved the Merger and deem it advisable and in the best interests of their respective stockholders to consummate the Merger;
WHEREAS, the Company intends promptly to submit to its stockholders the approval of the Merger and the approval of this Agreement;
WHEREAS, Buyer and Acquisition are unwilling to enter into this Agreement unless concurrently herewith the TCW Entities and Collins agree to vote their shares of ZMP Common Stock in favor of the transactions contemplated hereby pursuant to the Voting Agreements, and such stockholders have agreed to enter into, execute and deliver the Voting Agreements; and
WHEREAS, Buyer has been invited to perform and Buyer has performed such due diligence and business investigations with respect to the Company and ARA as it deemed appropriate.
NOW THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, agreements, terms and conditions contained herein, and in order to set forth the terms and conditions of the acquisition, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement and the Exhibits and the Disclosure Schedule pursuant to this Agreement, the following definitions apply:
"ACQUISITION" has the meaning set forth in the Recitals hereto.
"ACTION" means any action, complaint, petition, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity.
"AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person.
"AFFILIATED GROUP" means any affiliated group within the meaning of Section 1504(a) of the Code (or any similar group defined under a similar provision of state, local or foreign law).
"AGREEMENT" means this Agreement and Plan of Reorganization among Buyer, Acquisition, the Company and the Shareholders' Representative, as amended or supplemented, together with all Exhibits and Schedules attached or incorporated by reference.
"AGREEMENT OF MERGER" has the meaning set forth in Section 2.2.
"APPLICABLE PERCENTAGE" of a holder of ZMP Shares or options
or warrants to acquire ZMP Common Stock means the percentage derived by dividing
(a) the number of ZMP Shares that such holder owns or has an option or warrant
to acquire at the Effective Time by (b) the number of ZMP Shares.
"APPROVAL" means any approval, authorization, consent, qualification, license, order, permit or registration, or any waiver of any of the foregoing, required to be obtained from, or any notice, statement or other communication required to be filed with or delivered to, any Governmental Entity or any other Person.
"ARA" means Adams Rite Aerospace, Inc., the wholly-owned Subsidiary of the Company.
"BT COMMITMENT LETTER" means the letter agreement between Bankers Trust Company and Buyer dated as of March 29, 1999 relating to the financing of the transactions contemplated by this Agreement.
"BANK DEBT" means any outstanding indebtedness under the Credit Agreement dated June 15, 1994 among Adams Rite Aerospace and Wells Fargo Bank, N.A., as amended, including any accrued interest thereon.
"BASE EQUITY PRICE" has the meaning set forth in Section 2.8(a) hereof.
"BOEING CONTRACT" means a definitive written contract entered into between ARA and Boeing in response to the proposal submitted to Boeing on September 30, 1998 (the "Boeing Proposal") (it being understood that in no event shall purchase orders or temporary supply arrangements be deemed to be a "Boeing Contract").
"BUSINESS" means the business of the Company and ARA taken as a whole, and shall be deemed to include all of the following aspects of such business: income, operations, condition (financial or other), assets, liabilities, results of operations and properties (including goodwill).
"BUYER" has the meaning set forth in the Recitals hereto.
"BUYER INDEMNITEES" has the meaning set forth in Section 7.1.
"BUYER LOSSES" has the meaning set forth in Section 7.5(a).
"BUYER'S AUDITORS" means Deloitte & Touche, independent public accountants to Buyer.
"BOEING DETERMINATION DATE" means the date set forth on Schedule A hereto under the heading "Boeing Determination Date."
"BOEING TARGET AMOUNT" means the amount set forth on Schedule A hereto under the heading "Boeing Target Amount."
"CLAIM" has the meaning set forth in Section 8.1.
"CLOSING" means the consummation of the transactions contemplated by this Agreement.
"CLOSING DATE" has the meaning set forth in Section 2.7.
"CLOSING DATE STATEMENT OF NET WORKING CAPITAL" has the
meaning set forth in Section 2.10(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLINS" means Charles Collins, the President and Chief Executive Officer of the Company.
"COLLINS NOTE AMOUNT" means the aggregate principal amount outstanding and all unpaid interest on any Indebtedness of Mr. Collins to the Company or ARA as of the Closing Date, including without limitation, pursuant to two promissory notes one in the principal amount of approximately $288,000 and one in the principal amount of approximately $214,000 that is referred to in the Warrant Agreement.
"COLLINS OPTION" means the option of Collins to purchase shares of ZMP Common Stock pursuant to the warrant dated as of August 3, 1998.
"COMPANY" has the meaning set forth in the Recitals hereto.
"COMPANY'S AUDITORS" means Deloitte and Touche, L.L.P., independent public accountants to the Company.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated December 1, 1998, entered into by Buyer in connection with the transactions contemplated hereby.
"CONTRACT" means any agreement, obligation, note, evidence of indebtedness, letter of credit, arrangement, bond, commitment, franchise, indemnity, indenture, instrument, lease, license or understanding, whether or not in writing, other than purchase orders.
"CURRENT ASSETS" has the meaning set forth in Section 2.10.
"CURRENT LIABILITIES" has the meaning set forth in Section 2.10.
"DEEMED PRE-CLOSING PERIOD" has the meaning set forth in
Section 4.8(a).
"DISCLOSURE SCHEDULE" means the Disclosure Schedule delivered to Buyer by the Company immediately prior to the execution hereof.
"DISSENTING SHARES" has the meaning set forth in Section 2.11.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien (including environmental and tax liens), option, pledge, mortgage, rights of others, or restriction of any kind (whether on voting, sale, transfer, disposition or otherwise), whether imposed by agreement, understanding, law, equity or otherwise, except for any restrictions on transfer generally arising under any applicable federal or state securities law.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.2(q).
"EQUITY EQUIVALENTS" means "phantom stock" or other rights to participate in the revenues, profits, assets or equity (or the value thereof) of the Company or ARA.
"EQUITY SECURITIES" means any capital stock or other equity interest or any securities convertible into or exchangeable for capital stock or any other rights, warrants or options to acquire any of the foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations and published interpretations.
"ERISA AFFILIATES" has the meaning set forth in Section 3.2(r)(iv).
"ESCROW ACCOUNT" has the meaning set forth in Section 2.8(b).
"ESCROW AGENT" means Wells Fargo Bank, N.A.
"ESCROW AGREEMENT" means that certain Escrow Agreement dated as of the Closing Date among Shareholders' Representative, Buyer and Escrow Agent, substantially in the form of Exhibit B hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIXED MULTIPLIER" means the amount set forth on Schedule A hereto under the heading "Fixed Multiplier."
"GAAP" means generally accepted accounting principles in the United States, as in effect from time to time, consistently applied.
"GLENDALE ESCROW ACCOUNT" has the meaning set forth in Section 2.8(b).
"GLENDALE FACILITY" means the property located at 540 West Chevy Chase Drive, Glendale, California in Glendale, California.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the related regulations and published interpretations.
"INDEBTEDNESS" means, with respect to any Person, and without
duplication, (a) all indebtedness of such Person, whether or not contingent, for
borrowed money, (b) all obligations of such Person for the deferred purchase
price of property or services, (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person, (e) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, (f) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP in a manner consistent with the
Financial Statements recorded as capital leases, (g) all obligations, contingent
or otherwise, of such Person under acceptance, letter of credit or similar
facilities, (h) all Indebtedness referred to in clauses (a) through (g) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any encumbrance on property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness and (i) all Indebtedness of others referred to in clauses
(a) through (g) above guaranteed directly or indirectly by such Person.
"INDEMNIFIABLE CLAIM" has the meaning set forth in Section 7.3(a).
"INDEMNIFIED PARTY" has the meaning set forth in Section 7.3(b).
"INDEMNIFYING PARTY" has the meaning set forth in Section 7.3(a).
"INTELLECTUAL PROPERTY" means (a) inventions, whether or not patentable, whether or not reduced to practice, and whether or not yet made the subject of a pending patent application or applications, (b) national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations) and all improvements to the inventions disclosed in each such registration, patent or application, (c) trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, (d) copyrights (registered or otherwise) and registrations and applications for registration thereof, (e) trade secrets, (f) technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data and copyrightable works,
(g) copies and tangible embodiments of all of the foregoing, in whatever form or medium and (h) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights.
"INVENTORIES" means all merchandise, products, finished goods, raw materials, work-in-progress, packaging, supplies and other personal property related to the Business maintained, held or stored by or for the Company or ARA.
"IRS" means the Internal Revenue Service or any successor entity.
"LAW" means any constitutional provision, statute or other law, ordinance, rule, regulation or interpretation of any Governmental Entity and any Order.
"LEASED REAL PROPERTY" means the real property (and all real property upon or under any such property) leased by the Company or ARA, as tenant, together with, to the extent leased by the Company or ARA, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Company or ARA attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing.
"LIABILITIES" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable.
"LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property licensed or sublicensed to the Company or ARA from a third party.
"LOSS" means any cost, damage, disbursement, expense, liability or loss including interest, penalties, legal fees and expenses.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means a material adverse change in, or effect on the Business, other than the effects of changes that are generally applicable to the industries in which the Company or ARA operate or the United States economy generally.
"MATERIAL CONTRACT" has the meaning set forth in Section 3.2(f).
"MERGER" has the meaning set forth in Section 2.1.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.8(b).
"NET WORKING CAPITAL" means Current Assets less Current Liabilities.
"NET TAX BENEFIT" has the meaning set forth in Section 7.10.
"ORDER" means any decree, injunction, judgment, order, ruling, assessment or writ.
"OWNED INTELLECTUAL PROPERTY" means all Intellectual Property owned by the Company or ARA.
"PERMIT" means any license, permit, franchise, certificate of authority, approved, authorization or order, or any waiver of the foregoing, required to be issued by any Governmental Entity.
"PERMITTED ENCUMBRANCES" means such of the following as to which no enforcement, collection, or foreclosure proceeding shall have been commenced (i) Encumbrances for Taxes not yet due and payable, (ii) Encumbrances for common carriers, materialmens' and similar statutory Encumbrances that are not overdue for a period of 60 days or more and (iii) Encumbrances not securing Indebtedness which do not materially interfere with the conduct of the Business or detract from the value or use of the property.
"PERSON" means an association, a corporation, an individual, a partnership, a trust or any other entity or organization, including a Governmental Entity.
"PRE-CLOSING PERIOD" has the meaning set forth in Section 3.2(h).
"PROPOSED BOEING REVENUE" shall mean the aggregate dollar amount of deemed Boeing Contract revenue determined by multiplying, for each part set forth on Schedule A hereto, the volume set forth on Schedule A hereto next to such part by the price for such part set forth in the Boeing Contract as executed and delivered by the parties thereto and summing the results of all such multiplications for all such parts (it being understood that to the extent a part is excluded from the Boeing Contract revenue contemplated for such part shall be deemed to be zero). To the extent that the Boeing Contract provides that the price of a part increases or decreases over the term of the Boeing Contract, the price for purposes of determining the Proposed Boeing Revenue shall be the average price to be paid to Boeing during the term of the Boeing Contract.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.8.
"RECEIVABLES" means any and all accounts receivable, notes and other amounts receivable by the Company or ARA from third parties, including, without limitation, customers, arising from the conduct of the Business or otherwise before the Closing Date, whether or not in the ordinary course.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER INDEMNITEES" has the meaning set forth in Section 7.2.
"SELLER LOSSES" has the meaning set forth in Section 7.6(a).
"SELLING SHAREHOLDERS" means, collectively, each of the holders of ZMP Shares.
"SHAREHOLDERS' REPRESENTATIVE" has the meaning set forth in
Section 9.19.
"STRADDLE PERIOD" has the meaning set forth in Section 4.8(a).
"STRADDLE PERIOD STATEMENT" has the meaning set forth in
Section 4.8(a).
"STRADDLE PERIOD LIABILITY" has the meaning set forth in
Section 4.8(a).
"SUBSIDIARY" means with respect to any Person (a) any corporation of which at least a majority in interest of the outstanding voting stock (having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned or controlled by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries, or (b) any non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such Person and one or more of its Subsidiaries, directly or indirectly, at the date of determination thereof, has at least majority ownership interest.
"SUCCESS BONUSES" means the success bonuses payable to Charles
A. Collins, Brett M. Clark, Kenneth A. Hair, Jonas T. Williams, James R. Gross,
Roger W. Snyder and James C. Stirone upon consummation of the Merger pursuant to
the Success Bonus Agreements dated as of June 1998 between ARA and each of such
persons. The aggregate amount due at Closing with respect to the Success Bonuses
is $259,939.25.
"SURVIVAL PERIOD" has the meaning set forth in Section 7.4(a).
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.
"TARGET NET WORKING CAPITAL" means $11,106,000.
"TAX" means any foreign, federal, state, county or local income, sales and use, excise, franchise, real and personal property, transfer, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance or withholding tax or charge imposed by any Governmental Entity, any interest and penalties (civil or criminal) related thereto or to the nonpayment thereof, and any Loss in connection with the determination, settlement or litigation of any Tax liability.
"TAX CONTROVERSY" has the meaning set forth in Section 4.9(a).
"TAX LOSSES" has the meaning set forth in Section 7.1.
"TAX RETURN" means a report, return or other information required to be supplied to a Governmental Entity with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes the Company or any of its Subsidiaries.
"TCW ENTITIES" means TCW Special Placements Fund II, a California limited partnership, and TCW Capital, acting solely in its capacity as investment manager pursuant to an Investment Management Agreement dated as of June 30, 1987.
"TCW NOTES" means the notes by the Company in favor of the TCW Entities.
"TERMINATION DATE" has the meaning set forth in Section 6.1(c).
"TRANSACTION DOCUMENTS" means this Agreement, the Voting Agreements, the Escrow Agreement and any other agreements, certificates or other documents related thereto.
"VOTING AGREEMENTS" means the Voting Agreements dated as of the date hereof between (a) Buyer and the TCW Entities, substantially in the form of Exhibit C hereto and (b) Buyer and Collins, substantially in the form of Exhibit D hereto.
"ZMP COMMON STOCK" means the Common Stock of the Company, par value $0.001 per share.
"ZMP SHARES" means (a) all shares of ZMP Common Stock issued and outstanding (other than (i) any such shares owned by the Company, Buyer, or Acquisition or any wholly owned subsidiary of any of them and (ii) any Dissenting Shares) and (b) all shares of ZMP Common Stock issuable upon exercise of any outstanding options or warrants.
ARTICLE II
MERGER; CLOSING
Section 2.1 THE MERGER. Subject to the terms and conditions set forth herein, Acquisition will merge with and into the Company (the "Merger"). The Company will be the surviving corporation of the Merger (the "Surviving Corporation") and the separate corporate existence of Acquisition shall cease. The Company's Articles of Incorporation as in effect immediately prior to the Merger shall be amended and restated in their entirety in the form attached to the Agreement of Merger and, as so amended, shall constitute the Articles of Incorporation of the Surviving Corporation. The By-laws of Acquisition in effect immediately prior to the Merger shall be the By-laws of the Surviving Corporation. The officers of Acquisition as of the Closing Date shall be the initial officers of the Surviving Corporation. The directors of Acquisition as of the Closing Date shall be the initial directors of the Surviving Corporation.
Section 2.2 EFFECTIVE TIME. The Merger will become effective at the time (the "Effective Time") the Agreement of Merger substantially in the form set forth as Exhibit A hereto (the "Agreement of Merger") is filed with the appropriate government officials in accordance with the California Corporations Code and any other applicable Law. Buyer, Acquisition and the Company shall execute and deliver the Agreement of Merger prior to the Closing Date.
Section 2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth herein, in the Agreement of Merger and in the California Corporations Code. As of the Effective Time, the Company shall be a wholly-owned Subsidiary of Buyer.
Section 2.4 CONVERSION OF THE STOCK INTO CASH. At the Effective Time, (a) each ZMP Share shall be converted into the right to receive a portion of the Merger Consideration determined as set forth in Section 2.8 hereof, subject to the adjustments set forth on Section 2.10 hereof, and (b) each share of common stock of Acquisition issued and outstanding immediately before the Effective Time shall remain issued, outstanding and unchanged as validly issued, fully paid and non-assessable shares of common stock of the
Surviving Corporation of the Merger; provided, however, that the Merger Consideration, including any subsequent payments under Section 2.10 hereof and any distributions from the Escrow Account, will be payable only to the holders of ZMP Shares immediately prior to the Effective Time, such that the owners of shares of Acquisition common stock who become owners of the Company common stock as a result of the Merger are not entitled to take part in any distributions of Merger Consideration. After the Effective Time and until surrendered for payment, each Company stock certificate outstanding and each warrant and/or option certificate immediately prior to the Effective Time (other than any such certificate representing Dissenting Shares) will represent only the right to receive the Merger Consideration. The Collins Option shall be cancelled as of the Effective Time and represent only the right to receive the Merger Consideration.
Section 2.5 STOCK HELD BY THE COMPANY. Notwithstanding any other provision of this Agreement, any shares of ZMP Common Stock held by the Company, by Acquisition or by Buyer, or by the wholly-owned Subsidiaries of any of them, will be canceled at the Effective Time.
Section 2.6 CLOSING. The Closing of the transaction provided for in this Agreement shall be held in the offices of Latham & Watkins, 885 Third Avenue, New York, NY (unless the parties hereto otherwise agree in writing), on the Closing Date.
Section 2.7 CLOSING DATE. The "Closing Date" shall be the later of April 23, 1999 and the third business day of the satisfaction or waiver of all the conditions to Closing set forth in Article V or as otherwise agreed to among the parties; provided, however, the Closing Date shall not be later than the Termination Date. The Agreement of Merger shall be filed with the appropriate officials on the Closing Date.
Section 2.8 PAYMENT OF CONSIDERATION. Subject to the terms and conditions of this Agreement, the aggregate consideration payable by Buyer and Acquisition for the Company shall be $41,000,000 plus (i) the aggregate exercise prices payable under any options or warrants outstanding at the Effective Time to purchase shares of ZMP Common Stock and (ii) an amount equal to the Collins Note Amount (the "Purchase Price"). The Purchase Price shall be paid or applied at the Closing and thereafter as hereafter provided in this Section 2.8 and in Sections 2.10, 2.11, 2.12 and 8.3 hereof.
(a) At the closing, the Purchase Price shall first be paid or applied as follows: (i) Buyer shall cause the Surviving Corporation to pay to the holders of the TCW Notes in immediately available funds the outstanding amount of such TCW Notes (including accrued interest and any prepayment penalties and other amounts due thereon) as of the Closing Date, and Buyer shall be liable for such payment if not made (it being understood that immediately prior to the Closing the Company will utilize its available cash to pay down the TCW Notes); (ii) Buyer shall cause the Surviving Corporation to pay to the holders of the Bank Debt in immediately available funds the outstanding amount of such Bank Debt (including accrued interest and any prepayment penalties and other amounts due thereon) as of the Closing Date, and Buyer shall be liable for such payment if not made; (iii) Buyer shall pay to or as directed by the Shareholders' Representative in immediately available funds amounts sufficient to cover all of the expenses, as of the Closing Date and reasonably estimated to be incurred thereafter, of any
of the Company, ARA, the Selling Shareholders and the Shareholders' Representative incident to the negotiation, preparation and performance of this Agreement and the other Transactions Documents and the transactions contemplated hereby or thereby and the process pursuant to which the Company and ARA were sold and any proposed disposition or sale contemplated to a third party or otherwise of all or any portion of the business of the Company or ARA, including the fees, expenses and disbursements of the investment bankers, accountants and counsel; and (iv) Buyer shall cause the Surviving Corporation to pay in immediately available funds the Success Bonuses to each of the persons and in the amounts as directed by Shareholders' Representative, and Buyer shall be liable for such payment if not made (it being understood and agreed that any additional amounts that may be payable with respect to the Success Bonuses shall be paid in accordance with Section 8.3(f)). The amount of the Purchase Price remaining after the payments described in clauses (i) through (iv) above is hereinafter referred to as the "Base Equity Price".
(b) The Base Equity Price shall be paid or applied as follows:
(i) Buyer shall cause the Surviving Corporation to retain (for ultimate payment
to the holders of Dissenting Shares if and to the extent required to be so paid)
an amount equal to the Base Equity Price multiplied by a fraction, the numerator
of which is the number of Dissenting Shares, and the denominator of which is the
number of ZMP Shares plus the number of Dissenting Shares (the "Dissenting
Shares Amount"); (ii) Buyer shall deliver to the Escrow Agent (I) an amount
equal to the sum of (x) $3,000,000 and (y) if, and only if, there are any
Dissenting Shares, an additional $200,000 for deposit in one escrow account (the
"Escrow Account") and (II) an amount equal to the sum of $750,000 for deposit in
a separate escrow account (the "Glendale Escrow Account"); and (iii) Buyer shall
cause the Surviving Corporation to pay to each holder of ZMP Shares or options
or warrants to acquire ZMP Shares an amount equal to such holder's Applicable
Percentage of the Base Equity Price remaining after the retention and payment
described in clauses (i) and (ii) above. There shall be deducted from any
payment due to a holder under clause (iii) above (x) any exercise price payable
by such holder under such option or warrant to acquire ZMP Shares and (y) any
amount owed by such holder to ZMP or ARA, including, in the case of Collins, the
Collins Note Amount. As used herein, "Merger Consideration" means the aggregate
amount per ZMP Share payable in the Merger, including any amounts payable to the
holders of ZMP Shares pursuant to this Section 2.8 and Sections 2.10, 2.11, 2.12
and 8.3 hereof.
Notwithstanding anything to the contrary set forth herein, the amount of Merger Consideration to be received by the holders of ZMP Shares upon surrender of their share certificates, letter of transmittal and other required documentation shall be reduced by the amount, if any, the Company is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law; provided that if any amounts are so deducted and withheld as Taxes, such amounts shall be treated as having been paid to the holder of such ZMP Shares.
Section 2.9 PERFORMANCE AT THE CLOSING.
(a) DELIVERIES BY ACQUISITION. At the Closing, and subject to
Section 2.9(b) below, Buyer, Acquisition and the Surviving Corporation will make
the payments contemplated by Section 2.8.
(b) SURRENDER OF CERTIFICATES REQUIRED FOR PAYMENT. Any payment described herein to any Selling Shareholder is conditional upon the surrender to Buyer by such Selling Shareholder of its stock certificates and any documentation evidencing any option to acquire ZMP Shares and a letter of transmittal substantially in the form attached hereto as Exhibit E. Buyer agrees to make payment immediately upon such surrender (i) by check delivered to each Selling Shareholder to its most recent registered address on the Company's stock records, or, if a Selling Shareholder provides Buyer with an alternate address to which payment should be delivered, to such alternate address or (ii) if a Selling Shareholder provides Buyer with wire instructions for delivery of such payment, in immediately available funds to the bank and account therein identified.
No interest shall be paid or accrued on any amount payable upon the surrender of ZMP Shares. If payment is to be made to a Person other than the Person in whose name a share certificate surrendered is registered, it shall be a condition of payment that the share certificate so surrendered shall be properly endorsed (signature guaranteed) or otherwise in proper form for transfer and that the Person requesting such payment shall pay all transfer and other taxes required by reason of the payment to a Person other than the registered holder of the share certificate, or establish to the satisfaction of Buyer that such tax has been paid or is not applicable, or provide assurance reasonably satisfactory to Buyer that any such tax will be paid by such Person.
(c) DELIVERIES BY SHAREHOLDERS' REPRESENTATIVE. Shareholders' Representative shall, to the extent it has access thereto and to the information required thereunder, provide any forms or certificates required by any state or local taxing authorities to relieve Buyer of any obligation to withhold any portion of the Merger Consideration.
Section 2.10 POST-CLOSING PURCHASE PRICE ADJUSTMENT.
Following the Closing, the Merger Consideration shall be adjusted as provided herein to reflect changes in Net Working Capital as determined based on the Closing Date Statement of Net Working Capital compared to the Target Net Working Capital.
(a) Within 60 days following Closing, Buyer and the Surviving
Corporation shall cause to be prepared and delivered to the Shareholders'
Representative a statement of the current assets (the "Current Assets") and the
current liabilities (the "Current Liabilities") of the Company and ARA as of the
close of business on the Friday immediately preceding the Closing (the "Closing
Date Statement of Net Working Capital") along with supporting materials and
calculations and a calculation of the amount, if any, due to the Selling
Shareholders or Buyer as a result of the adjustments set forth in this Section
2.10. The Current Assets and Current Liabilities set forth on the Closing Date
Statement of Net Working Capital shall be determined in accordance with GAAP
applied in the manner, and according to the principles, applied in the
preparation of the Audited Financial Statements as of and for the period ended
June 26, 1998; provided, however, that in determining Current Assets and Current
Liabilities, the exclusions and adjustments described on Schedule 2.10 shall be
given effect. Upon the request of Shareholders' Representative, Buyer and the
Company shall take such steps as may be reasonably necessary to permit a
representative of the Shareholders' Representative to observe all procedures
undertaken in the preparation of the Closing Date Statement of Net Working
Capital and to provide the
Shareholders' Representative access at all reasonable times to the personnel, properties, books and records of the Company and ARA for the purpose of reviewing and ascertaining the accuracy of the Closing Date Statement of Net Working Capital.
(b) Within 30 days after receipt of the Closing Date Statement of Net Working Capital, the Shareholders' Representative shall, in a written notice to Buyer, either accept the Closing Date Statement of Net Working Capital or describe in reasonable detail, in writing, any proposed adjustments and the reasons therefor. No such written notice shall be delivered to Buyer if the net proposed adjustments in the aggregate amount to an increase in Net Working Capital of less than $25,000. If the Buyer has not received such notice of proposed adjustments within such 30 day period, the Shareholders' Representative will be deemed irrevocably to have accepted the Closing Date Statement of Net Working Capital. In the event that Shareholders' Representative and Buyer are not able to agree on the Net Working Capital within 30 days from and after the receipt by Buyer of any adjustments proposed by the Shareholders' Representative, such dispute shall be submitted to Arthur Andersen LLP for computation or verification in accordance with the provisions of this Agreement. Such firm shall determine as promptly as practicable, but in any event within 30 days of the date on which such dispute is referred to such firm, whether the Closing Date Statement of Net Working Capital was prepared in accordance with the standards set forth in this Agreement on the basis solely of the written submissions of the parties, and whether and to what extent (if any) Net Working Capital as shown thereon requires adjustment. The results of such accounting firm's report shall be binding, conclusive and non-appealable upon Shareholders' Representative, the Selling Shareholders and Buyer, and such accounting firm's fees and expenses shall be borne equally by Buyer, on one hand, and the Selling Shareholders (through a reduction in any amount owed to them under this Section 2.10 or, if no such amount is owed to them, through a payment out of the Escrow Account) on the other. Buyer and the Shareholders' Representative will jointly instruct the Escrow Agent, in writing, to make any such payment.
(c) Upon acceptance of the Closing Date Statement of Net Working Capital by Buyer or the resolution of any disputes, (i) if Net Working Capital on the Closing Date as so determined is greater than the Target Net Working Capital by more than $25,000, the Merger Consideration shall be increased by such amount and Buyer shall promptly, but no later than 5 days after final determination, pay or cause the Surviving Corporation to pay to each Selling Shareholder such Selling Shareholder's Applicable Percentage of the amount of such excess, together with interest thereon from the Closing Date to the date of payment thereof as determined below, and (ii) if Net Working Capital on the Closing Date as so determined is less than the Target Net Working Capital by more than $25,000, the Shareholders' Representative and the Buyer shall promptly, but no later than 5 days after such final determination, instruct the Escrow Agent in writing to pay to Buyer from the Escrow Account the amount of such difference, together with interest thereon from the Closing Date to the date of payment thereof as determined below.
(d) For the purposes of this Section 2.10, interest will be payable at the applicable federal rate (as defined in Section 1274 of the Code), or, if that rate is no longer established or published, a comparable interest rate. For purposes of this Section 2.10, interest shall be calculated based on a 365 day year and the actual number of days elapsed.
Section 2.11 DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, shares of ZMP Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
stockholder who has the right (to the extent such right is available by law) to
demand and receive payment of the fair value of such holder's stock pursuant to
California law shall not be converted into the right to receive the Merger
Consideration (unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right under California law, as the
case may be) (such shares, the "Dissenting Shares"), but the holder thereof
shall only be entitled to such rights as are granted by California law. If such
holder shall have so failed to perfect or shall have effectively withdrawn or
lost such right, such holder's shares of ZMP Common Stock shall thereupon no
longer be Dissenting Shares, but shall be deemed to have been converted at the
Effective Time into the right to receive the Merger Consideration (without any
interest thereon), and the Merger Consideration payable in respect thereof and
in respect of all other ZMP Shares shall be adjusted to yield the results that
would have obtained if such shares had been treated as ZMP Shares rather than
Dissenting Shares at the Closing. If the holder of any shares of ZMP Common
Stock shall become entitled to receive payment for such shares pursuant to
Section 1300 of the California Corporations Code ("Section 1300 Payment") then
such payment shall be made by the Surviving Corporation with no cost or other
liability to any of the Selling Shareholders or the Shareholders'
Representative, except as provided or referred to in the next sentence. Pursuant
to Section 7.1(4), the Buyer Indemnitees shall be indemnified against all Losses
incurred by them (including Section 1300 Payments and payments required
hereunder out of the Dissenting Share Amount) in connection with or as a result
of the existence of Dissenting Shares at the Closing if and to the extent that
such Losses or payments exceeds the Dissenting Share Amount.
Section 2.12 SPECIAL PURCHASE PRICE ADJUSTMENT
Following the Closing, the Merger Consideration shall be adjusted as follows:
(a)(i) If a Boeing Contract is executed and delivered by Boeing and ARA on or prior to the Boeing Determination Date, within 10 business days of such execution and delivery Buyer shall cause to be prepared and delivered to the Shareholders' Representative (x) a statement, along with a copy of a Boeing Contract, and if requested by Shareholders' Representative, and calculations, setting forth the amount due to the Buyer, if any, as a result of the calculations set forth in Section 2.12(a)(iii) or (y) a statement that no amount is due to Buyer as a result of the calculations set forth in Section 2.12(a)(iii).
(ii) Within 10 business days after receipt of a statement delivered pursuant to Section 2.12(a)(i)(x), the Shareholders' Representative shall, in a written notice to the Buyer, either accept such statement or describe in reasonable detail any proposed adjustments and the reasons therefor. If Buyer has not received such notice of proposed adjustments within such 10 business day period, the Shareholders' Representative will be deemed to irrevocably to have accepted such statement. In the event that the Shareholders' Representative and the Buyer are not able to agree on such statement within 10 business days of receipt by Buyer of any adjustments proposed by Shareholders' Representative, such dispute shall be submitted to Arthur Andersen LLP for computation or verification in accordance with this Agreement.
(iii) Upon acceptance by the Shareholders' Representative of
the statement delivered pursuant to Section 2.12(a)(i)(x) or the resolution of
any disputes, if the Proposed Boeing Revenue is less than the Boeing Target
Amount, the Merger Consideration will be decreased by an amount equal to the
product of (x) the Boeing Target Amount minus the Proposed Boeing Revenue and
(y) the Fixed Multiplier. If the Merger Consideration is so decreased, the
Shareholders' Representative and the Buyer shall promptly, but in no event later
than five days after such final determination, instruct the Escrow Agent in
writing to pay Buyer from the Escrow Account the amount of such decrease.
(b) If no Boeing Contract has been executed and delivered by Boeing and ARA on or prior to the Boeing Determination Date, the Buyer shall cause to be prepared and delivered to Shareholders' Representative a statement pursuant to Section 2.12(a)(i)(x) setting forth the amount due to the Buyer as a result of the calculations set forth in Section 2.12(a)(iii) assuming for purposes of such calculation that Proposed Boeing Revenue equals zero.
(c) Notwithstanding anything to the contrary herein, the parties hereto agree that any amounts payable to the Buyer under or pursuant to this Section 2.12 will be paid solely out of the Escrow Account, in accordance with this Agreement, and none of the Selling Shareholders will have any obligation to make (or otherwise with respect to) any such payments other than from the Escrow Account. Buyer acknowledges that the payments contemplated hereunder may exceed the amount on deposit in the Escrow Account and that such payments may exhaust the Escrow Account and that Buyer shall not be entitled to payment from any other source, including the Glendale Escrow Account.
(d) Notwithstanding anything to the contrary herein, if a part or parts set forth on Schedule A is not set forth in the Boeing Contract as executed and delivered by the parties and, in the Shareholders' Representative's reasonable and good faith judgement, such part or parts may be contained in a subsequent Boeing Contract to be executed and delivered prior to the Boeing Determination Date the Boeing Target Amount shall be recomputed for purposes of the calculation set forth in Section 2.12(iii) to exclude such part or parts. If a subsequent Boeing Contract containing the part or parts so excluded is executed and delivered prior to the Boeing Determination Date, a separate calculation shall be made pursuant to Section 2.12(iii) with respect to such part or parts, utilizing a target amount based solely on such part or parts. If such subsequent Boeing Contract containing the part or parts so excluded is not executed and delivered prior to the Boeing Determination Date, a separate calculation shall be made pursuant to Section 2.12(b) with respect to such part or parts, utilizing a target amount based solely on such part or parts.
(e) Buyer, the Company and ARA agree to use their commercially reasonable efforts to execute and deliver the Boeing Contract and to negotiate its terms and conditions in good faith. Notwithstanding the foregoing sentence or anything to the contrary herein, Buyer, the Company and ARA shall be under no obligation to execute or deliver a Boeing Contract or any other contract with Boeing that is not on substantially the terms and conditions set forth in the Boeing Proposal.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS AND WARRANTIES BY BUYER AND ACQUISITION. As of the date hereof and as of the Closing Date (except to the extent any of the following speaks as of a specific date, such as the date hereof), Buyer and Acquisition each represents and warrants to, and agrees with, the Company for the benefit of the Selling Shareholders as follows:
(a) ORGANIZATION AND RELATED MATTERS. Each of Buyer and Acquisition (i) is a corporation duly organized, validly existing and in good standing under the respective Laws of the jurisdiction of its incorporation or organization and (ii) has all necessary corporate power and authority to own its properties and assets and to carry on its businesses as now conducted except where the failure to be so organized or validly existing, to be in good standing, or to have such power and authority does not constitute a material adverse effect on the ability of either Buyer or Acquisition to consummate the transactions contemplated by this Agreement.
(b) CAPITAL STOCK. All of the outstanding shares of capital stock of each of Buyer and Acquisition will, at the Closing Date, be duly authorized, validly issued, fully paid and non-assessable, and owned free and clear of any Encumbrances, other than Permitted Encumbrances.
(c) AUTHORIZATION. Each of Buyer and Acquisition has the necessary corporate power and authority to execute, deliver and perform this Agreement and the other Transaction Documents and to consummate the transactions contemplated by this Agreement and the other Transaction Documents. The execution, delivery and performance of this Agreement and the other Transaction Documents by each of Buyer and Acquisition has been duly and validly authorized by the respective Boards of Directors of Buyer and of Acquisition and by all other necessary corporate action on the part of Buyer and Acquisition. Each of the Agreement and the Voting Agreement constitutes (and the Escrow Agreement will, at Closing, constitute) the legally valid and binding obligation of each of Buyer and Acquisition, enforceable against each of Buyer and Acquisition in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws and equitable principles relating to or limiting creditors' rights generally.
(d) NO CONFLICTS. Except as set forth on Section 3.1D of the Disclosure Schedule, the execution, delivery and performance by each of Buyer and Acquisition of this Agreement and the other Transaction Documents and the transactions contemplated thereby will not (i) violate or conflict with the provisions of, or constitute a breach or default whether upon lapse of time and/or the occurrence of any act or event or otherwise under (A) the charter documents or bylaws of either Buyer or Acquisition, (B) any Law to which either Buyer or Acquisition is subject, or (C) any Contract to which either Buyer or Acquisition is a party or (ii) require any consent, waiver, authorization or approval of, or the making of any filing with or giving of notice to, any Person or Governmental Entity (other than as required under the Hart-Scott-Rodino Act).
(e) LEGAL PROCEEDINGS. There is no Action pending, contemplated or threatened against either Buyer or Acquisition or any of their respective properties or assets (real, personal or mixed, tangible or intangible) which individually, or when aggregated with one or more other Actions, has or might reasonably be expected to have a material adverse effect on the ability of either Buyer or Acquisition to perform this Agreement or any other aspect of the transactions contemplated by this Agreement.
(f) INVESTMENT REPRESENTATION. Each of Buyer and Acquisition is aware that the shares of ZMP Common Stock are not registered under the Securities Act. Each of Buyer and Acquisition possesses such knowledge and experience in financial and business matters that each is capable of evaluating the merits and risks of its investments hereunder. Buyer is acquiring the shares of ZMP Common Stock for its own account, for investment purposes only and not with a view to the distribution thereof. Buyer agrees that the ZMP Common Stock will not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to a valid exemption from registration under the Securities Act. Buyer is an "accredited investor" as defined in Regulation D promulgated under the Securities Act.
(g) INVESTIGATION. Each of Buyer and Acquisition has conducted its own independent review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of the Company and ARA and each of Buyer and Acquisition acknowledges that it has been provided access to the personnel, properties, premises and records of the Company and ARA for such purpose.
(h) NO BROKERS OR FINDERS. No agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of Buyer in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fee or other commission as a result of this Agreement or such transactions.
Section 3.2 REPRESENTATIONS AND WARRANTIES BY THE COMPANY. As of the date hereof and as of the Closing Date (except to the extent any of the following speaks as of a specific date, such as the date hereof), the Company represents and warrants to, and agrees with, Buyer and Acquisition as follows:
(a) ORGANIZATION AND RELATED MATTERS. Each of the Company and ARA (i) is a corporation duly organized, validly existing and in good standing under the respective Laws of the jurisdiction of its incorporation or organization, (ii) has all necessary corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its respective business as now conducted and (iii) is duly qualified or licensed to do business as a foreign corporation in good standing in all jurisdictions in which the character or the location of the assets owned, operated or leased by any of them or the nature of the business conducted by any of them requires licensing or qualification, except in the cases of clauses (ii) and (iii) where the failure to have such power and authority or to be so qualified or licensed does not constitute a Material Adverse Effect. All jurisdictions referred to in clause (iii) above are set forth in Section 3.2A of the Disclosure Schedule. All corporate actions taken by the Company and ARA have been duly authorized, and the Company and ARA have not taken any action that
in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Certificate of Incorporation or By-Laws. The Board of Directors of the Company, at a meeting duly called and held, has (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, taken together are fair to and in the best interest of the holders of ZMP Common Stock and (ii) resolved to recommend that the holders of ZMP Common Stock approve this Agreement and the transactions contemplated herein, including the Merger.
(b) STOCK. The Company owns, directly or indirectly, all of
the outstanding capital stock of ARA free and clear of all Encumbrances. The
authorized capital stock of the Company consists of 108,695 shares of common
stock, $.001 par value, of which 105,435 shares are issued and outstanding and
3,260 shares are reserved for issuance upon exercise of a warrant, as set forth
in Section 3.2B of the Disclosure Schedule. Except as set forth on Section 3.2B
of the Disclosure Schedule, there are no outstanding contracts, options,
warrants, convertible securities or other rights to subscribe for or purchase,
or Contracts or other obligations to issue or grant any rights to acquire, any
Equity Securities or Equity Equivalents of the Company or ARA, or to restructure
or recapitalize the Company or ARA. There are no outstanding Contracts of the
Company or ARA to repurchase, redeem or otherwise acquire any Equity Securities
of any of such Persons or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person. All
Equity Securities of the Company and ARA are duly authorized, validly issued and
outstanding and are fully paid and nonassessable. There are no preemptive rights
in respect of any Equity Securities of the Company or ARA. Any Equity Securities
of the Company and ARA which were issued and reacquired by any of such Persons
were so reacquired (and, if reissued, so reissued) in compliance with all
applicable Laws, and the Company and ARA have no outstanding obligation or
liability with respect thereto. Other than the Company's ownership of ARA and as
set forth on Section 3.2B of the Disclosure Statement, there are no other
corporations, partnerships, joint ventures, associations or other entities in
which the Company or ARA owns, of record or beneficially, any Equity Securities
or other interest or any right (contingent or otherwise) to acquire the same.
Neither the Company nor ARA is a member of (nor is any part of the business
conducted through) any partnership, nor is the Company or ARA a participant in
any joint venture or similar arrangement. The minute books of the Company and
ARA contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders and Boards of Directors of the Company and
ARA. Complete and accurate copies of all such minute books and of the stock
register of the Company and ARA have been provided by the Company to the Buyer.
Section 3.2B of the Disclosure Schedule sets forth the total amount of
Indebtedness and the total amount of cash on hand of the Company and ARA on a
consolidated basis, in each case as of the date hereof. Section 3.2B of the
Disclosure Schedule also sets forth all of the stockholders of the Company, the
number of shares of ZMP Common Stock owned by each, and all amounts owed to the
Company or ARA by any holders of ZMP Common Stock.
(c) FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(i) The Company has delivered to Buyer (i) audited consolidated balance sheets for the Company and ARA at the end of each fiscal year ending in June 1996, 1997 and 1998 and the related statements of operations, cash flow and changes in stockholders' equity for the periods then ended (collectively, the "Audited Financial Statements") and (ii)
copies of the unaudited consolidated balance sheet (the "Interim Balance Sheet") for the Company and ARA at February 20, 1999 and the related statement of operations, cash flow and changes in stockholders' equity for the period then ended (collectively with the Interim Balance Sheet, the "Unaudited Financial Statement" and, together with the Audited Financial Statements, the "Financial Statements"). The Audited Financial Statements have been examined by the Company's Auditors, whose reports thereon are included with such financial statements. The Audited Financial Statements have been prepared in conformity with GAAP, except for changes, if any, required by GAAP and disclosed therein, consistently applied throughout the periods covered thereby. Each statement of operations, cash flow and changes in stockholders' equity in the Audited Financial Statements (i) was prepared in accordance with the books of account and other financial records of the Company and ARA and (ii) presents fairly the results of operations, cash flow and changes in stockholders' equity of the Company and ARA for the periods covered, and each balance sheet (i) was prepared in accordance with the books of account and other financial records of the Company and ARA and (ii) presents fairly the financial condition of the Company and ARA as of its respective date. Such Audited Financial Statements reflect all adjustments necessary for a fair presentation. At the date of the most recent such balance sheet, neither the Company nor ARA had any Liabilities (actual, contingent or accrued) that, in accordance with GAAP, should have been shown or reflected therein but were not.
(ii) The Unaudited Financial Statements have been prepared
in conformity with GAAP as used in preparing the Audited Financial Statements,
provided that such Unaudited Financial Statements do not include footnotes, and
(i) were prepared in accordance with the books of account and other financial
records of the Company and ARA and (ii) present fairly the consolidated
financial position of the Company and ARA as of such date and the consolidated
results of operations, cash flow and changes in stockholders' equity of the
Company and ARA for such period. At February 20, 1999, neither the Company nor
ARA had any Liabilities (actual, contingent or accrued) that, in accordance with
GAAP as used in preparing the Audited Financial Statements, should have been
shown or reflected in such Unaudited Financial Statements but were not except as
otherwise described in Section 2.8(a)(iii). Accruals for expenses relating to
the transactions contemplated by this Agreement and the other Transaction
Documents and for the Success Bonuses reflected on the Interim Balance sheet
were $194,000 and $380,000, respectively.
(iii) Since June 26, 1998 neither the Company nor ARA has incurred any Liabilities (whether accrued, absolute, contingent or otherwise) that would be required to be reflected or reserved against in a balance sheet of the Company and ARA prepared in accordance with GAAP as used in preparing the Audited Financial Statements, except Liabilities that are reflected or disclosed in the financial statements referred to in this Section 3.2(c) or were incurred after February 20, 1999 in the ordinary course of business, consistent with past practice. Neither the Company nor ARA has any Liabilities (whether accrued, absolute, contingent or otherwise) that do not relate primarily to the ownership of its assets, the conduct of its Business or its existence as a corporation. Other than the TCW Notes or as set forth on Section 3.2B of the Disclosure Schedule, neither the Company nor ARA has any Liability to any Shareholder of the Company.
The books of account and other financial records of the Company and ARA: (i) reflect all items of income and expense and all assets and Liabilities required to be reflected
therein in accordance with GAAP and (ii) are in all material respects complete and correct, and do not contain or reflect any material inaccuracies or discrepancies. Since June 26, 1998, the Company and ARA have maintained systems of internal accounting controls sufficient to provide reasonable assurance that material transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability.
Except to the extent, if any, reserved for on the Unaudited
Financial Statements, all Receivables reflected therein arose from the sale of
Inventory or services to Persons not affiliated with ARA or the Company and in
the ordinary course of the Business consistent with past practice other than (i)
notes payable from Collins in the aggregate amount of approximately $512,000 and
(ii) a note payable from a former employee in the approximate amount of $16,000
and except as reserved against on the Unaudited Financial Statements, constitute
or will constitute, as the case may be, only valid and, to the best knowledge of
the Company and ARA, undisputed claims of the Company or ARA and, to the best
knowledge of the Company and ARA, are not subject to valid claims of set off or
other defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of the Business consistent with past practice.
Subject to amounts reserved therefor on the Unaudited Financial Statements, the values at which all Inventories are carried therein reflect the historical inventory valuation policy of the Company and ARA of stating such Inventories at the lower of cost (determined on the first in, first out method) or market value. Except as set forth in Section 3.2C of the Disclosure Schedule, the Company or ARA, as the case may be, has good and marketable title to the Inventories free and clear of all Encumbrances other than Permitted Encumbrances. The Inventories do not consist of any items held on consignment. Except as set forth on Section 3.2C of the Disclosure Schedule, neither the Company nor ARA is under any obligation or liability with respect to accepting returns of items of Inventory or merchandise in the possession of their customers.
Except as reserved against on the Unaudited Financial Statements, the Inventories do not consist of, in any material amount, items that are obsolete, damaged or slowmoving. The Inventories are in good and merchantable condition, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold in the ordinary course of the Business consistent with past practice.
(d) CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CERTAIN
CHANGES, EVENTS AND CONDITIONS. Since June 26, 1998, except as disclosed in
Section 3.2D of the Disclosure Schedule, (i) the Business of the Company and ARA
has been conducted only in the ordinary course and consistent with past practice
and (ii) there has not been, occurred or arisen (and, to the Company's
knowledge, there is no threatened change in or event affecting the Company or
ARA that, taking into account the likelihood of its occurring, would reasonably
be characterized as) any change in or event affecting the Company or ARA that
has had or would reasonably be expected to have had a Material Adverse Effect.
As amplification and not limitation of the foregoing, except as disclosed in
Section 3.2D of the Disclosure Schedule, since June 26, 1998 neither the Company
nor ARA has:
(i) permitted or allowed any of the assets or properties (whether tangible or intangible) of the Company or ARA to be subjected to any Encumbrance, other than Permitted Encumbrances;
(ii) except in the ordinary course of the Business consistent with past practice, discharged or otherwise obtained the release of any Encumbrance or paid or otherwise discharged any monetary Liability in excess of $50,000;
(iii) made any loan (other than loans to employees in the ordinary course of business) to, guaranteed any Indebtedness of, or incurred any Indebtedness on behalf of, any Person other than the Company or ARA;
(iv) failed to pay any creditor any material amount owed to such creditor substantially when due, except for amounts being contested in good faith by the Company or ARA;
(v) directly or indirectly redeemed, purchased or otherwise acquired or retired, or split, combined or reclassified or otherwise adjusted any of the capital stock of the Company or ARA;
(vi) merged with, entered into a consolidation with or acquired an interest of 5% or more in any Person or acquired a substantial portion of the assets or business of any Person or any division or line of business thereof, or otherwise acquired any material assets (other than assets acquired in the ordinary course of the Business consistent with past practice) and other than acquisitions of assets relating to the recent relocation of ARA's facilities;
(vii) sold, assigned, transferred, leased, subleased, licensed or otherwise disposed of any material properties or assets, real, personal or mixed (including, without limitation, leasehold interests and intangible assets), other than the sale of Inventories in the ordinary course of the Business consistent with past practice and other than dispositions of assets relating to the recent relocation of ARA's facilities;
(viii) issued or sold or entered into any agreement obligating it to issue or sell any capital stock, notes, bonds or other Equity Securities or Equity Equivalents in the Company or ARA;
(ix) except as required by Law or involving ordinary increases consistent with the past practices of the Company or ARA, granted or announced any material increase in the wages, salaries, commissions, compensation, bonuses, incentives, pension or other benefits payable by the Company or ARA to its employees, including, without limitation, any increase or change pursuant to or under any Employee Plan;
(x) made any change in any method of accounting or accounting practice, principle or policy used by the Company or ARA;
(xi) incurred any Indebtedness, other than trade payables
incurred in the ordinary course of the Business consistent with past
practice and other than any increase in the Indebtedness described in
Section 2.8(a)(i) and (ii);
(xii) amended, canceled, waived or modified in any material respect, or consented to the early termination of any Material Contract or the Company's or ARA's rights thereunder;
(xiii) amended or restated the Articles of Incorporation or the Bylaws (or other organizational documents) of the Company or ARA;
(xiv) disclosed any material confidential Intellectual Property (except by way of application for or issuance of a patent) or permitted to lapse prematurely or go abandoned any material Intellectual Property in any jurisdiction (or any registration or grant thereof or any material application relating thereto) to which, or under which, the Company or ARA has any right, title, interest or license;
(xv) made any material election or settled or compromised any material Liability, with respect to Taxes (other than income, sales or use Taxes) of the Company or ARA;
(xvi) suffered any casualty loss (whether or not covered by insurance) affecting its business or any of the assets of the Company or ARA that exceeded $50,000 in any one instance; or
(xvii) made any election or settled or compromised any liability with respect to income, sales or use Taxes.
(e) BUSINESS OF THE COMPANY; PROPERTY OWNED BY THE COMPANY. The sole and exclusive business activity in which the Company is engaged is the ownership, directly or indirectly, of all of the outstanding capital stock issued by ARA. Additionally, except as set forth on Section 3.2E of the Disclosure Schedule, the only property, assets and rights (whether tangible or intangible) owned by the Company is all of the outstanding capital stock issued by ARA.
(f) MATERIAL CONTRACTS. Section 3.2F of the Disclosure Schedule lists each contract to which the Company or ARA is a party or to which the Company, ARA or any of their respective properties is subject or by which any thereof is bound that is deemed a Material Contract (as defined below). "Material Contracts" means each Contract that either (i) after June 26, 1998, obligates or may reasonably be anticipated to obligate the Company or ARA to pay or entitles the Company or ARA to receive an amount in excess of $50,000, (ii) represents a contract upon which the Business is substantially dependent or which is otherwise material to the Business, (iii) limits or purports to limit or restricts the ability of the Company or ARA to compete or otherwise to conduct the Business in any manner or place during any period of time, (iv) provides for a guaranty or indemnity by the Company or ARA, (v) all Contracts relating to Indebtedness of the Company or ARA, (vi) all Contracts with any Governmental Entity to which the Company or ARA is a party, (vii) all Contracts between or among the Company or ARA and any Affiliate, (viii) all other Contracts, whether or not made in the ordinary course of business, which the Company or ARA would be required to disclose in a registration statement on form S-
1 under the Securities Act of 1933, as amended (and the rules and regulations
promulgated thereunder), or if the Company or ARA filed reports with the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended (and the rules and regulations promulgated thereunder) or (ix)
all broker, distributor, dealer, manufacturer's representative, franchise,
agency, sales promotion and advertising Contracts to which the Company or ARA is
a party which are not cancelable without penalty or further payment and without
more than 90 days' notice, or (x) all employment and management contracts and
Contracts with independent or consultants (or similar arrangements) to which the
Company or ARA is a party and which are not cancelable without penalty or
further payment and without more than 90 days' notice. Section 3.2F of the
Disclosure Schedule sets forth any Contract currently under negotiation which,
upon the execution thereof, would be a Material Contract (including, without
limitation, any contracts with Boeing). There are no loss contracts which are
required to be and are not so reflected on the Unaudited Financial Statements.
True copies of the agreements appearing in Section 3.2F of the Disclosure
Schedule, including all amendments and supplements, have been made available to
Buyer. (1) Each Material Contract is valid and subsisting and binding and
enforceable on the Company or ARA, and to the knowledge of the Company, the
other parties thereto; (2) the Company or ARA has materially performed all its
obligations thereunder to the extent that such obligations to perform have
accrued; and (3) no material breach or default, alleged material breach or
default, or event which would (with the passage of time, notice or both)
constitute a material breach or default thereunder by the Company or ARA or, to
the knowledge of the Company and ARA, any other party or obligor with respect
thereto, has occurred. Consummation of the transactions contemplated by this
Agreement and the Escrow Agreement will not (and will not give any Person a
right to) terminate or modify any rights of, or accelerate or augment any
obligation of the Company or ARA under any Material Contract. With respect to
all Contracts (including, without limitation, a subcontract) with the United
States, state or local government or any agency or department thereof
("Government Contracts"), there are no pending, and to the knowledge of the
Company or ARA, there are no threatened (A) civil fraud or criminal
investigations by any government investigative agency, (B) suspension or
debarment proceedings (or equivalent proceedings) against the Company or ARA,
(C) requests by the government for a contract price adjustment based on a claim
disallowance by the Defense Contract Audit Agency or similar agency, or claim of
defective pricing in excess of $50,000 individually or $100,000 in the
aggregate, (D) disputes between the Company or ARA and the government which have
resulted in a government constructing officer's final decision where the amount
in controversy exceeds or would reasonably be expected to exceed $50,000
individually or $100,000 in the aggregate, or (E) claims or equitable
adjustments by the Company or ARA against the government or any third party in
excess of $50,000 individually or $100,000 in the aggregate. With respect to any
Government Contract which expired, or was terminated, or for which final payment
was made within three years prior to the date hereof, and except as set forth on
Section 3.2F of the Disclosure Schedule hereof, to the knowledge of the Company
or ARA, there are no requests by the U.S. Government for a contract price
adjustment based upon a claim of defective pricing in excess of $50,000.
(g) AUTHORIZATION; NO CONFLICTS. The execution, delivery and performance of this Agreement and the Escrow Agreement and the transactions contemplated hereby and thereby has been duly and validly authorized by the Company's Board of Directors and by all other necessary corporate action on the part of the Company. This Agreement has been duly executed
and delivered by the Company and constitutes the legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
their terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar Laws and equitable
principles relating to or limiting creditors rights generally. The execution,
delivery and performance of this Agreement and the Escrow Agreement by the
Company and the execution, delivery and performance of any related agreements or
contemplated transactions by the Company will not (i) violate, or constitute a
breach or default (whether upon lapse of time, giving of notice or both) under,
the charter documents or by-laws of any of such entities, (ii) violate, or
constitute a breach or default (whether upon lapse of time, giving of notice or
both) under any Contract to which the Company or ARA is a party, including
without limitation any Material Contract, (iii) result in the imposition of any
Encumbrance against any asset or properties of the Company or ARA, (iv) require
any consent, waiver, authorization or approval of, or the making of any filing
with or giving of notice to, any Person or Governmental Entity (other than the
filing of the Agreement of Merger with the appropriate authorities in the State
of California and as required under the Hart-Scott-Rodino Act) or (v) violate
any Law or Order except with respect to clause (ii), (iii) or (iv) of this
Section 3.2(g), for any such matters that would not reasonably be expected,
singly or in the aggregate, to have a Material Adverse Effect.
(h) TAX AND OTHER RETURNS AND REPORTS. Each of the Company and
ARA has timely filed or will file (or, where permitted or required, its
respective direct or indirect parents have timely filed or will file) all
material Tax Returns required to be filed and have paid (or will pay) all Taxes
shown thereon as owing for all taxable periods ending on or before the Closing
Date (a "Pre-Closing Period"). As of the Closing Date, each of the Company and
ARA shall have made payments of estimated taxes as required by Law (taking into
account the tax effects of the transactions contemplated hereby) for (i) the
pre-closing portion of the Straddle Period (as defined in and determined under
Section 4.8(a)), and (ii) taxable periods ending on or prior to the Closing Date
but for which a Tax Return is not yet due. Adequate accruals and reserves have
been provided in the books and records of the Company and ARA, and, to the
extent required by GAAP in the Audited Financial Statements referred to in
Section 3.2(c) above or delivered or to be delivered to Buyer, for all Taxes
whether or not due and payable and whether or not disputed. Neither the Company
nor ARA has elected to be treated as a consenting corporation under Section
341(f) of the Code. Section 3.2G of the Disclosure Schedule lists the date or
dates through which the IRS and any other Governmental Entity have examined the
United States federal income Tax Returns and any other Tax Returns of the
Company and ARA. All required Tax Returns, including amendments to date, have
been prepared in good faith and are complete and accurate in all material
respects. Except as set forth on Section 3.2H of the Disclosure Schedule, there
are no deficiencies for Taxes claimed or proposed by any Governmental Entities
that have not yet been fully paid or settled. Except as set forth on Section
3.2H of the Disclosure Schedule, there are no pending audits relating to Taxes
of the Company or ARA or, to the best of the Company's knowledge, threatened
material audits or investigations relating to Taxes of the Company or ARA.
Neither the Company nor ARA has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency. Neither the Company nor ARA is a party to any Tax allocation or
sharing agreement. Neither the Company nor ARA has been a member of an
Affiliated Group filing a consolidated federal or a combined or unitary State or
Local Tax Return (other than a group the common parent of which was the Company
or Certified Holding Corporation, a Delaware
corporation). There are no liens for Taxes (other than for current Taxes not yet due and payable) on the assets of the Company or ARA. None of the assets of the Company or ARA (i) directly or indirectly secures any debt the interest on which is tax exempt, (ii) is property that is required to be treated as being owned by any other person under the applicable tax law, or (iii) is "tax-exempt use property" for federal income tax purposes. Neither the Company nor ARA has agreed to make or is required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. Neither the Company nor ARA is obligated to make, as a result of an event connected with the transaction contemplated by this Agreement, any "excess parachute payment" as defined in Section 280G of the Code.
(i) REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES. Neither the Company nor ARA owns any real property. The Company and ARA have title to or other right to use, free of Encumbrances, all items of real property, including fees, leaseholds, easements and all other interests in real property, and such other assets and properties that are material to the Business, except for Permitted Encumbrances. All material tangible assets and properties of the Company and ARA that are used in or intended to be used in the Business or otherwise used by the Company or ARA or reflected on the Financial Statements (other than Inventory sold or otherwise disposed of in the ordinary course of business) are in a good state of maintenance and repair (except for ordinary wear and tear) and are adequate for the Business. Section 3.2I of the Disclosure Schedule sets forth each parcel of Leased Real Property. The Company has made available to the Buyer true and complete copies of each lease for each parcel of Leased Real Property (the "Leases") and, to the extent in the possession of the Company or ARA, all the title insurance policies, title reports, surveys, mortgages, easements, certificates of occupancy, environmental reports and audits, appraisals, Permits, other title documents relating to the Leased Real Property. Either the Company or ARA, as the case may be, is in peaceful and undisturbed possession of all space that it is currently entitled to possess under such Lease and no rights adverse to the rights of the Company or ARA, to the knowledge of ARA or the Company, have been asserted by any Person and there are no contractual or legal restrictions that preclude or materially restrict the ability to use the premises for the purposes for which they are currently being used. Neither the Company nor ARA has leased or subleased any parcel or any portion of any parcel of Leased Real Property to any other Person. Neither the Company nor ARA holds any option, right of first refusal or similar right to purchase any additional parcel or real property or any portion thereof or interest therein. All material Leased Real Property held by the Company or ARA as lessee are held under valid, binding and enforceable leases, and neither ARA nor the Company has received any written notice of any default under any such Lease. To the knowledge of the Company and ARA, there are no condemnation proceedings or eminent domain proceedings of any kind pending or threatened against the Leased Real Property. To the knowledge of the Company and ARA, there are no material latent defects or material adverse physical conditions affecting the Leased Real Property or any of the facilities, buildings, structures, erections, improvements, fixtures, fixed assets and personalty of a permanent nature annexed, affixed or attached to, located on or forming part of the Leased Real Property.
(j) INTELLECTUAL PROPERTY. The Company and ARA have rights to and ownership of all Intellectual Property required for use in connection with the Business. The Company and ARA have in all material respects performed all obligations required to be performed by them, and they are not in default in any material respect under any Contract relating to any Owned Intellectual Property or Licensed Intellectual Property. Neither the
Company nor ARA has received any notice to the effect (and is not otherwise aware) that the Owned Intellectual Property or the Licensed Intellectual Property or any use by the Company and ARA of any such property conflicts with or allegedly conflicts with or infringes the rights of any Person. Section 3.2J of the Disclosure Schedule sets forth a true and complete list and a brief description, including a complete identification of each patent and patent application and each registration or application for registration thereof, of all Owned Intellectual Property and Section 3.2J of the Disclosure Schedule sets forth a true and complete list and a brief description, including a description of any license or sublicense thereof, of all Licensed Intellectual Property. Except as disclosed on Section 3.2J of the Disclosure Schedule, the rights of the Company or ARA, as the case may be, in or to Owned Intellectual Property do not conflict with or infringe in any material respect on the rights of any other Person. Except as disclosed in Section 3.2J of the Disclosure Schedule: (i) all the Owned Intellectual Property is owned by either the Company or ARA, as the case may be, free and clear of any Encumbrance and (ii) no Actions have been made or asserted or are pending (nor, to the best knowledge of the Company, has any such Action been threatened) against the Company or ARA either (A) based upon or challenging or seeking to deny or restrict in any material way the use by the Company or ARA of any of the Owned Intellectual Property or (B) alleging that any services provided, or products manufactured or sold by the Company or ARA are being provided, manufactured or sold in violation of any patents or trademarks, or any other rights of any Person. To the knowledge of the Company, no Person is using any patents, copyrights, trademarks, service marks, trade names, trade secrets or similar property that are confusingly similar to the Owned Intellectual Property or that infringe upon the Owned Intellectual Property or upon the rights of the Company or ARA therein. Except as disclosed on Section 3.2J of the Disclosure Schedule, neither of the Company nor ARA has granted any license or other right to any other Person with respect to the Owned Intellectual Property.
The Company has, or has caused to be, delivered to the Buyer correct and complete copies of all the licenses and sublicenses for Licensed Intellectual Property listed in Section 3.2J of the Disclosure Schedule and any and all ancillary documents pertaining thereto (including, but not limited to, all amendments, consents and evidence of commencement dates and expiration dates). With respect to the Licensed Intellectual Property and each of such licenses and sublicenses:
(i) such license or sublicense, together with all ancillary documents delivered pursuant to the first sentence of this Section 3.2J, is valid and binding and in full force and effect and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such license or sublicense;
(ii) except as otherwise disclosed on Section 3.2J of the Disclosure Schedule, neither the Company nor ARA has granted to any other Person any rights, adverse or otherwise, under such license or sublicense;
(iii) no Actions have been made or asserted or are pending (nor, to the knowledge of the Company, has any such Action been threatened) against the Company or ARA either (A) based upon or challenging or seeking to deny or restrict the use by the Company or ARA of any of the Licensed
Intellectual Property or (B) alleging that any Licensed Intellectual Property is being licensed, sublicensed or used in violation of any patents or trademarks, or any other rights of any Person; and
(iv) to the knowledge of the Company no Person is using any patents, copyrights, trademarks, service marks, trade names, trade secrets or similar property that are confusingly similar to the Licensed Intellectual Property or that infringe upon the Licensed Intellectual Property or upon the rights of the Company or ARA therein.
(k) LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS. Except as set
forth on Section 3.2K of the Disclosure Schedule, there is no Order or Action
pending or, to the knowledge of the Company, threatened against or affecting the
Company, ARA or any of their properties or assets. None of the matters described
in Section 3.2K of the Disclosure Schedule has or reasonably could be expected
to have individually or in the aggregate, a Material Adverse Effect or a
material adverse effect on the Company's ability to perform this Agreement, or
on the transactions contemplated by this Agreement. Except as set forth on
Section 3.2K of the Disclosure Schedule, there are not presently pending or, to
the knowledge of the Company, threatened any civil, criminal or administrative
actions, suits, demands, claims, hearings, notices of violation, investigations,
proceedings or demand letters relating to any alleged hazard or alleged defect
in design, manufacture, materials or workmanship including, without limitation,
any failure to warn or alleged breach of express or implied warranty or
representation, relating to any product manufactured, distributed or sold by or
on behalf of the Company or ARA that would individually or in the aggregate
reasonably be expected to have a Material Adverse Effect. Section 3.2K of the
Disclosure Schedule sets forth a true and complete list of (i) all matters
referred to in the preceding sentence and (ii) all material product recalls or
material written post-sales warnings ("Recalls") and all investigations,
considerations or decisions made by the Company or, to the knowledge the
Company, by any other Person, concerning a Recall relating to any product
manufactured, distributed or sold by or on behalf of the Company or ARA. Except
as set forth on Section 3.2K of the Disclosure Schedule, (a) neither the Company
nor ARA is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or ARA and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company or ARA and (b) there are no strikes, slowdowns or work
stoppages pending or, to the knowledge of the Company, threatened between the
Company or ARA and any of their respective employees, and neither the Company
nor ARA has experienced any such strike, slowdown or work stoppage within the
past three years.
(l) PERMITS. Except as disclosed on Section 3.2L of the Disclosure Schedule, the Company and ARA hold all material Permits that are required by any Governmental Entity to permit each of them to conduct its respective businesses as now conducted, including, without limitation, all authorizations required by the FAA and CAA, and all such Permits are valid and in full force and effect and will remain so upon consummation of the transactions contemplated by this Agreement. To the knowledge of the Company, no suspension, cancellation or termination of any of such Permits is threatened or imminent. The Company and ARA have not violated any such Permit in any material respect and each is in compliance with such Permits in all material respects.
(m) COMPLIANCE WITH LAW. The businesses of the Company and ARA are being conducted in compliance with applicable Laws and Orders issued by any Governmental Entities, except to the extent that any such noncompliance is reasonably likely to result in losses, liabilities, obligations, damages, costs or expenses (including, without limitation, fines and penalties) of less than $37,500 singly or $225,000 in the aggregate. Neither the Company nor ARA has received any written notice to the effect that any currently existing circumstances are likely to result in a failure of the Company or ARA to comply with, or a violation by the Company of, any Laws, in either case which such failure to comply or violation would be reasonably likely to result in losses, liabilities, obligations, damages, costs or expenses (including, without limitation, fines and penalties) in excess of $37,500 singly or $225,000 in the aggregate. Section 3.2M of the Disclosure Schedule sets forth a brief description of each Order to which the Company or ARA is a party applicable to the Company or ARA or any of the assets of the Business.
All products sold by the Company or ARA pursuant to qualification requirements established by the Company's or ARA's customers are and have been produced in a manner consistent in all material respects with such requirements. The Company and ARA hold and have held all necessary qualifications for its products from its customers pursuant to which sales were made to such customers. Except as set forth on Section 3.2M of the Disclosure Schedule, neither the Company nor ARA has received notification that any qualifications for the Company's or ARA's products as established by the Company's or ARA's customers have been revoked or terminated as a result of the failure of products manufactured by the Company or ARA to meet the specifications required by such qualifications, and to the knowledge of the Company, no such revocation or termination is threatened.
(n) DIVIDENDS AND OTHER DISTRIBUTIONS. Except as set forth on
Section 3.2N of the Disclosure Schedule, there has been no dividend or other
distribution of assets or securities, or any declaration regarding the foregoing
whether consisting of money, property or any other thing of value, declared,
issued or paid to or for the benefit of any of Selling Shareholders by the
Company or ARA with respect to the shares of ZMP Common Stock subsequent to the
date of the most recent audited financial statements described in Section
3.2(c).
(o) CERTAIN INTERESTS. Except as set forth on Section 3.2O of
the Disclosure Schedule, (i) to the knowledge of the Company no Affiliate of the
Company or ARA, nor any officer, director or employee thereof has any material
interest in any property used in or pertaining to the Business; (ii) no such
Person is indebted or otherwise obligated to the Company or ARA; and (iii) the
Company and ARA are not indebted or otherwise obligated to any such Person,
except for amounts due under normal arrangements applicable to all employees
generally as to salary or reimbursement of ordinary business expenses not
unusual in amount or significance or under Arrangements or Plans disclosed on
Section 3.2R of the Disclosure Schedule. The consummation of the transactions
contemplated by this Agreement will not result in any material benefit or
payment (severance or other) arising or becoming due from the Company or ARA or
the successor or assign of any thereof to any Person.
(p) INTERCOMPANY TRANSACTIONS. Except to the extent stated in or disclosed pursuant to Sections 3.2(b) or 3.2(o), the Company and ARA have not engaged in any transaction with any of the stockholders of the Company or any other Affiliate of any of the
Company or ARA. Neither the Company nor ARA has any liabilities or obligations to any of the stockholders of the Company or any other Affiliate of any of the stockholders of the Company and none of the stockholders of the Company or such Affiliates has any obligations to the Company or ARA. The consummation of the transactions contemplated by this Agreement will not result in any payment arising or becoming due from the Company or ARA or the successor or assign of any thereof to any of the Selling Shareholders or any Affiliate of any of the Selling Shareholders.
(q) ENVIRONMENTAL COMPLIANCE. Except as set forth in Section
3.2Q of the Disclosure Schedule, since June 14, 1988, and, to the knowledge of
the Company, prior to June 14, 1988, (i) each of the Company and ARA has been in
material compliance with all applicable federal, state, foreign and local laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or sub-surface strata (collectively, "Environmental Laws");
(ii) neither the Company nor ARA has received written notice or is the subject
of any actions, causes of actions, claims, investigations, demand, information
requests or notices by any person or entity alleging liability or potential
liability pursuant to or non-compliance with any Environmental Law; (iii) there
are no conditions existing which would reasonably be expected to form the basis
of a claim against the Company or ARA pursuant to or for the violation or
non-compliance with any Environmental Law; and (iv) there are no circumstances
which would reasonably be expected to prevent or interfere in the future with
the Company's and ARA's material compliance with all Environmental Laws. The
Company and ARA hold all material Permits relating to environmental matters that
are required by any Governmental Entity to permit each of them to conduct their
respective businesses as now conducted, and all such Permits are valid and in
full force and effect and will remain so upon consummation of the transactions
contemplated by this Agreement. To the knowledge of the Company, no suspension,
cancellation or termination of any of such Permits is threatened or imminent.
All past proceedings and investigations and non-compliance with Law or Permits
relating to environmental matters have been resolved without any pending,
on-going or future cost or liability, except as set forth in Section 3.2Q of the
Disclosure Schedule. Notwithstanding the generality of any other representations
and warranties in this Agreement, this Section 3.2(q) shall be deemed to contain
the only representations and warranties in this Agreement with respect to
matters relating to Environmental Laws.
(r) EMPLOYEE BENEFITS.
(i) Employee Benefit Plans, Collective Bargaining and Employee Agreements, and Similar Arrangements.
(A) Section 3.2R of the Disclosure Schedule lists all material employee benefit plans and all material collective bargaining, employment or severance agreements or other similar arrangements to which either the Company or ARA is a party or by which any of them is bound including (a) any material profit-sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare or incentive plan, agreement or arrangement, (b) any material plan, agreement or arrangement providing for "fringe benefits" or perquisites to employees, officers, directors or agents, including but not limited to benefits relating to Company automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave,
medical, dental, hospitalization, life insurance and other types of insurance, (c) any material employment agreement or (d) any other material "employee benefit plan" (within the meaning of Section 3(3) of ERISA). Each plan or arrangement described in this subsection (A) shall be referred to herein as an "Employee Plan" and such plans and arrangements shall be referred to herein collectively as the "Employee Plans."
(B) To the extent existing, the Company and ARA have made available to Buyer true and complete copies of each of the following documents: (a) all documents embodying or governing the Employee Plans, and any funding medium for the Employee Plans (including, without limitation, trust agreements) as they may have been amended or modified (including a written description of any announced plan or legally binding commitment to amend or modify any such documents); (b) the most recent IRS determination, opinion or approval letter with respect to each applicable Employee Plan under Code Sections 401 and 501(a), and any applications for determination or approval subsequently filed with the IRS; (c) the three most recently filed IRS Forms 5500, with all applicable schedules and accountants' opinions attached thereto, for each applicable Employee Plan; (d) the summary plan description for each Employee Plan (or other descriptions of such Employee Plan provided to employees) and all modifications thereto; (e) any insurance policy (including any fiduciary liability insurance policy) related to the Employee Plans; and (f) all other materials reasonably necessary for Buyer to perform any of its responsibilities with respect to any Employee Plan subsequent to the Closing (including, without limitation, health care continuation requirements).
(C) The Company, all Employee Plans, and ARA are in compliance in all material respects with the applicable provisions of ERISA and all other Laws applicable with respect to all such Employee Plans. The Company and ARA have performed in all material respects all of their obligations under all such plans, agreements and arrangements. There are no Actions (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened against such Employee Plans or their assets, or arising out of such Employee Plans, and all such Employee Plans have been operated in compliance in all material respects with their terms.
(D) All obligations of the Company and ARA under each such material Employee Plan (a) that are due prior to the Closing Date have been paid or will be paid prior to that date, and (b) that have accrued prior to the Closing Date have been or will be paid or properly accrued on the Closing Date Balance Sheet (including any amounts earned by any employee of the Company or ARA but deferred pursuant to any non-qualified deferred compensation plan or arrangement).
(ii) Qualified Plans.
(A) Section 3.2R of the Disclosure Schedule lists all "employee pension benefit plans" (within the meaning of Section 3(2) of ERISA) which are also stock bonus, pension or profit-sharing plans within the meaning of Section 401(a) of the Code.
(B) Each such plan is qualified in form and operation under Section 401(a) of the Code and each trust under each such plan is exempt from tax under Section 501(a) of the Code. No event has occurred that will or, to the knowledge of the Company, could give rise to disqualification or loss of tax-exempt status of any such plan or trust under such sections. No event has occurred that will or, to the knowledge of the Company, could subject any such plans to tax under Section 511 of the Code. To the knowledge of the Company, no non-exempt prohibited transaction (within the meaning of Section 4975 of the Code) or non-exempt party-in-interest transaction (within the meaning of Section 406 of ERISA) has occurred with respect to any such plan and none of the Company, ARA or any Employee Plan fiduciary has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA.
(iii) Title IV Plan. No Employee Plan listed in Section 3.2R of the Disclosure Schedule is a plan subject to Title IV of ERISA. None of the Company, ARA or any ERISA Affiliate has, within the last six years, (A) maintained any employee benefit plan which has been subject to Title IV of ERISA; or (B) maintained, administered or contributed to any multiemployer plan as defined in Section 4001(a)(3) of ERISA. Neither the Company nor ARA has any liability with respect to any employee benefit plan sponsored by any current or former ERISA Affiliate (other than the Company or ARA).
(iv) Health Plans. All group health plans of the Company and ARA and any trade or business (whether or not incorporated) that is a member of a group of which Company is a member and which is under common control within the meaning of Section 414(b), (c), (m) and (o) of the Code ("ERISA Affiliates") have been operated in material compliance with the group health plan continuation coverage requirements of Section 4980B of the Code to the extent such requirements are applicable. Neither Company nor ARA provides health care or any other non-pension benefits to any employees after their employment is terminated, other than as required by part 6 of subtitle B of Title I of ERISA or Section 4980B of the Code or benefits that continue for a brief period of time after termination of employment (for example, for the balance of the month in which an employee terminates), or has ever promised to provide any such post-termination welfare benefits.
(v) Fines and Penalties. There has been no act or omission
by the Company or ARA that has given rise to or, to the knowledge of the
Company, may give rise to fines, penalties, taxes, or related charges under
Section 502(c) or (k) or Section 4071 of ERISA or Chapter 43 of the Code.
(vi) Deductibility of Payments; No Acceleration or Creation of Rights. There is no contract, agreement, plan or arrangement covering any employee or former employee of the Company or ARA that, individually or collectively, provides for the payments by the Company or ARA of any amount (A) that is not deductible under Section 162(a)(1) or 404 of the Code or (B) that is an "excess parachute payment" pursuant to Section 280G of the Code. Except for the Success Bonuses and as otherwise set forth on Section 3.2R of the Disclosure Schedule, neither the execution and delivery of this Agreement by the Company and ARA nor the consummation of the transactions contemplated hereby will result in the acceleration or creation of any rights of any person to benefits under any Employee Plan (including, without limitation, the acceleration of the vesting or exercisability of any stock options or warrants, the
acceleration of the vesting of any restricted stock, the acceleration of the accrual or vesting of any benefits under any pension plan or the acceleration or creation of any rights under any severance, parachute or change in control agreement).
(vii) The current value of assets held in the trust maintained in connection with that certain Deferred Compensation Plan and Trust Agreement dated as of March 2, 1992 by and among ZMP, Inc., Gene Schiappa (as trustee) and Charles A. Collins, as amended from time to time (the "Deferred Compensation Plan"), is not less than the amount of liabilities accumulated under the Deferred Compensation Plan.
(s) INSURANCE. Section 3.2S of the Disclosure Schedule lists all insurance policies and bonds that are maintained by the Business. All such policies and bonds that are material to the Business are in full force and effect and protect the Company and ARA against such losses and risks as is consistent with industry practice. Neither the Company nor ARA has received any notice of any material increase in premiums with respect to, or cancellations or non-renewal of, any of such policies. Neither the Company nor ARA is in default in any material respect under any such policy or bond.
(t) NO BROKERS OR FINDERS. Other than fees to be paid to Bowles Hollowell Conner & Co. (which fees are to be paid from the Purchase Price), no agent, broker, finder, or investment or commercial banker, or other Person or firm engaged by or acting on behalf of the Company or ARA in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fee or other commission as a result of this Agreement or such transactions.
(u) ABSENCE OF CERTAIN ARRANGEMENTS. Neither the Company nor
ARA, and to the Company's or ARA's knowledge no director, officer, agent, or
employee of the Company or ARA or any other Person on behalf of the Company or
ARA, has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, or (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the Company or ARA,
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company of ARA.
(v) CUSTOMERS AND SUPPLIERS. Section 3.2V of the Disclosure
Schedule sets forth a true and correct list of (a) the names and addresses of
the 15 largest customers of ARA in terms of sales during each of the two fiscal
years ended June 26, 1998 and 1997 and the seven months ended January 22, 1999,
setting forth the total sales to each such customer during such period and (b)
the names and addresses of the 10 largest suppliers of ARA in terms of purchases
during each of the fiscal years ended June 26, 1998 and 1997 and the seven
months ended January 22, 1999, setting forth for each such supplier the total
purchases from each such supplier during such period. Except as set forth on
Section 3.2V of the Disclosure Schedule, neither the Company nor ARA has
received notice from any such customers or suppliers to the effect that there
will be any price increases in ARA's inputs or price decreases in ARA's outputs.
There has
not been any material adverse change in the business relationship of the Company with any customer or supplier named on Section 3.2V of the Disclosure Schedule since June 26, 1998.
(w) YEAR 2000 ISSUES. The Company and its Subsidiaries have developed a plan which, if successfully implemented, will to their knowledge enable all of their computer systems to process and provide accurate results using data having date ranges spanning the twentieth and twenty-first centuries. Without limiting the foregoing, if successfully implemented such plan will to the knowledge of the Company and its Subsidiaries, cause such computer systems to (i) manage and manipulate data abnormalities related to such dates; (ii) manage and manipulate data involving all dates from such centuries without inaccurate results related to such dates; and (iii) have user interfaces and data fields formatted to distinguish between dates from the twentieth and twenty-first centuries. The Company and its Subsidiaries are in the process of implementing such plan and believe that it can be fully implemented by December 31, 1999 at costs no greater than the costs and reserves relating to "year 2000 issues" shown in the Financial Statements. In addition, the Company and its Subsidiaries have inquired of all of their material software and hardware systems vendors and suppliers as to whether such vendors' and suppliers' have the systems and software necessary to address and accommodate "year 2000 issues", and as to whether such vendors and suppliers computer systems have been tested and are fully capable of providing accurate results using data having date ranges spanning the twentieth and twenty-first centuries and, except as set forth on Section 3.2W of the Disclosure Schedule, each such vendor and supplier has confirmed the foregoing.
(x) REORGANIZATIONS. All reorganizations, restructurings, mergers, liquidations and dissolutions involving or relating to the Company, ARA or any former parent corporation of the Company or ARA, (including, without limitation, Certified Holding Corporation) (collectively, the "FORMER ENTITIES") complied with all applicable Laws and the organizational documents of such entities. There are no Liabilities of Certified Holding Corporation that are not related to the business or properties of the Company or ARA which could reasonably be expected to be asserted against the Company or ARA. There are no continuing obligations or liabilities to the Company or ARA in connection with the Asset Acquisition dated as of July 31, 1986 among ZMP Acquisition Corporation, Adams Rite Products, Inc., Sabre Industries Inc., MZZM Inc. and certain other parties named therein.
THE REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT ARE THE ONLY REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY. THERE ARE NO IMPLIED REPRESENTATIONS OR WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 4.1 OPERATION OF THE BUSINESS. Except as otherwise contemplated by this Agreement or as disclosed in Section 4.1 of the Disclosure Schedule, the Company covenants that until the Closing it will, and will cause ARA in respect of the Business to, use its reasonable best efforts to continue, in a manner consistent with past practices of the Company, to
keep available the services of their employees, to maintain and preserve intact the Business in all material respects and to maintain in all material respects the ordinary and customary relationships of the Business with their suppliers, customers and others having business relationships with them with a view toward preserving for Buyer to and after the Closing Date the Business. Until the Closing, the Company shall, and shall cause ARA in respect of the Business to, continue to operate and conduct the Business in the ordinary course consistent with past practices of the Company, and the Company shall cause ARA in respect of the Business not to, without the prior written approval of Buyer (which approval shall not be unreasonably withheld) or as otherwise contemplated by this Agreement and the Disclosure Schedule hereto, take any of the actions or enter into any transaction of the sort described in Section 3.2(d) hereof (for purposes of this Section 4.1, from the date hereof until the earlier of the Closing Date and April 23, 1999 all actions listed in Section 3.2(d) shall be deemed to have been made without any qualification to materiality or any dollar threshold and all references in Section 3.2(d) to "material", "Material Adverse Effect", dollar thresholds and similar terms and phrases shall be deleted therefrom). In addition, the Company shall not, and shall cause ARA not to:
(i) make any capital expenditure or commitment to make any capital expenditure except in accordance with the Company's capital expenditure plan for fiscal year 1999, a true, correct and complete copy of which has been delivered to Buyer, and from the date hereof until the Closing Date, make or commit to make any capital expenditures except for those capital expenditures listed on Section 4.1 of the Disclosure Schedule;
(ii) enter into any new employment or consulting agreement or cause or suffer any written or oral termination, cancellation or amendment thereof (except with respect to any employee at will without a written agreement);
(iii) enter into any collective bargaining agreement or cause or suffer any termination or amendment thereof,
(iv) with respect to any shareholder, any other Affiliate or any Affiliate of any shareholder, grant, make or accrue any payment or distribution or other like benefit, contingently or otherwise, or otherwise transfer assets of the Company or ARA, including, but not limited to, any payment of principal of or interest on any debt owed to any such shareholder or Affiliate;
(v) execute any lease for real property or any lease for personalty including payments in excess of $25,000 or incur any liability therefor;
(vi) declare, set aside for payment or pay dividends or distributions in respect of any Equity Securities or Equity Equivalents in the Company or ARA;
(vii) revalue any of the assets of the Company or ARA, including, without limitation, any writeoff of notes or accounts receivable or any increase in any reserve;
(viii) cancel, waive or release any right or claim (or series of related rights or claims);
(ix) make any payments or give any other consideration to customers or suppliers, other than payments under, and in accordance with the terms of, Contracts in effect on the date hereof; and
(x) fail to manage or cause to be managed the collection and payment of the Receivables and accounts payable of each of the Company and ARA and otherwise maintain and manage in the ordinary course the Business consistent with past practice in a commercially reasonable manner.
SECTION 4.2 REGULATORY CONSENTS, AUTHORIZATIONS, ETC.
(a) The Company and Buyer each agree to cooperate and use commercially reasonable efforts to obtain all (and will immediately prepare all registrations, filings and applications, requests and notices preliminary to all) Approvals and Permits that may be necessary or which may be reasonably requested by Buyer to consummate the transactions contemplated by this Agreement; provided that nothing contained herein shall require either Buyer or the Company or any of their Affiliates to sell, transfer, divest or otherwise dispose of any of its respective business, assets or properties in connection with this Agreement or any other transactions contemplated hereby. Buyer shall pay all fees required in connection with any filing required under the Hart-Scott-Rodino Act.
(b) To the extent that Buyer determines in its reasonable discretion the Approval of a third party with respect to any Material Contract is required or desirable in connection with the transactions contemplated by this Agreement, the Company shall use commercially reasonable efforts to obtain such Approval prior to the Closing Date and in the event that any such Approval is not obtained, the Company shall reasonably cooperate with Buyer in an effort to obtain for Buyer the benefits of each such Material Contract. The parties hereto agree not to take any unreasonable action that will have the effect of delaying, impairing or impeding the receipt of any Approval or Permit.
SECTION 4.3 INVESTIGATION BY BUYER. Subject to applicable Laws, the Company shall cause ARA to authorize and permit Buyer and its representatives (which term shall be deemed to include its independent accountants and counsel and representatives of prospective financing institutions of Buyer) to have reasonable access during normal business hours, at the expense of Buyer, under the supervision of the Company or ARA, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of their respective businesses and as will maintain the confidentiality of this Agreement and the transactions contemplated hereby, to all of the Company's and ARA's properties, books, records, operating instructions and procedures, Tax Returns and all other information with respect to the Business as Buyer may from time to time reasonably request, and to make copies of such books, records and other documents and to discuss its business with such other Persons, including its directors, officers, employees, accountants, counsel, suppliers, customers, and creditors, as are necessary or appropriate for the purposes of familiarizing itself with the Business, obtaining any necessary Approvals of or Permits for the transactions contemplated by this Agreement and conducting an evaluation of the organization and Business of the Company.
SECTION 4.4 PUBLICITY. Until the Closing Date, all parties hereto shall coordinate all publicity relating to the transactions contemplated by this Agreement and no party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior consent of all parties hereto, except to the extent required by applicable Law.
SECTION 4.5 SHAREHOLDERS' CONSENT. The Board of Directors of the Company shall, in accordance with applicable Law, either (i) duly call, give notice of, convene and hold a special meeting of the shareholders of the Company or (ii) circulate a written consent of shareholders (in form and substance satisfactory to Buyer and which complies with all applicable Laws and the Company's Articles and Incorporation and Bylaws) in lieu of a meeting as soon as practicable for the purpose of considering and taking action upon this Agreement. The Company shall take all appropriate action in accordance with all applicable Laws and the Company's Article of Incorporation and Bylaws (a) to obtain consent of all its stockholders with respect to the Merger and this Agreement and (b) to assure the sale of its stockholders' shares of ZMP Common Stock according to the Voting Agreements.
SECTION 4.6 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of (i) the occurrence, or failure to occur, of any event or fact that would be likely to cause any representation or warranty made by such party contained in this Agreement to be untrue in any material respect at any time from the date of this Agreement to the Closing Date, (ii) any failure of Buyer, Acquisition or the Company, as the case may be, to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, and (iii) any fact, condition, event or occurrence that would be likely to prevent any condition to the obligations of the parties set forth in Article V to be satisfied. Such notice shall provide a reasonably detailed description of the relevant circumstances and shall include the amount which the party providing the notice believes, based on the facts actually known by it, would be payable by the other party pursuant to the indemnification provides hereof. No such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder.
SECTION 4.7 PREPARATION OF TAX RETURNS FOR PRE-CLOSING PERIODS. The Shareholders' Representative shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by the Company and ARA for any Pre-Closing Period. In the case of any Tax Return of the Company or ARA for any Pre-Closing Period, Buyer shall (i) cause an officer of the Company or ARA, as the case may be, to sign such Tax Return, or (ii) duly and lawfully appoint a Person designated by the Shareholders' Representative as an officer of the Company or ARA, as the case may be, for purposes of signing such Tax Return. Shareholders' Representative shall provide to Buyer a copy of any Tax Return for a Pre-Closing Period no later than 30 days before the due date (including extensions) for filing such Tax Return for Buyer's review and consent, which consent shall not unreasonably be withheld (provided, however, that any position consistent with past practice shall be reasonable for these purposes).
SECTION 4.8 PREPARATION OF TAX RETURNS FOR STRADDLE PERIODS.
(a) Buyer shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by the Company and ARA for any Straddle Period.
With respect to each Tax Return filed with respect to a Straddle Period, Buyer will provide the Shareholders' Representative with a statement (each, a "Straddle Period Statement") setting forth (i) Buyer's calculation of the Tax liability of the Company and ARA allocable to the Deemed Pre-Closing Period (the "Straddle Period Liability"), and (ii) a copy of the Tax Return to be filed with respect to such Straddle Period. Buyer shall deliver such Straddle Period Statement to the Shareholders' Representative no later than 30 days before the due date (including extensions) for filing such Tax Return. The term "Straddle Period" means any taxable period of the Company or ARA that begins before the Closing Date and ends after the Closing Date. Items of income, gain, loss, deduction, and credit for any Straddle Period attributable to the period of time on or before the Closing Date shall be allocated to a deemed Pre-Closing Period that ends on the Closing Date (the "Deemed Pre-Closing Period") using an interim closing-of-the-books method, assuming that the Deemed Pre-Closing Period ended as of the close of business on the Closing Date. In the case of any Taxes that are imposed on a periodic basis (other than Taxes based upon or related to income or receipts), and are payable for a Straddle Period, the portion of such Tax which relates to the Deemed Pre-Closing period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the Deemed Pre-Closing Period and the denominator of which is the number of days in the entire taxable period.
(b) Within 20 days of receipt of such Straddle Period Statement, the Shareholders' Representative shall, in a written notice to the Buyer, either accept the Straddle Period Statement or describe in reasonable detail any proposed adjustment to any item of income, gain, loss, deduction, or credit on the Straddle Period Statement. Buyer and the Shareholders' Representative shall negotiate in good faith to resolve any disputes over any proposed adjustments to the Straddle Period Statement, provided that if any such dispute is not resolved within 10 days after the Buyer's receipt of the proposed adjustments, Buyer and the Shareholders' Representative shall jointly engage Arthur Andersen LLP or such other mutually acceptable national independent public accounting firm ("Tax Arbitrator") to resolve such dispute, which resolution shall be final and binding upon the parties, and not subject to review or challenge of any kind. The amount of the Straddle Period Liability shall be determined based on (i) the Straddle Period Statement prepared by the Buyer, if the Shareholders' Representative proposes no adjustment or proposes an adjustment but no resolution of the issue is reached between the Shareholders' Representative and the Buyer before the due date (including extensions) for filing the relevant Tax Return, or (ii) the Straddle Period Statement as finally resolved between Shareholders' Representative and the Buyer, if the Shareholders' Representative proposes an adjustment and the Shareholders' Representative and the Buyer reach a resolution, or the Tax Arbitrator reaches a resolution, of the proposed adjustment before the due date (including extensions) for filing such relevant Tax Return. If any final resolution of the proposed adjustment reached after the filing of the relevant Tax Return differs from the Straddle Period Statement filed, then Buyer shall file an amended Tax Return for such Straddle Period in accordance with the determination of the Tax Arbitrator. Any fees and expenses related to the engagement of the Tax Arbitrator shall be borne equally by Buyer, on one hand, and the Selling Shareholders through a payment out of the Escrow Account on the other. Buyer and the Shareholders' Representative will jointly instruct the Escrow Agent, in writing, to make any such payment.
SECTION 4.9 TAX CONTROVERSIES.
(a) The Shareholders' Representative shall have the right, at the expense of the Selling Shareholders, to control, manage, and be responsible for any audit, contest, claim, proceeding or inquiry with respect to Taxes, or items of income, gain, loss, deduction, and credit of, the Company or ARA (a "Tax Controversy") for any Pre-Closing Period or Straddle Period, and shall have the right to settle or contest in their discretion any such Tax Controversy; provided, however, that if the Tax Controversy reasonably could be expected to affect the Company's or ARA's liability for Tax in any taxable period ending after the Closing Date (i) Buyer shall have the right to attend and participate in, at its own expense, any such Tax Controversy controlled by the Shareholders' Representative, including the right to review in advance and comment upon all submissions made in the course of such Tax Controversy, and to be present at all conferences, meetings or proceedings with any taxing authority, and all appearances before any court, and (ii) no settlement or any disposition of any such Tax Controversy shall be made without Buyer's prior written consent, which shall not be unreasonably withheld.
(b) Buyer shall have the right, at its own expense, to control, manage, and be responsible for any Tax Controversy for any taxable period ending after the Closing Date (other than Straddle Periods), and shall have the right settle or contest in their discretion any Tax Controversy; provided, however, that if the Tax Controversy reasonably could be expected to affect the Company's or ARA's liability for Tax in any Pre-Closing Period (i) the Shareholders' Representative shall have the right to attend and participate in, at the expense of the Selling Shareholders, any such Tax Controversy controlled by the Buyer, including the right to review in advance and comment upon all submissions made in the course of such Tax Controversy, and to be present at all conferences, meetings or proceedings with any taxing authority, and all appearances before any court, and (ii) no settlement or any disposition of any such Tax Controversy shall be made without the Shareholders' Representative's prior written consent, which shall not be unreasonably withheld.
(c) Neither the Escrow Account nor any party hereto shall be liable for any Tax indemnification if the party to be indemnified did not comply with the procedures of this Agreement relating to Taxes, but only to the extent the indemnifying party has been prejudiced by such non-compliance.
SECTION 4.10 COOPERATION. After the Closing Date, the Shareholders' Representative and Buyer will cooperate fully, and will cause their respective Affiliates to cooperate fully, and will provide assistance as may reasonably be requested, and cause their respective Affiliates to provide assistance as may reasonably be requested, in connection with the preparation of any Tax Return, the conduct of any audit or the defense of any litigation or other proceeding with respect to any Tax liability of the Company or ARA for any taxable period and shall retain, or shall cause to be retained, until the expiration of all applicable statutes of limitation, any records or information that may be relevant to any such Tax Return or audit.
SECTION 4.11 ACCESS TO RECORDS AND INFORMATION. Buyer shall provide the Shareholders' Representative, and the Shareholders' Representative shall provide Buyer, with the right, at reasonable times and upon reasonable notice, to have access to, and to copy and use,
any records or information which are reasonably expected to be relevant for the taxable period for which Buyer or the Shareholders' Representative, as the case may be, is charged with filing responsibility for Tax Returns under this Agreement or otherwise in connection with the preparation of any Tax Returns, the conduct of any audits, the defense of any litigation with respect to any Tax liability, the filing of any claim for a refund of Tax or allowance of any Tax credit or any judicial or administrative proceedings relating to liability for Taxes.
SECTION 4.12 TAX POSITIONS. Buyer shall not, and shall not
permit the Company or ARA to, unless required by Law (i) make or change any Tax
election, or amend any Tax Return or take any Tax position on any Tax Return, or
(ii) take any action or omit to take any action that in any such case results in
any increased Tax liability of the Company or ARA with respect to any
Pre-Closing Period or any increased Straddle Period Liability.
SECTION 4.13 INCOME TAX LIABILITY AND REFUNDS. Any amount of income Taxes shown as due on any Tax Return for any Pre-Closing Period shall be timely paid out of the Escrow Account and is hereinafter referred to as a "Declared Pre-Closing Income Tax Liability." Any income Tax refund due in respect of any Pre-Closing Periods or Deemed Pre-Closing Periods shall be paid to the Shareholders' Representative for distribution to the Selling Shareholders in proportion to their Applicable Percentages. Buyer shall, or shall cause the Company to, file an amended return or claim for any such refund as requested by the Shareholders' Representative.
SECTION 4.14 NO SOLICITATION OR NEGOTIATION. Between the date of this Agreement and the earlier of (x) the Closing and (y) the termination of this Agreement, none of the Company or ARA or any of their respective Affiliates, officers, directors, representatives or agents will (a) solicit, initiate, consider, encourage or accept any other proposals or offers from any Person (i) relating to any acquisition or purchase of all or any portion of the capital stock of the Company or ARA or assets of the Company or ARA (other than Inventory to be sold in the ordinary course of business), (ii) to enter into any business combination with the Company or ARA or (iii) to enter into any other extraordinary business transaction involving or otherwise relating to the Company or ARA, or (b) participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any Person any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any other Person to seek to do any of the foregoing. The Company immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the foregoing. The Company shall notify the Buyer promptly if any such proposal or offer, or any inquiry or other contact with any Person with respect thereto, is made or shall have been received after the date hereof, and shall, in any such notice to the Buyer, indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or contact and the terms and conditions of such proposal, offer, inquiry or other contact. The Company agrees not to, and to cause the Company and ARA not to, without the prior written consent of the Buyer, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which the Company or ARA is a party.
SECTION 4.15 NOVATION AGREEMENTS. The Company shall use its commercially reasonable efforts to satisfy all conditions to obtaining novation agreements with
respect to Government Contracts and pass to Buyer any security clearances relating to such Contracts.
SECTION 4.16 FURTHER ACTION. Subject to the terms and conditions herein provided, each of the parties hereto covenants and agrees to use commercially reasonable efforts to deliver or cause to be delivered such documents and other papers and to take or cause to be taken such further actions as may be necessary, proper and advisable under applicable Laws to consummate and make effective the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO THE CLOSING
SECTION 5.1 GENERAL CONDITIONS. The obligations of the parties to effect the Closing shall be subject to the following conditions:
(a) NO ORDERS; LEGAL PROCEEDINGS. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity, at what would otherwise be the Closing Date, which prohibits or restricts or would prohibit or restrict the transactions contemplated by this Agreement or which would reasonably be expected to have a Material Adverse Effect.
(b) HSR ACT. Any waiting period (and any extension thereof) under the Hart-Scott-Rodino Act applicable to the Merger shall have expired or shall have been terminated.
(c) SHAREHOLDERS' MEETING. A special meeting of the shareholders of the Company or written consent in lieu thereof shall have approved the adoption of this Agreement and the consummation of the transactions contemplated hereby.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer and Acquisition to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by Buyer:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations and warranties of the Company herein contained shall be true at and as of the Closing Date with the same effect as though made at and as of such time (except for representations and warranties which speak as of a different date, which shall be true in all material respects as of such date), except where the failure to be so true and correct would not have a Material Adverse Effect. For purposes of this Section 5.2 the representations and warranties of the Company contained in this Agreement shall be deemed to have been made without any qualification as to knowledge or materiality and, accordingly, all references in such representations and warranties to "material," "Material Adverse Effect," "in all material respects," "Material Adverse Change, "knowledge," "best knowledge" and similar terms and phrases (including, without limitation, references to dollar thresholds therein) shall be deemed to be deleted therefrom; provided that the foregoing parenthetical relating to dollar thresholds shall not apply solely for the purpose of determining the truth and correctness of the lists set forth in certain informational representations and warranties that require disclosure of lists of items of a material nature or above a specific
threshold. The Company shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing Date.
(b) FINANCING. The Buyer shall have received the proceeds of financing contemplated by the BT Commitment Letter. Unavailability of such funds for any reason other than a failure of the condition set forth in clause (iv) of the Section entitled "Summary of Certain of the Terms and Conditions of the Additional Senior Bank Financing - Conditions Precedents" of the BT Commitment Letter shall be deemed, solely for the purpose of this Section 5.2(b), to satisfy the condition contained in the first sentence of this Section 5.2(b).
(c) DISSENTING SHARES. Not more than 1,086.95 of the shares of ZMP Common Stock shall be Dissenting Shares, and there shall not be more than 2 holders of Dissenting Shares.
(d) CERTIFICATE. The Company shall have delivered to Buyer a certificate to the effect that the conditions of Section 5.2(a) have been satisfied, dated as of the Closing Date and signed by a senior officer to such effect.
(e) OPINION OF COUNSEL. Buyer shall receive at the Closing from counsel to the Company, a legal opinion dated as of the Closing Date, in form and substance as set forth in Exhibit E-1.
(f) RESIGNATIONS. All directors of the Company and ARA specified in writing by the Buyer within two business days prior to the Closing Date shall have resigned such directorships.
(g) ESCROW AGREEMENT. The Shareholders' Representative and Escrow Agent shall have entered into the Escrow Agreement.
(h) REPAYMENT OF INDEBTEDNESS TO THIRD PARTIES. The TCW Entities and Wells Fargo Bank N.A. shall have terminated and released all security interests, liens, mortgages, claims or other encumbrances of any kind on the assets of the Company securing such indebtedness. Buyer shall have received copies of such payoff letters and other evidences of termination and release as are reasonably satisfactory to Buyer.
(i) ACCOUNTANTS' OPINIONS AND CONSENTS. The Company's Auditors shall have delivered a written undertaking to provide to Buyer, at the Company's Auditors normal client rates with respect to such matters, all opinions and consents (including reports) with respect to the financial statements of the Company and ARA, if any, as are necessary for the completion of Buyer's filings with the Securities and Exchange Commission under the Securities Act and the Exchange Act until such time as such financial statements, opinions and consents are no longer required to be included in such filings by the Securities Act, the Exchange Act or the rules and regulations promulgated thereunder.
(j) CONSENTS. The Company shall have obtained and provided to Buyer all Approvals, Permits, consents and waivers (i) set forth on Section 5.2J of the Disclosure Schedule and (ii) the absences of which would reasonably be expected to have a Material Adverse Effect.
(k) FIRTPA. The Company shall have provided to Buyer a statement, issued pursuant to Treasury Regulations section 1.897-2(h), certifying that ZMP Common Stock is not a real property interest.
(l) NO ACTIONS. No Actions by any governmental authority or other person shall have been instituted or threatened for the purpose of enjoining or preventing, or which question the validity or legality of, the transactions contemplated by the Transaction Documents and which would reasonably be expected to have a Material Adverse Effect on Buyer if the transactions contemplated by the Transaction Documents are consummated.
(m) SECRETARY'S CERTIFICATE. The Company shall have delivered
to Buyer a certificate executed by the Secretary of the Company, dated as of the
Closing Date, certifying and attaching copies of the following documents:
(i)Articles of Incorporation of the Company, (ii) Bylaws of the Company and
(iii) resolutions of its Board of Directors authorizing and approving the
Transaction Documents and the transactions contemplated thereby.
(n) TERMINATION OF CERTAIN ARRANGEMENTS. Any voting trusts, stockholders agreements, proxies or other similar agreements listed on Section 3.2B of the Disclosure Schedule (including, without limitation, the Voting Agreements) shall have been terminated, in each case, to the reasonable satisfaction of Buyer; provided, however, that this condition shall be satisfied even if up to two holders of Dissenting Shares fail to agree to a termination of the Stockholder Agreement.
(o) Approvals. All payments to be made to employees or former employees pursuant to the Success Bonuses shall have been approved in accordance with Code Section 280G(a)(5)(b) so as to be excluded from the definition of "parachute payment" under Code Section 280G.
SECTION 5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to effect the Closing shall be subject to the following conditions, except to the extent waived in writing by the Company:
(a) REPRESENTATIONS AND WARRANTIES AND COVENANTS. The representations and warranties of Buyer and Acquisition herein contained shall be true in all material respects at and as of the Closing Date with the same effect as though made at and as of such time (except for representations and warranties which speak as of a different date, which shall be true in all material respects as of such date). Buyer and Acquisition shall have in all material respects performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by them at or prior to the Closing Date.
(b) CERTIFICATE. Buyer and Acquisition shall have delivered to the Company a certificate of Buyer and Acquisition to the effect that the conditions in Section 5.3(a) have been satisfied, dated as of the Closing Date and signed by a senior officer to such effect.
(c) OPINION OF COUNSEL. The Company shall receive at the Closing from counsel to Buyer and Acquisition, a legal opinion dated as of the Closing Date, in form and substance as set forth in Exhibit E-2.
(d) ESCROW AGREEMENT. The Buyer and the Escrow Agent shall have entered into the Escrow Agreement.
(e) SECRETARY'S CERTIFICATE. Buyer shall have delivered to the Company a certificate executed by the Secretary of Buyer, dated as of the Closing Date, certifying and attaching copies of the following documents: (i) Articles of Incorporation of Buyer, (ii) Bylaws of Buyer and (iii) resolutions of its Board of Directors authorizing and approving the Transaction Documents and the transactions contemplated thereby.
ARTICLE VI
TERMINATION
SECTION 6.1 TERMINATION. This Agreement may be terminated by:
(a) Buyer (who shall pay to the Company $250,000 upon exercise
of the right to terminate contained in this Section 6.1(a)) at the time the
Closing would otherwise have occurred if (i) all of the conditions set forth in
Section 5.1 and Section 5.2 shall have been satisfied other than those
conditions that are contemplated to be satisfied at the Closing and (ii) the
funds committed in the BT Commitment Letter are unavailable.
(b) Mutual consent in writing of the Company, Buyer and Acquisition;
(c) The Company or Buyer at any time after May 15, 1999 (the "Termination Date") if the Closing shall not have occurred by such date; provided, that the right to terminate this Agreement under this Section 6.1(c) shall not be available to any party whose breach of any representation or warranty or failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur by such date.
(d) Buyer by written notice to the Company if any event occurs or condition exists (and cannot be cured on or prior to the Termination Date by the parties' reasonable best efforts) which would render impossible the satisfaction of one or more conditions to the obligations of Buyer to consummate the transactions contemplated by this Agreement as set forth in Section 5.1 or 5.2.
(e) The Company by written notice to Buyer if any event occurs
or condition exists (and cannot be cured on or prior to the Termination Date by
the parties' reasonable best efforts) which would render impossible the
satisfaction of one or more conditions to the obligation of the Company to
consummate the transactions contemplated by this Agreement as set forth in
Section 5.1 or 5.3.
SECTION 6.2 EFFECTS OF TERMINATION. In the event of the termination of this Agreement pursuant to Section 6.1, this Agreement shall thereafter become void and have no future effect, and no party hereto shall have any liability to the other parties hereto or their respective stockholders or directors or officers in respect thereof; provided that the obligations of the parties contained in Sections 9.8 and 9.12 shall survive any such termination; and provided further that notwithstanding anything to the contrary contained herein, a termination under Section 6.1 shall not relieve any party of any liability for a willful breach of or for any willful
misrepresentation under this Agreement or be deemed to constitute a waiver of any available remedy (including specific performance if available) for any such breach or misrepresentation.
ARTICLE VII
INDEMNITY
SECTION 7.1 INDEMNIFICATION OF BUYER. From and after the
Closing, Buyer, Surviving Corporation and their respective directors, officers,
employees, Affiliates, agents, advisors, representatives and assigns ("Buyer
Indemnitees") shall be indemnified and held harmless by the holders of ZMP
Common Stock on the date hereof out of funds in the Escrow Account and/or the
Glendale Escrow Account, as the case may be, available therefor, from and
against any and all Losses of any such Person, directly or indirectly, as a
result of, or based upon or arising from (1) any untruth or inaccuracy of any of
the representations or warranties (except to the extent related to Taxes) made
by the Company in Section 3.2 of this Agreement or any of the agreements or
covenants (except to the extent related to Taxes) made by the Company in Article
IV of this Agreement, (2) without duplication, (x) any breach of the covenant to
pay any Declared Pre-Closing Income Tax Liability, (y) all Taxes of the Company
or ARA relating to Pre-Closing Periods and (z) any Straddle Period Liability
(collectively "Tax Losses"), (3) any amounts described in Sections 2.8(a)(iii)
and (iv) hereof which are not paid on the Closing Date from the Purchase Price,
(4) Section 1300 Payments and payments required under Section 2.11 in connection
with or as a result of the existence of Dissenting Shares at the Closing if and
to the extent such Losses or payments exceed the Dissenting Share Amount and (5)
any claims or allegations of third parties against any Indemnified Party of any
violation or non-compliance with or pursuant to any Environmental Law at the
Glendale Facility. Indemnification under Section 7.1(1), (2), (3) and (4) shall
be available solely from the Escrow Account as provided herein. Indemnification
under Section 7.1(5) shall be available solely from the Glendale Escrow Account
and the Escrow Account as provided herein.
SECTION 7.2 INDEMNIFICATION BY BUYER. From and after the Closing, Buyer agrees to indemnify and hold harmless each of the Selling Shareholders and the directors, officers, employees, Affiliates, agents, advisors, representatives and assigns of each of the Selling Shareholders ("Seller Indemnitees") from and against any and all Losses of any of any such Person, directly or indirectly, as a result of, or based upon or arising from any material breach or nonperformance of any of the representations, warranties, covenants or agreements made by Buyer or Acquisition in or pursuant to this Agreement.
SECTION 7.3 PROCEDURE.
(a) Any party seeking indemnification with respect to any Loss or potential Loss arising from a claim (an "Indemnifiable Claim") asserted by a third party (including a notice of Tax audit or request to waive or extend a statute of limitations applicable to any Tax) shall give written notice to the party required to provide indemnity hereunder (the "Indemnifying Party"). Written notice to the Indemnifying Party of the existence of a third-party Indemnifiable Claim shall be given by the Indemnified Party within 30 days after its receipt of a written assertion of liability from the third party, including in the case of tax matters, written notice of any tax audit that might result in such a claim. The failure of any Indemnified Party to give
timely notice hereunder shall not affect rights to indemnification hereunder, except and only to the extent that the Indemnifying Party demonstrates actual damage caused by such failure.
(b) If any claim, demand or liability is asserted by any third party against any Person entitled to indemnification hereunder (the "Indemnified Party"), the Indemnifying Party shall defend any actions or proceedings brought against the Indemnified Party in respect of matters embraced by the indemnity. If, after 10 business days following a written request by the Indemnified Party to defend any action or proceeding, the Indemnifying Party neglects to defend the Indemnified Party, the Indemnified Party may defend, compromise or settle the claim on behalf of and for the account and risk of the Indemnifying Party, who shall be bound by the result. In all cases, the party without the right to control the defense of the Indemnifiable Claim may participate in the defense at its own expense.
(c) Notwithstanding anything in this Section 7.3 to the contrary except as set forth in Section 7.3(b), neither the Indemnifying Party nor the Indemnified Party shall, without the written consent of the other Party, settle or compromise any Indemnifiable Claim or permit a default or consent to entry of any judgment unless the claimant and such party provide to such other Party an unqualified release from all liability in respect of the Indemnifiable Claim. Notwithstanding the foregoing, if a settlement offer solely for money damages is made by the applicable third party claimant, and the Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying Party's willingness to accept the settlement offer and, subject to the limitations of Sections 7.5 and 7.6, pay the amount called for by such offer, and the Indemnified Party declines to accept such offer, the Indemnified Party may continue to contest such Indemnifiable Claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such Indemnifiable Claim that the Indemnifying Party has an obligation to pay hereunder shall be limited to the lesser of (A) the amount of the settlement offer that the Indemnified Party declined to accept plus the Losses of the Indemnified Party relating to such Indemnifiable Claim through the date of its rejection of the settlement offer or (B) the aggregate Losses of the Indemnified Party with respect to such Indemnifiable Claim. If the Indemnifying Party makes any payment on any Indemnifiable Claim, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Party to any insurance benefits or other claims of the Indemnified Party with respect to such Indemnifiable Claim.
SECTION 7.4 SURVIVAL.
(a) Each of the representations, warranties, covenants and agreements contained in or made pursuant to this Agreement or any other Transaction Document shall expire on the first anniversary of the Closing, except that the representations contained in Section 3.2(q) and the covenants and agreements contained in clauses (2), (3), (4) and (5) of Section 7.1 shall survive the Closing and shall terminate on the third anniversary of the Closing (the period from the date hereof until the date of the termination of the related representation, warranty, covenant or agreement is referred to herein as the "Survival Period"). Except with respect to any matter as to which a claim has been asserted by notice to the other party that is pending or unresolved at the end of the pertinent Survival Period, the parties intend to shorten the statute of limitations and agree that no claims or causes of action may be brought against any of the Selling Shareholders, the Company, Acquisition or Buyer based upon, directly or indirectly, any of the
representations, warranties, covenants or agreements (including covenants and agreements to indemnify) contained in or made pursuant to this Agreement or any other Transaction Document after the expiration of the pertinent Survival Period or any termination of this Agreement.
(b) The indemnifications provided for hereunder shall take effect upon Closing and shall remain in effect during the relevant Survival Period. Any matter as to which a claim has been asserted by notice to the other party that is pending or unresolved at the end of the pertinent Survival Period shall continue to be covered by this Article VII notwithstanding the expiration of the Survival Period with respect to such claim or the expiration of any applicable statute of limitations (which the parties hereby waive) until such matter is finally terminated or otherwise formally resolved by the parties under this Agreement or by a court of competent jurisdiction and any amounts payable hereunder are finally determined and paid. Any written notice delivered by a party with respect to a claim for indemnification shall set forth with specificity the basis of the claim and a reasonable estimate of the amount thereof.
SECTION 7.5 LIMITATIONS ON INDEMNIFICATION OF BUYER. In addition to the other limitations set forth herein, including the limitations set forth in Sections 7.1 and 7.4, Buyer's right to indemnification pursuant to this Article VII is subject to the following limitations:
(a) No indemnification shall be made unless the aggregate amount of Losses sustained by Buyer Indemnitees under Sections 7.1(1) and (5) (such amount, "Buyer Losses") exceeds $250,000 and, in such event, indemnification shall be made only to the extent Buyer Losses exceed $250,000 (it being understood that any Buyer Losses sustained prior to the expiration of a Survival Period shall continue to be counted for purposes of this Section 7.5(a) in determining whether Buyer is entitled to indemnification). The limitation under the first sentence of this Section 7.5(a) shall not apply to Buyer's right to indemnification pursuant to Section 7.1(2), (3) and (4) (it being understood that in all such cases, Buyer shall be entitled to seek indemnity immediately) and any Losses for which the Buyer is indemnified under such sections shall not count towards determining whether Buyer Losses exceed $250,000.
(b) Notwithstanding anything to the contrary herein, the parties hereto agree that any amounts payable under or pursuant to this Article VII (other than pursuant to Section 7.1(5)) to any Buyer Indemnitee or in respect of any Buyer Losses (including any settlement of any Indemnifiable Claims in accordance with Section 7.3(c)) will be paid solely out of the Escrow Account, in accordance with this Agreement and the Escrow Agreement, and none of the Selling Shareholders will have any obligation to make (or otherwise with respect to) any such payments other than from the Escrow Account. In addition, notwithstanding anything to the contrary herein, the parties hereto agree that any amounts payable or pursuant to Section 7.1(5) to any Buyer Indemnitee or in respect of Buyer Losses (including any settlement of any Indemnifiable Claims in accordance with Section 7.3(c)) will be solely out of the Escrow Account and the Glendale Escrow Account in accordance with this Agreement and the Escrow Agreement, and none of the Selling Shareholders will have any obligation to make or otherwise with respect to any such payments other than from the Escrow Account and the Glendale Escrow Account.
(c) The amount of any Buyer Losses shall be reduced by any amount received by Buyer Indemnitees with respect thereto under any insurance coverage or for any other party alleged to be responsible therefor. Buyer Indemnitees shall use commercially reasonable efforts to collect any amounts available under such insurance coverage and from such other party alleged to have responsibility. If a Buyer Indemnitee receives an amount under insurance coverage or from such other party with respect to Buyer Losses at any time subsequent to any indemnification pursuant to this Section 7.5, then such Buyer Indemnitee shall promptly reimburse the Escrow Account for any payment made, including expenses incurred, from the Escrow Account in connection with providing such indemnification up to such amount received by the Buyer Indemnitee.
SECTION 7.6 LIMITATIONS ON INDEMNIFICATION BY BUYER. In addition to the other limitations set forth herein, including the limitations set forth in Sections 7.2 and 7.4, Buyer's obligation to indemnify pursuant to this Article VII is subject to the following limitations:
(a) No indemnification shall be made by Buyer unless the aggregate amount of Losses claimed by Seller Indemnitees under Section 7.2 (such amount, "Seller Losses") exceeds $250,000 and, in such event, indemnification shall be made by the Buyer only to the extent Seller Losses exceed $250,000.
(b) The amount of any Seller Losses shall be reduced by any amount received by Seller Indemnitees with respect thereto under any insurance coverage or for any other party alleged to be responsible therefor. Seller Indemnitees shall use best efforts to collect any amounts available under such insurance coverage and from such other party alleged to have responsibility. If a Seller Indemnitee receives an amount under insurance coverage or from such other party with respect to Seller Losses at any time subsequent to any indemnification provided by Buyer pursuant to this Section 7.6, then such Seller Indemnitee shall promptly reimburse Buyer for any payment made or expense incurred by Buyer in connection with providing such indemnification up to such amount received by the Seller Indemnitee.
SECTION 7.7 NO SPECULATIVE DAMAGES. Notwithstanding anything to the contrary elsewhere in this Agreement, no party (or any of its Affiliates) shall, in any event, be liable to the other party (or any of its Affiliates) for any speculative damages or remote consequential damages of such other party (or any of its Affiliates), including loss of speculative future revenue or income, or loss of business reputation or opportunity relating to the breach or alleged breach hereof.
SECTION 7.8 EXCLUSIVE REMEDY. The remedies provided for in this Article VII, as limited by the provisions of this Article VII, shall constitute the sole and exclusive remedy for any post-Closing claims made for breach of this Agreement or otherwise in connection with the transactions contemplated hereby; provided that nothing herein shall extinguish or limit any claim based on fraud.
SECTION 7.9 ADJUSTMENT TO MERGER CONSIDERATION. Any payment pursuant to this Article VII shall be treated for Tax purposes as an adjustment to the Merger Consideration.
SECTION 7.10 TAX ADJUSTMENTS. Any amounts payable by the Indemnifying Party to or on behalf of an Indemnified Party in respect of a Loss shall be adjusted as follows. The Indemnified Party shall reimburse the Indemnifying Party an amount equal to the present value amount of the net reduction in any year in the liability for Taxes of the Indemnified Party or any member of a consolidated or combined tax group of which the Indemnified Party is, or was at any time, part, which reduction will be realized (either through the reduction of a Tax liability or the increase of a Tax loss or credit) with respect to any period after the Closing Date and which reduction would not have been realized but for the amounts paid (or any audit adjustment or deficiency with respect thereto, if applicable) in respect of a Loss for which the Indemnified Party is indemnified by the Indemnifying Party pursuant to this Agreement, or amounts paid by the Indemnified Party pursuant to this paragraph (a "Net Tax Benefit"). The present value amount of the Net Tax Benefit shall be determined by: (i) using a discount rate equal to the mid-term applicable federal rate (under Section 1274(d) of the Code) in effect on the date by which the payment subject to the Net Tax Benefit adjustment is due, (ii) discounting back to the date by which the payment subject to the Net Tax Benefit adjustment is due and (iii) using reasonable assumptions regarding the date (or dates) on which such Net Tax Benefit will be realized, which assumptions must be verified by an independent certified public accountant chosen by the Indemnifying Party if requested by the Indemnifying Party. Each party agrees to provide the other party or their designated representatives with assistance and such documents and records reasonably requested by them that are relevant to their ability to determine when a Net Tax Benefit will be realized, including but not limited to copies of Tax Returns, estimated tax payments, schedules, and related supporting documents. In the event the parties are unable to agree on the amount, the parties shall engage the Tax Arbitrator to resolve the matter, whose decision shall be final and binding upon the parties and not subject to review or challenge of any kind.
ARTICLE VIII
ESCROW
SECTION 8.1 ASSERTION OF INDEMNIFIABLE CLAIMS. From time to time during the pertinent Survival Period, Buyer (on its own behalf or on behalf of the Company) or its successors or assigns may assert a claim that it or a Buyer Indemnitee is entitled to indemnification pursuant to Section 7.1 (any such claim for indemnification under Section 7.1(1), (2), (3) or (4), a "Claim" and any such claim for indemnification under Section 7.1(5), a "Glendale Claim") and demand satisfaction thereof out of the Escrow Account and/or the Glendale Escrow Account by sending a written notice to the Shareholders' Representative. If the Shareholders' Representative shall receive such notice from Buyer before any termination of the pertinent Survival Period, the notice shall be deemed to represent a pending Claim (or Claims) or Glendale Claim (or Claims), as the case may be. Any such notice of a Claim or a Glendale Claim shall be effective only if the Shareholders' Representative receives a certificate from an executive officer of Buyer to the effect that the Buyer Indemnitees are entitled to indemnification therefor pursuant to Article VII, along with a reasonable description of the Claim or Glendale Claim, the relevant representations, warranties, covenants or agreements for the breach of which indemnification is being sought, the dollar amount thereof, copies of any documentation related thereto and any other information reasonably requested by Shareholders' Representative to support such Claim or Glendale Claim.
SECTION 8.2 RESOLUTION OF CLAIMS; PAYMENTS. (a) Upon the final resolution of any Claim and a final determination that any amount is owing in respect thereof to Buyer, or, in the case of any Claim in respect of any Tax Losses relating to any Straddle Period Liability or any payment of any Declared Pre-Closing Income Tax Liability, immediately prior to the due date (including extensions) for filing the relevant Tax Return, Buyer and the Shareholders' Representative shall jointly instruct Escrow Agent, in writing, to make the pertinent payment to Buyer or the relevant taxing authority. Upon the final resolution of all claims relating to Dissenting Shares, Buyer and the Shareholders' Representative shall jointly instruct the Escrow Agent, in writing, to pay the excess of $200,000 over the amount payable to Buyer or the Surviving Corporation in respect of such claims, if any, to the Selling Shareholders in proportion to their respective Applicable Percentages. Upon the final resolution of (x) between the first and the third anniversaries of the Closing, any Claim other than a Claim relating to a purported untruth or inaccuracy of the representation contained in Section 3.2(q) or to indemnification under clauses (2), (3), (4) or (5) of Section 7.1 and (y) thereafter, any claim, Buyer and the Shareholders' Representative shall jointly instruct the Escrow Agent, in writing, to pay the excess of the amount reserved in respect of such Claim over the amount payable to Buyer in respect thereof, if any, to the Selling Shareholders in proportion to their respective Applicable Percentages; provided if the aggregate amount in the Escrow Account would be less than the sum of (1) $1,500,000 and (2) an amount by which $200,000 exceeds any payments made (A) to Buyer Indemnitees in respect of indemnification under clause (4) of Section 7.1 plus (B) any payments made to the Shareholders' Representative under the second sentence of this Section 8.2 after any such payment is proposed to be made such payment shall be reduced to the extent necessary to avoid such result.
(b) Upon the final resolution of any Glendale Claim, Buyer and Shareholders' Representative shall jointly instruct Escrow Agent, in writing, to make the pertinent payment to Buyer from the Glendale Escrow Account and/or the Escrow Account, as applicable.
SECTION 8.3 PERIODIC PAYMENTS FROM THE ESCROW ACCOUNTS.
(a) Buyer and the Shareholders' Representative shall, ten days
following the first anniversary of the Closing, jointly instruct Escrow Agent,
in writing, to pay to the Selling Shareholders in proportion to their respective
Applicable Percentages an amount, if any, equal to $1,500,000 minus the sum of
(w) the amount of all pending Claims, (x) the amount of all prior payments out
of the Escrow Account in respect of Claims other than any such pending Claims or
payments in respect of Claims relating to Dissenting Shares, (y) the amount of
all payments made to Buyer pursuant to Sections 2.10 and 2.12 and (z) to the
extent that Buyer has delivered a statement pursuant to Section 2.12 requesting
payment in accordance therewith, the amount of such payment so requested.
(b) If on or at any time after the third anniversary of the Closing the amount on deposit in the Escrow Account exceeds the amount of all then pending Claims, Buyer and the Shareholders' Representative shall jointly instruct the Escrow Agent, in writing, to pay to the Selling Shareholders in proportion to their respective Applicable Percentages, the amount of such excess.
(c) If on or at anytime after the date that is 18 months after the Closing, the amount on deposit in the Glendale Escrow Account exceeds the amount of all then pending Glendale Claims to be paid from the Glendale Escrow Account, Buyer and Shareholders' Representative shall jointly instruct the Escrow Agent, in writing, to pay to the Selling Shareholders in proportion to their Applicable Percentages, the amount of such excess.
(d) No less frequently than quarterly, Buyer and the Shareholders' Representative shall jointly instruct the Escrow Agent, in writing, to pay to the Selling Shareholders in proportion to their respective Applicable Percentages, 50% of the earnings on amounts on deposit in the Escrow Account, provided that prior to any such payments all expenses due and owing to the Escrow Agent shall be paid in full.
(e) If the Shareholders' Representative so requests, any instruction to the Escrow Agent to pay any amount to the Selling Shareholders may state that a portion thereof should instead be paid to the Shareholders' Representative to defray the Shareholders' Representative's past or future out-of-pocket expenses in carrying out its responsibilities hereunder.
(f) Whenever the Shareholders Representative and/or the Selling Shareholders shall be entitled to receive a distribution from the Escrow Account or the Glendale Escrow Account (other than a distribution of current earnings) the Escrow Agent shall first pay out of such distribution the amount of the incremental Success Bonuses due to the persons entitled to receive Success Bonuses as a result of any such proposed distribution and no amount shall be paid to any Selling Shareholder unless and until all such incremental Success Bonuses are so paid.
SECTION 8.4 TERMINATION OF THE ESCROW ACCOUNT. When all pending Claims have been finally resolved and paid as set forth in Section 8.2, the escrow with respect to the Escrow Account shall terminate; provided, however, that if at any time prior thereto the amount on deposit in the Escrow Account shall equal zero, then the escrow shall terminate at such earlier time.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of all parties.
SECTION 9.2 SCHEDULES; EXHIBITS; INTEGRATION.
(a) Each schedule and exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement, although schedules need not be attached to each copy of this Agreement. This Agreement, together with such schedules and exhibits, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith.
(b) Any fact or item which is clearly disclosed on any schedule or exhibit delivered pursuant to this Agreement or in the financial statements delivered pursuant to this Agreement in such a way as to make its relevance or applicability to a representation or representations made elsewhere in this Agreement or to the information called for by another schedule or other schedules (or exhibit or other exhibits) to this Agreement reasonably apparent shall be deemed to be an exception to such representation or representations or to be disclosed on such other schedule or schedules (or exhibit or exhibits), as the case may be, notwithstanding the omission of a reference or cross-reference thereto.
SECTION 9.3 FURTHER ASSURANCES. The parties hereto each agree to execute, make, acknowledge, and deliver such instruments, agreements and other documents as may be reasonably required to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby.
SECTION 9.4 GOVERNING LAW. This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of California applicable to contracts made and performed in such State and without regard to conflicts of law doctrines, except to the extent that certain matters are preempted by federal law. Each party hereby irrevocably submits to and accepts for itself and its properties, generally and unconditionally, the exclusive jurisdiction of and service of process pursuant to the Laws of the State of California and the rules of its courts, waives any defense of forum non conveniens and agrees to be bound by any judgment rendered thereby arising under or out of in respect of or in connection with this Agreement or any related document or obligation. Each party further irrevocably designates and appoints the individual identified in or pursuant to Section 9.11 hereof to receive notices on its behalf, as its agent to receive on its behalf service of all process in any such Action before any body, such service being hereby acknowledged to be effective and binding service in every respect. A copy of any such process so served shall be mailed by registered mail to each party at its address provided in Section 9.11; provided that, unless otherwise provided by applicable Law, any failure to mail such copy shall not affect the validity of the service of such process. If any agent so appointed refuses to accept service, the designating party hereby agrees that service of process sufficient for personal jurisdiction in any action against it in the applicable jurisdiction may be made by registered or certified mail, return receipt requested, to its address provided in Section 9.11. Each party hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by Law or shall limit the right of any party to bring any action or proceeding against the other party in any other jurisdiction.
SECTION 9.5 NO ASSIGNMENT. Neither this Agreement nor any rights or obligations under it are assignable.
SECTION 9.6 HEADINGS. The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement.
SECTION 9.7 COUNTERPARTS. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.
SECTION 9.8 CONFIDENTIALITY. All information disclosed by any
party (or its representatives) whether before or after the date hereof, in
connection with the transactions contemplated by, or the discussions and
negotiations preceding, this Agreement to any other party (or its
representatives) shall be kept confidential by such other party and its
representatives and shall not be used by any Persons other than as contemplated
by this Agreement, except to the extent that such information (i) was known by
the recipient when received, (ii) is or hereafter becomes lawfully obtainable
from other sources, (iii) is necessary or appropriate to disclose to a
Governmental Entity having jurisdiction over the parties, (iv) as may otherwise
be required by Law or (v) to the extent such duty as to confidentiality is
waived in writing by the other party. The obligations in this Section 9.8 shall
survive until the fifth anniversary of the date hereof. If this Agreement is
terminated, each party shall use all reasonable efforts to return upon written
request from the other party all documents (and reproductions thereof) received
by it or its representatives from such other party (and, in the case of
reproductions, all such reproductions made by the receiving party) that include
information not within the exceptions contained in the first sentence of this
Section 9.8, unless the recipients provide assurances reasonably satisfactory to
the requesting party that such documents have been destroyed.
SECTION 9.9 PARTIES IN INTEREST. This Agreement shall be binding upon and inure to the benefit of each party, and, except as stated in the next sentence, nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Notwithstanding anything to the contrary herein or in any other Transaction Document, each of the Selling Shareholders are intended to be, and are hereby expressly made, third party beneficiaries of Articles VII and VIII and the Escrow Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to (or to confer any right of subrogation or action over against) any party to this Agreement.
SECTION 9.10 PERFORMANCE BY SUBSIDIARIES. Each party agrees to cause its Subsidiaries to comply with any obligations hereunder relating to such Subsidiaries and to cause its Subsidiaries to take any other action which may be necessary or reasonably requested by the other party in order to consummate the transactions contemplated by this Agreement.
SECTION 9.11 NOTICES. Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt requested or (d) overnight delivery service, as follows:
IF TO BUYER, ADDRESSED TO:
TransDigm Inc.
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
WITH A COPY TO:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Richard M. Trobman, Esq.
Telecopy: (212) 751-4864
IF TO THE COMPANY OR THE SHAREHOLDERS' REPRESENTATIVE, ADDRESSED TO SUCH
PERSON:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Telecopy: (212) 771-4024
WITH A COPY TO:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, New York 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.11 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually received at such address.
SECTION 9.12 EXPENSES. Buyer will pay all of its own expenses incident to the negotiation, preparation and performance of this Agreement and the transactions contemplated hereby, including the fees, expenses and disbursements of its investment bankers, accountants and counsel.
SECTION 9.13 REMEDIES; WAIVER. Except to the extent this
Section 9.13 is inconsistent with any other provision in this Agreement
(including without limitation Section 7.8) or applicable Law, all rights and
remedies existing under this Agreement and any related agreements or documents
are cumulative to and not exclusive of, any rights or remedies otherwise
available. No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof, nor shall any
single or partial exercise preclude any further or other exercise of such or any
other right.
SECTION 9.14 ATTORNEY'S FEES. In the event of any Action by any party arising under or out of, in connection with or in respect of, this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and expenses incurred in such Action, unless a court determines that such fees, costs and expenses should be allocated in a different manner.
SECTION 9.15 KNOWLEDGE CONVENTION. Whenever used in this Agreement or in any schedule, exhibit, certificate or other documents delivered to any party pursuant to this Agreement or any other Transaction Document, "to the knowledge of the Company", "to the best knowledge of the Company" and words or phrases of similar import shall mean the actual knowledge of the employees listed on Schedule 9.15 hereto, after due inquiry, which shall be satisfied by any such employee's consultation with senior management, and (ii) "to the knowledge of the Buyer", "to the best knowledge of the Buyer" and words or phrases of similar import shall mean the actual knowledge of the executive officers of the Buyer, after due inquiry, which shall be satisfied by consultation with senior management.
SECTION 9.16 REPRESENTATION BY COUNSEL; INTERPRETATION. The Company, Acquisition and Buyer each acknowledge that each party to this Agreement or any other Transaction Document has been represented by counsel in connection with this Agreement or such other Transaction Document and the transactions contemplated hereby or thereby. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement or such other Transaction Document against the party that drafted it has no application and is expressly waived. The provisions of this Agreement and the other Transaction Documents shall be interpreted in a reasonable manner to effect the intent of the parties hereto. Whenever the words "include", "includes" or "including" are used in this Agreement or any other Transaction Document, they shall be deemed to be followed by the words "without limitation."
SECTION 9.17 WAIVER OF JURY TRIAL. Each party waives any right to a trial by jury in any Action to enforce or defend any right under this Agreement or any other related document and agrees that any Action shall be tried before a court and not before a jury.
SECTION 9.18 SEVERABILITY. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement to the extent permitted by Law shall remain in full force and effect, unless doing so would result in an interpretation of this Agreement which is manifestly unjust.
SECTION 9.19 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. At the Effective Time and without any action on the part of any Person, TCW Special Placements Fund II, a California limited partnership, will be appointed as the representative (the "Shareholders'
Representative") of the holders of the ZMP Shares immediately prior to the Effective Time (and any holder of Dissenting Shares at such time which can later be treated as ZMP shares as of such time) for the purposes of carrying out the functions required of the Shareholders' Representative set forth in this Agreement and the Escrow Agreement. Any action or decision taken by the Shareholders' Representative shall be binding and conclusive on such holders of the ZMP Shares, and may be relied upon by Buyer. By accepting the Merger Consideration, each Selling Shareholder will agree to indemnify and hold harmless the Shareholders' Representative for any act or failure to act of Shareholders' Representative taken on behalf of such Person, except for the Shareholders' Representative's gross negligence or willful misconduct. In the event that the Shareholders' Representative becomes no longer able to carry out its functions, a replacement Shareholders' Representative will be appointed if prior to the Effective Time, by the Board of Directors of the Company, and, if at or after the Effective Time, by majority vote of the Selling Shareholders based upon the number of the ZMP Shares held immediately prior to the Effective Time by each such Person. From time to time the Shareholders' Representative shall be entitled to withhold from any amounts payable to the Selling Shareholders such amounts (or estimated amounts) as it deems appropriate to cover any expenses incurred by or on behalf of any of the Company, the Selling Shareholders and the Shareholders' Representative related to this Agreement, the Escrow Agreement or any other Transaction Document.
SECTION 9.20 ENTIRE AGREEMENT. This Agreement, the Voting Agreement and the Escrow Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement, which shall survive the execution and delivery of this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written:
TRANSDIGM INC.
By: /s/ Douglas Peacock
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Name: Douglas Peacock
----------------------------------
Title: Chief Executive Officer
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ARA ACQUISITION CORPORATION
By: /s/ Douglas Peacock
----------------------------------
Name: Douglas Peacock
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Title: Chief Executive Officer
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ZMP, INC.,
a California corporation
By: /s/ Charles A. Collins
----------------------------------
Name: Charles A. Collins
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Title: President
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TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership, solely in its capacity as
Shareholders' Representative
By: TCW CAPITAL
By: TCW ASSET MANAGEMENT COMPANY,
its Managing General Partner
By: /s/ Raymond F. Henze III
----------------------------------
Name: Raymond F. Henze III
----------------------------------
Title: Group Managing Director
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By: /s/ Bryant C. Binder
----------------------------------
Name: Bryant C. Binder
----------------------------------
Title: Vice President
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EXHIBIT A
[FORM OF AGREEMENT OF MERGER]
AGREEMENT OF MERGER
AGREEMENT OF MERGER entered into on ________________, 1999, by and among ZMP, Inc., a California corporation (the "COMPANY"), TransDigm Inc., a Delaware corporation ("PARENT"), and ARA Acquisition Corporation, a California corporation and a wholly-owned subsidiary of Parent ("Acquisition Subsidiary").
1. Acquisition Subsidiary, which is a corporation incorporated under the General Corporation Law of the State of California, and which is sometimes hereinafter referred to as the "DISAPPEARING CORPORATION," shall be merged with and into the Company, which is a corporation incorporated under the General Corporation Law of the State of California, and which is sometimes hereinafter referred to as the "SURVIVING CORPORATION."
2. The separate existence of the disappearing corporation shall cease upon the effective date of the merger.
3. The surviving corporation shall continue its existence pursuant to the provisions of the General Corporation Law of the State of California.
4. Upon consummation of the merger, the Articles of Incorporation of the surviving corporation shall be amended in their entirety to read as set forth in Exhibit 1 attached hereto.
5. Each outstanding share of the common stock of the disappearing corporation shall, upon the effective date of the merger, be converted into one share of the common stock of the surviving corporation.
6. Each share of the capital stock of the Company issued and outstanding immediately prior to the effectiveness of the merger (which consists of 105,435 shares of common stock) shall, upon the effective date of the merger, be converted into the right to receive $_______ in cash (the "MERGER CONSIDERATION"). The Merger Consideration is subject to adjustment for payments of indebtedness for borrowed money, accrued interest thereon, the amount of success bonuses to be paid to the Company's management, certain transaction costs and indemnification claims, and for changes in net working capital and the failure of the Surviving Corporation to enter into a certain contractual arrangement, as provided in or pursuant to the Agreement and Plan of Reorganization (the "PLAN OF REORGANIZATION") dated as of [___________], 1999 among Parent, Acquisition Subsidiary, the Company and TCW Special Placements Fund II, a California limited partnership solely in its capacity as Shareholders' Representative, and, pursuant to the Plan of Reorganization, a portion of the Merger Consideration will be held in escrow accounts which will satisfy adjustments based solely on changes in net working capital, the failure of the surviving corporation to enter into a certain contractual arrangement and indemnification claims. A copy of the Plan of Reorganization shall be maintained at the principal executive offices of the surviving corporation and shall be
provided without charge to any shareholder of Parent, the disappearing corporation or the surviving corporation upon written request therefor.
7. The merger shall have the effects set forth in Section 1107 of the General Corporation Law of the State of California.
8. The disappearing corporation and the surviving corporation hereby agree that they will cause to be executed and filed and/or recorded any document or documents prescribed by the laws of the State of California, and that they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, Parent, Acquisition Subsidiary and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.
"Parent"
TransDigm Inc., a Delaware corporation
"Acquisition Subsidiary"
ARA Acquisition Corporation, a California corporation
"Company"
ZMP, Inc., a California corporation
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
(b) The Corporation has authorized one class of stock, designated Common Stock.
(c) The number of outstanding shares of Common Stock of the Corporation entitled to vote on the Record Date, ______________, 1999, for the Special Meeting or for the written consent of the Shareholders of the Corporation was 105,435 shares.
(d) The principal terms of the agreement relating to the merger of ___________________, a California corporation, with and into the Corporation (the "MERGER") in the form attached were approved by the Corporation's Board of Directors and by the vote of a number of shares of Common Stock which equaled or exceeded the vote required.
(e) The percentage vote required of the holders of Common Stock entitled to vote in connection with the Merger is more than 50%.
declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: ,1999
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[City], California
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|
declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: ,1999
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[City], California
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|
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
1. They are the President and the Secretary, respectively, of ARA Acquisition Corporation, a corporation organized under the laws of the State of California (the "CORPORATION").
2. The Corporation has authorized one class of stock, designated Common Stock, of which _____________ were entitled to vote.
3. The principal terms of the agreement relating to the merger of the Corporation with and into ZMP, Inc., a California corporation, (the "MERGER") in the form attached were approved by the Corporation's Board of Directors and by the vote of a number of shares of each class which equaled or exceeded the vote required.
4. The percentage vote required of the Common Stock entitled to vote in connection with the Merger is more than 50%.
declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: ,1999
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[City], California
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|
declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: ,1999
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[City], California
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EXHIBIT 1
ARTICLES OF INCORPORATION
OF
ZMP, INC.
EXHIBIT B
[FORM OF ESCROW AGREEMENT]
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of ____________, 1999 by and among TransDigm Inc., a Delaware corporation ("BUYER"), the Shareholders' Representative, chosen as the representative for the Selling Shareholders in accordance with the terms of the Plan of Reorganization (defined below), and Wells Fargo Bank, N.A. ("ESCROW AGENT").
R E C I T A L S:
WHEREAS, the Boards of Directors of Buyer, ARA Acquisition Corporation, a California corporation ("ACQUISITION"), and ZMP, Inc., a California corporation (the "COMPANY"), have deemed it advisable and in the best interests of their respective stockholders to combine the businesses of Acquisition and Company;
WHEREAS, Buyer, Acquisition, the Company and the Shareholders' Representative have therefore entered into that certain Agreement and Plan of Reorganization dated March __, 1999 (the "PLAN OF REORGANIZATION"; capitalized terms used herein without definition shall have the meanings given such terms in the Plan of Reorganization), which provides the terms and conditions for the combination of the businesses of Acquisition and Company; and
WHEREAS, the Plan of Reorganization provides for (i)
post-closing adjustments to the Purchase Price under certain circumstances and
(ii) Selling Shareholders to indemnify Buyer under certain circumstances; and
WHEREAS, the parties desire to arrange for such escrow and appoint Escrow Agent as escrow agent in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the closing of the transactions contemplated by the Plan of Reorganization and the agreements herein the parties agree as follows:
SECTION 1. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby appointed to act as escrow agent in accordance with the terms hereof, and Escrow Agent hereby accepts such appointment. Escrow Agent shall have all the rights, powers, duties and obligations provided herein.
SECTION 2. DEPOSIT OF ESCROW ASSETS. A total of $__________ by wire transfer in immediately available funds (the "ESCROW FUNDS") is hereby delivered and deposited with the Escrow Agent, the receipt of which is hereby acknowledged by the Escrow Agent. The Escrow Agent shall hold $__________ of such funds in one account (the "Escrow Account") and
$__________ of such funds in a separate account (the "Glendale Escrow Account") in accordance with the terms of this Escrow Agreement.
SECTION 3. INVESTMENT. Unless jointly instructed otherwise in writing by Buyer and Shareholders' Representative, Escrow Agent shall invest the Escrow Funds subject to the following limitations:
(a) DEBT INVESTMENTS. Escrow Agent shall invest the Escrow Funds pursuant to joint written instructions from Buyer and the Shareholders' Representative. If no such joint instruction is received, Escrow Agent shall invest the Escrow Funds in debt instruments having maturities of not more than 180 days and that satisfy one of the following requirements: (i) certificates of deposit of banks, savings and loan associations or trust companies (including the Escrow Agent) organized under the laws of the United States of America, or any state thereof, which have capital and surplus of at least $250,000,000, (ii) direct obligations of the United States of America or its agencies or instrumentalities as to which principal and interest constitute full faith and credit obligations of the United States of America, (iii) commercial paper or other debt instruments rated not less than prime 1 or A-1 or their equivalent by Moody's Investor's Service or Standard & Poor's Ratings Services or their successors, (iv) "money market" mutual funds (including mutual funds to which Escrow Agent or its Affiliates provide investment advisory, custodial, shareholder or other services) required by their most recent prospectus to invest at least 80% of their assets in the foregoing, or (v) pooled or commingled investment vehicles administered by a bank meeting the foregoing size requirement that is limited to investments as described above.
(b) INCOME. All income on the Escrow Account and the Glendale
Escrow Account actually earned and not distributed pursuant to
Section 7 hereof shall be reported as income of the Selling
Shareholders for tax purposes, and distributed to Selling
Shareholders as directed by the Shareholders' Representative
and Buyer from time to time and, in any case, within 5 days of
the end of such calendar quarter.
(c) OTHER PROVISIONS. Escrow Agent may sell or present for redemption any obligations so purchased whenever it shall be necessary in order to provide money to meet payments hereunder, and shall not be liable or responsible for any loss resulting from any investment. Escrow Agent may act as principal or agent in the making in disposing of any investment.
SECTION 4. ESCROW AGENT'S RESPONSIBILITIES. Escrow Agent shall distribute money out of the Escrow Account and the Glendale Escrow Account only upon its receipt of any of the following:
(1) Written instructions from each of the Shareholders' Representative and Buyer; or
(2) A certified order or ruling from a court ordering or instructing it to do so.
Distributions shall be made as promptly as practicable and in any event within 5 days after receipt of any such instruction, order or ruling even if Escrow Agent has been advised that an appeal or other relief is being sought, so long as it has not received actual service of a stay of such order or ruling pending appeal.
SECTION 5. NO TRANSFER OF INTEREST IN ESCROW ACCOUNTS. The Selling Shareholders may assign or transfer, such Person's interest in the Escrow Account and the Glendale Escrow Account in whole or in part. Except as set forth in the immediately preceding sentence, no party hereto may transfer or assign any of its interest herein of obligations hereunder. The Escrow Account and the Glendale Escrow Account shall remain subject to this Escrow Agreement and no assignment or transfer by Selling Shareholders shall in any way affect any rights Buyer may have in the Escrow Account or the Glendale Escrow Account.
SECTION 6. METHOD OF PAYMENT. Any payments to be made hereunder shall be made immediately by wire transfer in immediately available funds to the account of such party designated in the written instructions referred to in Section 4.
SECTION 7. EXPENSES. Escrow Agent shall be compensated for services hereunder from the income on the Escrow Funds in accordance with a fee letter heretofore delivered to Buyer and Selling Shareholders and shall be reimbursed for its ordinary out-of-pocket expenses including, but not by way of limitation, the fees and costs of attorneys or agents that it may find necessary to engage in performance of its duties hereunder and costs arising from the defense of any suits in which Escrow Agent is named as a defendant in its capacity as Escrow Agent. If it shall become necessary that Escrow Agent shall perform extraordinary services, it shall be entitled to reasonable extra compensation therefor and to reimbursement for reasonable and necessary extraordinary out-of-pocket expenses unless such extraordinary service or expense is occasioned by the neglect or breach of this Escrow Agreement by Escrow Agent.
SECTION 8. NOTICES. Any notice or other communication related hereto must be given in writing and (a) delivered in person, (b) transmitted by facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt requested or (d) overnight delivery service, given to the party at its address stated on the signature pages of this Agreement or at any other address as the party may specify for this purpose by notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number and an appropriate answerback is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually received at such address.
SECTION 9. LIABILITY OF ESCROW AGENT.
(a) Escrow Agent's sole liability hereunder shall be to hold
and invest the Escrow Funds and any moneys or other properties received with
respect thereto, to make payments and distributions therefrom in accordance with
the terms of this Escrow Agreement, to distribute information as provided in
Section 4 hereof and otherwise to discharge its obligations hereunder. Escrow
Agent shall not be liable for any act performed in good faith or in reliance on
any document instrument or statement believed by it to be genuine. Escrow Agent
may act upon
any notice, certificate, instrument, request, paper or other document believed by it to be genuine or to have been made, sent, signed, prescribed or presented by the proper person or persons. It shall be under no obligation to institute or defend any action, suit or legal proceeding in connection herewith, or to take any other action likely to involve it in expense unless first indemnified to its satisfaction by the party or parties who desire that it undertake such action.
(b) If any dispute should arise with respect to the payment or ownership or right of possession of the Escrow Account, or any part thereof, at any time, that cannot be settled under other provisions hereof, Escrow Agent is authorized to retain in its possession, without liability to anyone, all or any part of the Escrow Account or the Glendale Escrow Account or the proceeds from any sale thereof until such dispute shall have been settled either by mutual agreement between the parties concerned or until otherwise ordered by a court having jurisdiction over it. In either case Escrow Agent will not release any assets in the Escrow Account or the Glendale Escrow Account until Buyer has exhausted its remedies and has no further right of appeal in the courts; provided, however, if after the expiration of the Escrow Period, Selling Shareholders have received a certified order or ruling from a court ordering or instructing Escrow Agent to distribute all or any portion of the Escrow Funds to Selling Shareholders, and such order or ruling has not been stayed within 30 days of such order or ruling, pending appeal, Escrow Agent may distribute the amounts so ordered.
(c) Buyer and Selling Shareholders jointly and severally agree to indemnify and hold harmless Escrow Agent from all losses, costs and expenses that may be incurred as a result of its involvement in any litigation arising from the performance of its duties hereunder, provided that such losses costs and expenses shall not have resulted from any action taken or omitted by Escrow Agent and for which it shall have been adjudged negligent or engaged in misconduct or have acted in bad faith or willful disregard of its duties. Escrow Agent may rely upon any instruction by the Shareholders' Representative as to the interests of Selling Shareholders. Until it receives written notice of any change, Escrow Agent shall be entitled to rely on the oral instructions of the Shareholders' Representative. The Shareholders' Representative shall confirm such instructions in writing as soon as practicable.
SECTION 10. RESIGNATION OR REMOVAL OF ESCROW AGENT.
(a) Escrow Agent may resign as such following the giving of thirty days' prior written notice to the other parties hereto. Similarly, Escrow Agent may be removed and replaced following the giving of thirty days' prior written notice to Escrow Agent by all of the other parties hereto. In either event, the duties of Escrow Agent shall terminate thirty days after the date of such notice (or as of such earlier date as may be mutually agreeable); and Escrow Agent shall then deliver the balance of the Escrow Account then in its possession to a successor Escrow Agent as shall be appointed by the other parties hereto as evidenced by a written notice filed with Escrow Agent.
(b) If the other parties hereto are unable to agree upon a successor or shall have failed to appoint a successor prior to the expiration of thirty days following the date of notice of resignation or removal, the then-acting Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent or otherwise appropriate relief, and any such resulting appointment shall be binding upon all of the parties hereto.
(c) Upon acknowledgement by any successor Escrow Agent of the receipt of the then remaining balance of Escrow Account, the then-acting Escrow Agent shall be fully released and relieved of all duties, responsibilities, and obligations under this Escrow Agreement.
SECTION 11. CONTINUANCE OF ESCROW AGREEMENT. This Escrow Agreement shall be binding upon the parties hereto and their respective permitted transferees, successors, assigns, legal representatives, heirs and legatees.
SECTION 12. GOVERNING LAW. This Escrow Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.
SECTION 13. INTERPRETATION AND DEFINITIONS. This Escrow Agreement is being executed and delivered pursuant to and is subject to the Plan of Reorganization and is the escrow agreement referred to therein. The provisions of this Escrow Agreement shall not in any event be construed so as to enlarge or diminish the rights of any parties under the Plan of Reorganization.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date and year first above written.
ESCROW AGENT WELLS FARGO BANK, N.A.
NOTICE ADDRESS:
NOTICE ADDRESS:
SHAREHOLDERS' REPRESENTATIVE
TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership
By: TCW Capital
Its: General Partner
By: TCW Asset Management Company
Its: Managing General Partner
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, New York 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Fax: (212) 326-2061
EXHIBIT C
[FORM OF VOTING AGREEMENT]
VOTING AGREEMENT
VOTING AGREEMENT dated as of ___________, 1999 (this "AGREEMENT"), among TCW SPECIAL PLACEMENTS FUND II, a California limited partnership ("TCW FUND II"), TCW CAPITAL, acting solely in its capacity as investment manager pursuant to an Investment Management Agreement dated as of June 30, 1987 ("TCW CAPITAL" and, together with TCW Fund II, "SHAREHOLDERS"), ARA Acquisition Corporation, a California corporation ("ACQUISITION"), and TransDigm Inc., a Delaware corporation ("BUYER").
R E C I T A L S:
WHEREAS, Shareholders beneficially own not less than 96,650 shares of Common Stock, par value $.001 per share, of ZMP, Inc., a California corporation ("ZMP" and the "ZMP COMMON STOCK"). All such shares, together with all other shares of capital stock of ZMP with respect to which Shareholders have beneficial ownership as of the date of this Agreement, are referred to as the "SUBJECT SHARES"; PROVIDED that any such share shall cease to be a "Subject Share" from and after the time that suc share is transferred pursuant to Section 2 and ceases to be subject to the Voting Documents (as defined below) in accordance with the terms of Section 2.
WHEREAS, ZMP, Buyer, Acquisition and the Shareholders' Representative are, simultaneously with the execution hereof, entering into an Agreement and Plan of Reorganization dated as the date hereof (the "PLAN OF REORGANIZATION") providing for the merger of Acquisition with and into ZMP (the "MERGER"). Terms not otherwise defined in this Agreement have the meanings set forth in the Plan of Reorganization.
WHEREAS, The Board of Directors of ZMP has unanimously approved the Plan of Reorganization and the Merger.
WHEREAS, Shareholders and Buyer desire to enter into this Agreement to provide for, among other things, (1) the obligation of Shareholders to vote the Subject Shares to approve the Plan of Reorganization and (2) certain restrictions on (A) the sale or other transfer of the record ownership or the beneficial ownership, or both, of the Subject Shares by Shareholders and (B) the acquisition by Shareholders of beneficial ownership of additional shares of capital stock of ZMP from any person other than ZMP, in each case until the consummation of the Merger or the termination of the Plan of Reorganization.
WHEREAS, Shareholders acknowledge that Buyer and Acquisition are entering into the Plan of Reorganization in reliance on the representations, warranties, covenants and other agreements of Shareholders set forth in this Agreement and would not enter into the Plan of Reorganization if Shareholders did not enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. COVENANTS OF SHAREHOLDERS.
(a) VOTING. Until the day following the termination of this Agreement, subject to the receipt of proper notice and the absence of a preliminary or permanent injunction or other final order by any United States federal court or state court barring such action, Shareholders shall do the following:
(1) be present, in person or represented by proxy, at each meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the stockholders of ZMP, however called, or in connection with any written consent of the stockholders of ZMP, so that all Subject Shares then entitled to vote may be counted for the purposes of determining the presence of a quorum at such meetings; and
(2) at each such meeting held before the Effective Time and with respect to each such written consent, vote (or cause to be voted), or deliver a written consent (or cause a consent to be delivered) covering, all the Subject Shares to (A) approve the Plan of Reorganization and the Merger and any action contemplated thereby or in furtherance thereof, (B) disapprove any action or agreement that would (or would be reasonably likely to) result in a breach of any covenant, representation or warranty or any other obligation or agreement of ZMP under the Plan of Reorganization or this Agreement, (C) approve the termination of the Shareholders Agreement of ZMP, dated as of January 27, 1997, among ZMP and certain parties named therein, and (D) except as specifically requested in writing by Buyer in advance, disapprove the following actions (other than the Merger and the transactions contemplated by the Plan of Reorganization): (1) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving ZMP or any of its subsidiaries; (2) a sale, lease or transfer (whether by merger, consolidation, operation of law or otherwise) of a material amount of assets of ZMP or any of its subsidiaries or a reorganization, recapitalization, dissolution or liquidation of ZMP or any of its subsidiaries; (3)(a) any change in the majority of the board of directors of ZMP; (b) any change in the present capitalization of ZMP or any amendment of ZM s certificate of incorporation or by-laws; (c) any other material change in ZMP's corporate structure or business; or (d) any other action which is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, discourage or materially adversely affect the Merger or the transactions contemplated by the Plan of Reorganization or this Agreement or the contemplated economic benefits of any of the foregoing.
(b) STOCK ACQUISITIONS. Until the termination of this Agreement, Shareholders shall not acquire beneficial or record ownership of any Equity Securities of ZMP whether acquired of record or beneficially by such Shareholder in any capacity, whether upon exercise of options, conversion of convertible securities, purchase, exchange or otherwise, unless such shares are expressly included within the meaning of "Subject Shares.".
(c) NO INCONSISTENT AGREEMENTS. Until the day following the termination of this Agreement, Shareholders shall not enter into any voting agreement or grant a proxy or power of attorney with respect to the Subject Shares which is inconsistent with this Agreement.
(d) REVIEW OF PLAN OF REORGANIZATION. Shareholders acknowledge receipt and review of a copy of the Plan of Reorganization.
(e) NO ENCUMBRANCES. At all times during the term hereof, the Subject Shares will be held by such Shareholder free and clear of all Encumbrances whatsoever, except for any such Encumbrances arising hereunder.
(f) WAIVER OF APPRAISAL RIGHTS. Each Shareholder hereby waives any rights of appraisal from the Merger that such Shareholder may have.
(g) NO SOLICITATION. Prior to the Termination Date, no Shareholder shall, in its capacity as such, directly or indirectly (including through advisors, agents or other intermediaries), solicit (including by way of furnishing information) or respond to any inquiries or the making of any proposal by any person or entity (other than Buyer or any Affiliate thereof) with respect to ZMP that constitutes or could reasonably be expected to lead to the acquisition of all or any portion of th capital stock of ZMP or ARA or assets of ZMP or ARA (other than Inventory in the ordinary course of Business) any business combination with ZMP or ARA or any other extraordinary transaction involving or otherwise relating to ZMP or ARA. If any Shareholder, in its capacity as such, receives any such inquiry or proposal, then such Shareholder shall promptly inform Buyer of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Each Shareholder, in its capacity as such, will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing.
(h) Each Shareholder agrees to exercise its "drag along" rights under the Shareholders Agreement of ZMP dated as of January 27, 1997, among ZMP and certain parties named therein as Acquisition may reasonably request.
SECTION 2 . TRANSFER OF SUBJECT SHARES. During the term of this Agreement, Shareholders agree not to (i) offer for sale, sell, transfer (whether by merger, consolidation, operation of law or otherwise), tender, pledge, encumber, assign or otherwise dispose of, enforce or permit the execution of the provisions of any redemption agreement with ZMP or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer (whether by merger, consolidation, operation of law or otherwise), tender, pledge, encumbrance, assignment or other disposition of, or exercise any discretionary powers to distribute, any Subject Shares or any interest therein without the prior written consent of Buyer, (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney with respect to any Subject Shares, deposit any Subject Shares into a voting trust or enter into a voting agreement with respect to any Subject Shares; or (iii) take any action that would make any representation or warranty of such Shareholder contained herein untrue or incorrect or have the effect of preventing or disabling such Shareholder from performing such Shareholder's obligations under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each Shareholder, jointly and severally, represents and warrants to Buyer, subject to the terms, conditions and limitations set forth in the Plan of Reorganization, as follows:
(a) EXISTENCE AND POWER. Such Shareholder (1) is a partnership duly formed, validly existing and in good standing under the laws of the State of California and (2) has all requisite partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
(b) AUTHORIZATION; CONTRAVENTION. The execution and delivery by each Shareholder of this Agreement and the performance by it of its obligations hereunder have, (1) been duly authorized by all necessary action under such Shareholders organizational documents and (2) do not and will not conflict with or result in a violation (with or without notice or lapse of time or both) or give rise to any third party right of termination, cancellation, material modification or acceleration pursuant to, (A) any provision of its organizational documents or (B) any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit plan or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, injunction, rule or regulation applicable to such Shareholder, the Subject Shares or any of such Shareholder's other properties or assets.
(c) BINDING EFFECT. This Agreement constitutes, or when executed and delivered by Shareholders will constitute, a valid and binding obligation of Shareholders, respectively, enforceable against Shareholders in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditors' generally, by general equity principles, (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing.
(d) OWNERSHIP. Shareholders are the only beneficial or record owners of the Subject Shares, free and clear of all Encumbrances other than those arising hereunder or set forth on Schedule I hereto. The Shareholders do not have record or beneficial ownership of any ZMP Common Stock other than as set forth on Schedule 3.2B to the Plan of Reorganization. Shareholders have sole power of disposition with respect to all of the Subject Shares and sole voting power with respect to the matters set forth in Section 1 hereof and sole power to demand appraisal rights, in each case with respect to all of the Subject Shares with no restrictions on such rights, subject to applicable federal securities laws and the terms of this Agreement.
(e) LITIGATION. There is no action, suit, investigation, complaint or other proceeding pending against Shareholders, or, to the knowledge of Shareholders, threatened against Shareholders or any other Person that restricts in any material respect or prohibits (or, if successful, would restrict or prohibit) the exercise by any party or beneficiary of its rights hereunder or the performance by any party of its obligations hereunder.
SECTION 4. PROXY.
Each Shareholder hereby grants to, and appoints, Buyer and Douglas Peacock, Chief Executive Officer of Buyer, and Nick Howley, President of Buyer, in their respective capacities as officers of Buyer, and any individual who shall hereafter succeed to any such office of Buyer, each of them individually, such Shareholder's irrevocable (until the Termination Date) proxy and attorney-in-fact (with full power of substitution) to vote the Subject Shares as indicated in Section 1 above. Each Shareholder intends this proxy to be irrevocable (until the
Termination Date) and coupled with an interest and will take such further action and execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revokes any proxy previously granted by such Shareholder with respect to such Shareholder's Subject Shares.
SECTION 5. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice or other communication related hereto must be given in writing and (a) delivered in person, (b) transmitted by facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt requested or (d) overnight delivery service, given to the party at its address stated on the signature pages of this Agreement or at any other address as the party may specify for this purpose by notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number and an appropriate answerback is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually received at such address.
(b) NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.
(1) No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver of thereof, nor shall any single or partial exercise of any right preclude any further or other exercise of such or any other right.
(2) In view of the uniqueness of the agreements contained herein and the transactions contemplated hereby and thereby and the fact that Buyer would not have an adequate remedy at law for money damages in the event that any obligation hereunder is not performed in accordance with its terms, each party to this Agreement therefore acknowledges that Buyer shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which Buyer may be entitled, at law or in equity.
(c) AMENDMENTS, ETC. This Agreement may not be amended, unless said amendment shall be (1) in writing and (2) signed and delivered by all parties hereto.
(d) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(1) Neither this Agreement nor any rights or obligations hereunder are assignable.
(2) The provisions of this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective permitted heirs, executors, legal representatives, successors and assigns, and no other person.
(e) GOVERNING LAW. This Agreement and all rights, remedies, liabilities, powers and duties of the parties hereto shall be governed in accordance with the laws of the State of California without regard to principles of conflicts of laws. Each party hereby irrevocably submits to and accepts for itself and its properties, generally and unconditionally, the exclusive
jurisdiction of and service of process pursuant to the Laws of the State of California and the rules of its courts, waives any defense of forum non conveniens and agrees to be bound by any judgment rendered thereby arising under or out of in respect of or in connection with this Agreement.
(f) SEVERABILITY OF PROVISIONS. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions hereof to the extent permitted by Law shall nevertheless remain in full force and effect, unless doing so would result in an interpretation of this Agreement which is manifestly unjust.
(g) HEADINGS AND REFERENCES. The descriptive headings of the Article and Section headings herein are included for convenience only and do not constitute a part of this Agreement for any other purpose. References to parties, express beneficiaries, articles and sections herein are references to parties to or the express beneficiaries and sections of this Agreement, as the case may be, unless the context shall require otherwise. Any of the terms defined in this Agreement may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use in this Agreement of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
(h) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding of Shareholders and Buyer, and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof.
(i) SURVIVAL. Except as otherwise specifically provided herein, each representation, warranty or covenant of a party contained herein shall remain in full force and effect until the expiration of the pertinent Survival Period.
(j) FURTHER ASSURANCES. The parties hereto each agree to execute, make, acknowledge, and deliver such instruments, agreements and other documents as may be reasonably required to effectuate the purposes of this Agreement and to consummate the transactions contemplated thereby.
(k) WAIVER OF JURY TRIAL. Each party waives any right to a trial by jury in any Action to enforce or defend any right hereunder and agrees that any Action shall be tried before a court and not before a jury.
(l) TERMINATION. Buyer may terminate this Agreement at any time upon written notice to Shareholders. Unless terminated earlier by Buyer or by mutual agreement of the parties, this Agreement shall terminate upon the first to occur of (i) consummation of the Merger and (ii) the termination of Plan of Reorganization pursuant to Section 6.1 thereof.
(m) COUNTERPARTS. This Agreement and any amendment hereto may be executed in one or more counterparts and by different parties in separate counterparts, each of which shall be an original, with the same effect as if all signatures were on the same instrument. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been executed by each party and delivered to the other party.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
TRANSDIGM INC.
ARA ACQUISITION CORPORATION
NOTICE ADDRESS:
Transdigm Inc. or ARA Acquisition Corporation
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
[Signatures continued on next page]
TCW SPECIAL PLACEMENTS FUND II,
a California limited partnership
By: TCW Capital
Its: General Partner
By: TCW Asset Management Company
Its: Managing General Partner
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center 153 East 53rd
Street 50th Floor New York,
NY 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
[Signatures continued on next page]
TCW CAPITAL, ACTING SOLELY IN ITS CAPACITY AS INVESTMENT
MANAGER PURSUANT TO AN INVESTMENT MANAGEMENT AGREEMENT DATED AS OF JUNE 30, 1987
By: TCW Asset Management Company
Its: Managing General Partner
NOTICE ADDRESS:
c/o TCW Capital
200 Park Avenue, Suite 2200
New York, New York 10166
Attention: Raymond F. Henze III
Fax: (212) 771-4024
with a copy to:
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
50th Floor
New York, NY 10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
EXHIBIT D
[FORM OF VOTING AGREEMENT]
VOTING AGREEMENT
VOTING AGREEMENT dated as of ___________, 1999 (this "AGREEMENT"), among Charles A. Collins ("SHAREHOLDER"), ARA ACQUISITION CORPORATION, a California corporation ("ACQUISITION"), and TRANSDIGM INC., a Delaware corporation ("BUYER").
R E C I T A L S:
WHEREAS, Shareholder beneficially owns 5,435 shares of Common Stock, par value $.001 per share, of ZMP, Inc., a California corporation ("ZMP" and the "ZMP COMMON STOCK"). All such shares, together with options to purchase 3,260 Shares of Common Stock with respect to which Shareholder has beneficial ownership as of the date of this Agreement, are referred to as the "SUBJECT SHARES"; PROVIDED that any such share shall cease to be a "Subject Share" from and after the time that such share i transferred pursuant to Section 2 and ceases to be subject to the Voting Documents (as defined below) in accordance with the terms of Section 2.
WHEREAS, ZMP, Buyer, Acquisition and the Shareholders' Representative are, simultaneously with the execution hereof, entering into an Agreement and Plan of Reorganization dated as the date hereof (the "PLAN OF REORGANIZATION") providing for the merger of Acquisition with and into ZMP (the "MERGER"). Terms not otherwise defined in this Agreement have the meanings set forth in the Plan of Reorganization.
WHEREAS, The Board of Directors of ZMP has unanimously approved the Plan of Reorganization and the Merger.
WHEREAS, Shareholder and Buyer desire to enter into this Agreement to provide for, among other things, (1) the obligation of Shareholder to vote the Subject Shares to approve the Plan of Reorganization and (2) certain restrictions on (A) the sale or other transfer of the record ownership or the beneficial ownership, or both, of the Subject Shares by Shareholder and (B) the acquisition by Shareholder of beneficial ownership of additional shares of capital stock of ZMP from any person othe than ZMP, in each case until the consummation of the Merger or the termination of the Plan of Reorganization.
WHEREAS, Shareholder acknowledges that Buyer and Acquisition are entering into the Plan of Reorganization in reliance on the representations, warranties, covenants and other agreements of Shareholder set forth in this Agreement and would not enter into the Plan of Reorganization if Shareholder did not enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. COVENANTS OF SHAREHOLDER.
(a) VOTING. Until the day following the termination of this Agreement, subject to the receipt of proper notice and the absence of a preliminary or permanent injunction or other final order by any United States federal court or state court barring such action, Shareholder shall do the following:
(1) be present, in person or represented by proxy, at each meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the stockholders of ZMP, however called, or in connection with any written consent of the stockholders of ZMP, so that all Subject Shares then entitled to vote may be counted for the purposes of determining the presence of a quorum at such meetings; and
(2) at each such meeting held before the Effective Time and
with respect to each such written consent, vote (or cause to be
voted), or deliver a written consent (or cause a consent to be
delivered) covering, all the Subject Shares to (A) approve the Plan
of Reorganization and the Merger and any action contemplated thereby
or in furtherance thereof, (B) disapprove any action or agreement
that would (or would be reasonably likely to) result in a breach of
any covenant, representation or warranty or any other obligation or
agreement of ZMP under the Plan of Reorganization or this Agreement,
(C) approve the termination of the Shareholders Agreement of ZMP,
dated as of January 27, 1997, among ZMP and certain parties named
therein, and (D) except as specifically requested in writing by
Buyer in advance, disapprove the following actions (other than the
Merger and the transactions contemplated by the Plan of
Reorganization): (1) any extraordinary corporate transaction, such
as a merger, consolidation or other business combination involving
ZMP or any of its subsidiaries; (2) a sale, lease or transfer
(whether by merger, consolidation, operation of law or otherwise) of
a material amount of assets of ZMP or any of its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of ZMP
or any of its subsidiaries; (3)(a) any change in the majority of the
board of directors of ZMP; (b) any change in the present
capitalization of ZMP or any amendment of ZM s certificate of
incorporation or by-laws; (c) any other material change in ZMP's
corporate structure or business; or (d) any other action which is
intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, discourage or materially adversely affect the
Merger or the transactions contemplated by the Plan of
Reorganization or this Agreement or the contemplated economic
benefits of any of the foregoing.
(b) STOCK ACQUISITIONS. Until the termination of this Agreement, Shareholder shall not acquire beneficial or record ownership of any Equity Securities of ZMP whether acquired of record or beneficially by Shareholder in any capacity, whether upon exercise of options, conversion of convertible securities, purchase, exchange or otherwise, unless such shares are expressly included within the meaning of "Subject Shares.".
(c) NO INCONSISTENT AGREEMENTS. Until the day following the termination of this Agreement, Shareholder shall not enter into any voting agreement or grant a proxy or power of attorney with respect to the Subject Shares which is inconsistent with this Agreement.
(d) REVIEW OF PLAN OF REORGANIZATION. Shareholder acknowledge receipt and review of a copy of the Plan of Reorganization.
(e) NO ENCUMBRANCES. At all times during the term hereof, the Subject Shares will be held by Shareholder free and clear of all Encumbrances whatsoever, except for any such Encumbrances arising hereunder.
(f) WAIVER OF APPRAISAL RIGHTS. Shareholder hereby waives any rights of appraisal from the Merger that Shareholder may have.
(g) NO SOLICITATION. Prior to the Termination Date, Shareholder shall not, in its capacity as such, directly or indirectly (including through advisors, agents or other intermediaries), solicit (including by way of furnishing information) or respond to any inquiries or the making of any proposal by any person or entity (other than Buyer or any Affiliate thereof) with respect to ZMP that constitutes or could reasonably be expected to lead to the acquisition of all or any portion of the capital stock of ZMP or ARA or assets of ZMP or ARA (other than Inventory in the ordinary course of Business) any business combination with ZMP or ARA or any other extraordinary transaction involving or otherwise relating to ZMP or ARA. If Shareholder, in its capacity as such, receives any such inquiry or proposal, then Shareholder shall promptly inform Buyer of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Shareholder, in its capacity as such, will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing.
SECTION 2 . TRANSFER OF SUBJECT SHARES. During the term of this Agreement, Shareholder agrees not to (i) offer for sale, sell, transfer (whether by merger, consolidation, operation of law or otherwise), tender, pledge, encumber, assign or otherwise dispose of, enforce or permit the execution of the provisions of any redemption agreement with ZMP or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer (whether by merger, consolidation, operation of law or otherwise), tender, pledge, encumbrance, assignment or other disposition of, or exercise any discretionary powers to distribute, any Subject Shares or any interest therein without the prior written consent of Buyer, (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney with respect to any Subject Shares, deposit any Subject Shares into a voting trust or enter into a voting agreement with respect to any Subject Shares; or (iii) take any action that would make any representation or warranty of such Shareholder contained herein untrue or incorrect or have the effect of preventing or disabling Shareholder from performing Shareholder's obligations under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder represents and warrants to Buyer, subject to the terms, conditions and limitations set forth in the Plan of Reorganization, as follows:
(a) CONTRAVENTION. The execution and delivery by Shareholder of this Agreement and the performance by it of its obligations hereunder do not and will not conflict with or result in a violation (with or without notice or lapse of time or both) or give rise to any third party right of termination, cancellation, material modification or acceleration pursuant to
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit plan or other material agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, injunction, rule or regulation applicable to Shareholder, the Subject Shares or any of Shareholder's other properties or assets.
(b) BINDING EFFECT. This Agreement constitutes, or when executed and delivered by Shareholder will constitute, a valid and binding obligation of Shareholder enforceable against Shareholder in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditors' generally, by general equity principles, (regardless of whether such enforceability is considered in a proceeding i equity or at law) or by an implied covenant of good faith and fair dealing.
(c) OWNERSHIP. Shareholder is the only beneficial or record owner of the Subject Shares, free and clear of all Encumbrances other than those arising hereunder or set forth on Schedule I hereto. Shareholder does not have record or beneficial ownership of any ZMP Common Stock other than as set forth on Schedule 3.2B to the Plan of Reorganization. Shareholder has sole power of disposition with respect to all of the Subject Shares and sole voting power with respect to the matters set forth in Section 1 hereof and sole power to demand appraisal rights, in each case with respect to all of the Subject Shares with no restrictions on such rights, subject to applicable federal securities laws and the terms of this Agreement.
(d) LITIGATION. There is no action, suit, investigation, complaint or other proceeding pending against Shareholder, or, to the knowledge of Shareholders, threatened against Shareholder or any other Person that restricts in any material respect or prohibits (or, if successful, would restrict or prohibit) the exercise by any party or beneficiary of its rights hereunder or the performance by any party of its obligations hereunder.
(e) INDEBTEDNESS. Shareholder acknowledges he owes to the Company the Collins Note Amount (as defined in the Plan of Reorganization) which will be repaid in full or canceled as of the Effective Time. In addition, Shareholder acknowledges that the exercise price of the Collins Option is $39.41 per share.
SECTION 4. PROXY.
Shareholder hereby grants to, and appoints, Buyer and Douglas Peacock, Chief Executive Officer of Buyer, and Nick Howley, President of Buyer, in their respective capacities as officers of Buyer, and any individual who shall hereafter succeed to any such office of Buyer, each of them individually, Shareholder's irrevocable (until the Termination Date) proxy and attorney-in-fact (with full power of substitution) to vote the Subject Shares as indicated in Section 1 above. Shareholder intends this proxy to be irrevocable (until the Termination Date) and coupled with an interest and will take such further action and execute such other instruments as may be necessary to effectuate the intent of this proxy and hereby revokes any proxy previously granted by Shareholder with respect to Shareholder's Subject Shares.
SECTION 5. WARRANT CANCELLATION.
Shareholder agrees that, in consideration of the payment to him of the Merger Consideration with respect to the warrants ("Warrants") owned by him to purchase 3,260 shares of common stock of ZMP, Inc., upon payment of the Merger Consideration, all Warrants will be canceled and none of Buyer, Acquisition, Surviving Corporation nor ZMP will have any further liability or obligation to the undersigned with respect to the Warrants or any agreement, understanding or commitment related thereto. Shareholder further agrees that he will not exercise his Warrants for so long as this Agreement is in effect.
SECTION 6. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice or other communication related hereto must be given in writing and (a) delivered in person, (b) transmitted by facsimile, (c) mailed by certified or registered mail, postage prepaid, receipt requested or (d) overnight delivery service, given to the party at its address stated on the signature pages of this Agreement or at any other address as the party may specify for this purpose by notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number and an appropriate answerback is received, (ii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when actually received at such address.
(b) NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.
(1) No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver of thereof, nor shall any single or partial exercise of any right preclude any further or other exercise of such or any other right.
(2) In view of the uniqueness of the agreements contained herein and the transactions contemplated hereby and thereby and the fact that Buyer would not have an adequate remedy at law for money damages in the event that any obligation hereunder is not performed in accordance with its terms, each party to this Agreement therefore acknowledges that Buyer shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which Buyer may be entitled, at law or in equity.
(c) AMENDMENTS, ETC. This Agreement may not be amended, unless said amendment shall be (1) in writing and (2) signed and delivered by all parties hereto.
(d) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(1) Neither this Agreement nor any rights or obligations hereunder are assignable.
(2) The provisions of this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective permitted heirs, executors, legal representatives, successors and assigns, and no other person.
(e) GOVERNING LAW. This Agreement and all rights, remedies, liabilities, powers and duties of the parties hereto shall be governed in accordance with the laws of the State of California without regard to principles of conflicts of laws. Each party hereby irrevocably submits to and accepts for itself and its properties, generally and unconditionally, the exclusive jurisdiction of and service of process pursuant to the Laws of the State of California and the rules of its courts, waives any defense of forum non conveniens and agrees to be bound by any judgment rendered thereby arising under or out of in respect of or in connection with this Agreement.
(f) SEVERABILITY OF PROVISIONS. If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions hereof to the extent permitted by Law shall nevertheless remain in full force and effect, unless doing so would result in an interpretation of this Agreement which is manifestly unjust.
(g) HEADINGS AND REFERENCES. The descriptive headings of the Article and Section headings herein are included for convenience only and do not constitute a part of this Agreement for any other purpose. References to parties, express beneficiaries, articles and sections herein are references to parties to or the express beneficiaries and sections of this Agreement, as the case may be, unless the context shall require otherwise. Any of the terms defined in this Agreement may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use in this Agreement of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
(h) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding of Shareholder and Buyer, and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof.
(i) SURVIVAL. Except as otherwise specifically provided herein, each representation, warranty or covenant of a party contained herein shall remain in full force and effect until the expiration of the pertinent Survival Period.
(j) FURTHER ASSURANCES. The parties hereto each agree to execute, make, acknowledge, and deliver such instruments, agreements and other documents as may be reasonably required to effectuate the purposes of this Agreement and to consummate the transactions contemplated thereby.
(k) WAIVER OF JURY TRIAL. Each party waives any right to a trial by jury in any Action to enforce or defend any right hereunder and agrees that any Action shall be tried before a court and not before a jury.
(l) TERMINATION. Buyer may terminate this Agreement at any time upon written notice to Shareholder. Unless terminated earlier by Buyer or by mutual agreement of the parties, this Agreement shall terminate upon the first to occur of (i) consummation of the Merger and (ii) the termination of Plan of Reorganization pursuant to Section 6.1 thereof.
(m) COUNTERPARTS. This Agreement and any amendment hereto may be executed in one or more counterparts and by different parties in separate counterparts, each of which shall be an original, with the same effect as if all signatures were on the same instrument. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been executed by each party and delivered to the other party.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
TRANSDIGM INC.
ARA ACQUISITION CORPORATION
NOTICE ADDRESS:
Transdigm Inc. or ARA Acquisition Corporation
26380 Curtiss Wright Parkway
Richmond Heights, Ohio 44143
Attention: Peter Radekevich
Telecopy: (216) 289-4937
[Signatures continued on next page]
NOTICE ADDRESS:
c/o Adams Rite Aerospace, Inc.
4141 North Palm Street
Fullerton, CA 92835
Attention: Charles A. Collins
Fax:(714) 278-6510
with a copy to:
O'Melveny & Myers
LLP Citicorp
Center 153 East
53rd Street 50th
Floor New York, NY
10022-4611
Attention: Jeffrey J. Rosen, Esq.
Telecopy: (212) 326-2061
EXHIBIT D-1
TEXT OF OPINION OF COUNSEL TO THE COMPANY
1. Each of ZMP, Inc. ("ZMP") and Adams Rite Aerospace, Inc. ("ARA"), is duly incorporated, and is validly existing and in good standing under the laws of the State of California. ZMP has the corporate power to execute and deliver each of the Agreement and the Agreement of Merger (collectively, the "Agreements") and to perform its obligations thereunder. Each of ZMP and ARA has corporate power to own and lease its properties and assets.
2. The execution, delivery and performance of the Agreements have been duly authorized by all necessary corporate action on the part of ZMP and all necessary partnership action on the part of the Shareholders' Representative and the Agreements to which each of them is a party have been duly executed and delivered by ZMP and the Shareholders' Representative.
3. Each of the Agreements constitutes the legally valid and binding obligation of ZMP, enforceable against ZMP in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law.
4. ZMP's execution and delivery of, and performance of its obligations under the Agreements on or prior to the date of this opinion do not (i) violate ZMP's or ARA's Articles of Incorporation and By-laws, (ii) violate, breach, or result in a default under any existing obligation of or restriction on ZMP or ARA under any other agreements identified in ZMP's Certificate, or (iii) breach or otherwise violate any existing obligation of or restriction on ZMP or ARA under any order, judgment or decree of any California or federal court or governmental authority binding on ZMP or ARA identified in ZMP's Certificate.
5. The execution and delivery by ZMP and the Shareholders' Representative of, and performance of their respective obligations under, the Agreements to which each of them is a party do not violate any California or federal statute, rule or regulation that we have, in the exercise of customary professional diligence, recognized as applicable to ZMP, ARA, the Shareholders' Representative or to transactions of the type contemplated by the Agreements.
6. No order, consent, permit or approval of any California or federal governmental authority that we have, in the exercise of customary professional diligence, recognized as applicable to ZMP, ARA, the Shareholders' Representative or to transactions of the type contemplated by the Agreements is required on the part of ZMP or the Shareholders' Representative for the execution and delivery of, and performance of its obligations on or prior to the date of this opinion under, the Agreements to which each of them is a party, except for such as have been obtained.
7. Assuming due authorization of the Merger by all necessary corporate action on the part of Buyer and Acquisition and that Buyer and Acquisition have taken all action they are required to take, upon the filing of the Articles of Merger by the Secretary of State of the State of California,
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the Merger will be validly consummated in accordance with the Agreement, the Agreement of Merger and the General Corporation Law of the State of California.
8. The authorized capital stock of ZMP is as set forth in Section 3.2B of the Disclosure Schedule. The authorized capital stock of ARA consists of _____________ shares of common stock. Based solely upon a review of records certified to us as the stock record books of ZMP and ARA, and without independent investigation, (i) the number of outstanding shares of ZMP's capital stock is as set forth in Section 3.2B of the Disclosure Schedule and (ii) there are 50,000 outstanding shares of ARA common stock, all of which are owned of record by ZMP. Based solely upon (x) a review of such stock record books of ZMP and ARA, (y) records certified to us as the minute books of ZMP and ARA and (z) matters set forth in the ZMP Certificate, and without independent investigation, the outstanding shares of capital stock of each of ZMP and ARA have been duly authorized by all necessary corporate action on the part of each of ZMP and ARA, respectively, and are validly issued, fully paid and nonassessable. Holders of the capital stock of ZMP and of ARA are not entitled to any preemptive right to subscribe to any additional shares of their respective capital stock under their respective Articles of Incorporation or Bylaws.
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EXHIBIT D-2
TEXT OF OPINION OF COUNSEL TO BUYER AND ACQUISITION
1. TransDigm, Inc. ("BUYER") has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with corporate power to enter into the Agreement and the Agreement of Merger (collectively, the "AGREEMENTS"), and to perform its obligations thereunder.
2. The execution, delivery and performance of the Agreements have been duly authorized by all necessary corporate action on the part of Buyer, and the Agreements have been duly executed and delivered by Buyer.
3. The Agreements constitute the valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. The opinions expressed in this paragraph 3 are subject to the following limitations, qualifications and exceptions: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; and (iv) the unenforceability of any provision requiring the payment of attorney's fees, except to the extent that a court determines such fees to be reasonable.
4. Neither the execution and delivery by Buyer of the Agreements nor the consummation of the Merger contemplated by the Agreement will (i) result in any breach or violation of the certificate of incorporation or bylaws of Buyer; (ii) result in any violation of any applicable federal or California statute, rule or regulation applicable to Buyer; (iii) require any consent, approval or authorization, declaration or filing by Buyer under any federal or California statute, rule or regulation applicable to Buyer; (iv) result in a breach of, or constitute a default under, any agreement or instrument identified to us as material by Buyer, which agreements are listed on Schedule I hereto; or (v) breach or otherwise violate any of the terms of or provisions of any orders, judgments or decrees listed on Schedule I hereto, which have been identified to us by Buyer as being all of the orders, judgments and decrees that are material to the financial condition or results of operations of Buyer. No opinion is expressed in clause (ii) or (iii) of this paragraph 4 as to the application or contravention of any antifraud laws, antitrust laws or trade regulations. The opinions set forth in this paragraph 4 are based upon our consideration of only those statutes, rules and regulations that, in our experience, are normally applicable to transactions such as those contemplated by the Agreement.
5. Acquisition has been duly incorporated and is validly existing and in good standing under the laws of the State of California, with corporate power and authority to enter into the Agreements and all documents in connection with the Agreements to which Acquisition is a party (collectively, the "ACQUISITION AGREEMENTS"), and to perform its obligations thereunder.
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6. The execution, delivery and performance of the Acquisition Agreements have been duly authorized by all necessary corporate action on the part of Acquisition, and the Acquisition Agreements have been duly executed and delivered by Acquisition.
7. The Acquisition Agreements constitute the valid and binding obligations of Acquisition, enforceable against Acquisition, in accordance with their respective terms. The opinions expressed in this paragraph 7 are subject to the following limitations, qualifications and exceptions: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to liability where such indemnification or contribution is contrary to public policy; and (iv) the unenforceability of any provision requiring the payment of attorney's fees, except to the extent that a court determines such fees to be reasonable.
8. Neither the execution and delivery by Acquisition of the Agreement nor the
consummation of the Merger contemplated by the Agreement will (i) result in any
breach or violation of the articles of incorporation or bylaws of Acquisition;
(ii) result in any violation of any applicable federal or California statute,
rule or regulation applicable to Acquisition; (iii) require any consent,
approval or authorization, declaration or filing by Acquisition under any
federal or California statute, rule or regulation applicable to Acquisition;
(iv) result in a breach of, or constitute a default under, any agreement or
instrument identified to us as material by Acquisition, which agreements are
listed on Schedule I hereto; or (v) breach or otherwise violate any of the terms
of or provisions of any, orders, judgments or decrees listed on Schedule I
hereto, which have been identified to us by Buyer as being all of the orders,
judgments and decrees that are material to the financial condition or results of
operations of Buyer. No opinion is expressed in clause (ii) or (iii) of this
paragraph 8 as to the application or contravention of any antifraud laws,
antitrust laws or trade regulations. The opinions set forth in this paragraph 8
are based upon our consideration of only those statutes, rules and regulations
that, in our experience, are normally applicable to transactions such as those
contemplated by the Agreement.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1 Definitions............................................................1
ARTICLE II
MERGER; CLOSING
Section 2.1 The Merger.............................................................9
Section 2.2 Effective Time.........................................................9
Section 2.3 Effects of the Merger..................................................9
Section 2.4 Conversion of the Stock into Cash......................................9
Section 2.5 Stock held by the Company.............................................10
Section 2.6 Closing...............................................................10
Section 2.7 Closing Date..........................................................10
Section 2.8 Payment of Consideration..............................................10
Section 2.10 Post-Closing Purchase Price Adjustment................................12
Section 2.11 Dissenting Shares.....................................................13
Section 2.12 Special Purchase Price Adjustment.....................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties by Buyer and Acquisition...............15
Section 3.2 Representations and Warranties by the Company.........................17
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS
Section 4.1 Operation of the Business.............................................33
Section 4.2 Regulatory Consents, Authorizations, etc..............................35
Section 4.3 Investigation by Buyer................................................35
Section 4.4 Publicity.............................................................35
Section 4.5 Shareholders' Meeting.................................................36
Section 4.6 Notification of Certain Matters.......................................36
Section 4.7 Preparation of Tax Returns for Pre-Closing Periods....................36
Section 4.8 Preparation of Tax Returns for Straddle Periods.......................36
Section 4.9 Tax Controversies.....................................................38
Section 4.10 Cooperation...........................................................38
Section 4.11 Access to Records and Information.....................................38
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Section 4.12 Tax Positions.........................................................39
Section 4.13 Income Tax Liability and Refunds......................................39
Section 4.14 No Solicitation or Negotiation........................................39
Section 4.15 Novation Agreements...................................................39
Section 4.16 Further Action........................................................40
ARTICLE V
CONDITIONS TO THE CLOSING
Section 5.1 General Conditions....................................................40
Section 5.2 Conditions to Obligations of Buyer....................................40
Section 5.3 Conditions to Obligations of the Company..............................42
ARTICLE VI
TERMINATION
Section 6.1 Termination...........................................................43
Section 6.2 Effects of Termination................................................43
ARTICLE VII
INDEMNITY
Section 7.1 Indemnification of Buyer..............................................44
Section 7.2 Indemnification by Buyer..............................................44
Section 7.3 Procedure.............................................................44
Section 7.4 Survival..............................................................45
Section 7.5 Limitations on Indemnification of Buyer...............................46
Section 7.6 Limitations on Indemnification by Buyer...............................47
Section 7.7 No Speculative Damages................................................47
Section 7.8 Exclusive Remedy......................................................47
Section 7.9 Adjustment to Merger Consideration....................................47
Section 7.10 Tax Adjustments.......................................................48
ARTICLE VIII
ESCROW
Section 8.1 Assertion of Indemnifiable Claims.....................................48
Section 8.2 Resolution of Claims; Payments........................................49
Section 8.3 Periodic Payments from the Claims Escrow Account......................49
Section 8.4 Termination of the Escrow Account.....................................50
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendments;Waivers....................................................50
Section 9.2 Schedules; Exhibits; Integration......................................50
Section 9.3 FurtherAssurances.....................................................50
Section 9.4 Governing Law.........................................................50
Section 9.5 No Assignment.........................................................51
Section 9.6 Headings..............................................................51
Section 9.7 Counterparts..........................................................51
Section 9.8 Confidentiality.......................................................51
Section 9.9 Parties in Interest...................................................52
Section 9.10 Performance by Subsidiaries...........................................52
Section 9.11 Notices...............................................................52
Section 9.12 Expenses..............................................................53
Section 9.13 Remedies; Waiver......................................................54
Section 9.14 Attorney's Fees.......................................................54
Section 9.15 Knowledge Convention..................................................54
Section 9.16 Representation By Counsel; Interpretation.............................54
Section 9.17 Waiver of Jury Trial..................................................54
Section 9.18 Severability..........................................................54
Section 9.19 Appointment of Shareholders' Representative...........................54
Section 9.20 Entire Agreement......................................................55
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Exhibit 3.10
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ZMP, INC.
I
The name of this corporation is ZMP, Inc.
II
The nature of the business of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
III
The total number of shares of shares of stock which this corporation shall have the authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share.
IV
The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be altered from time to time in the manner provided in the By-Laws and vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved by the stockholders at the time when the election is held and need not be by ballot.
(c) All corporate powers and authority of the Corporation (except as at the time otherwise provided by law, by these Articles of Incorporation or by the By-laws) shall be vested in and exercised by the Board of Directors.
(d) The Board of Directors shall have the power without the assent or vote of the stockholders to adopt amend alter or repeal the By-Laws of the Corporation, except to the extent that the By-Laws or these Articles of Incorporation otherwise provide, or unless otherwise provided by law.
V
The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
VI
The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the General Corporation Law of the State of California) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted in Section 317 of the General Corporation Law of the State of California, subject only to the applicable limits set forth in Section 204 of the General Corporation Law of the State of California with respect to actions for breach of duty to the Corporation and its shareholders.
VII
The Corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by the laws of the State of California, and all rights herein conferred upon stockholders or directors are granted subject to this
reservation.
Exhibit 3.11
AGREEMENT OF MERGER
AGREEMENT OF MERGER entered into on April 23, 1999, by and among ZMP, Inc., a California corporation (the "COMPANY"), TransDigm Inc., a Delaware corporation ("PARENT"), and ARA Acquisition Corporation, a California corporation and a wholly-owned subsidiary of Parent ("Acquisition Subsidiary").
1. Acquisition Subsidiary, which is a corporation incorporated under the General Corporation Law of the State of California, and which is sometimes hereinafter referred to as the "DISAPPEARING CORPORATION," shall be merged with and into the Company, which is a corporation incorporated under the General Corporation Law of the State of California, and which is sometimes hereinafter referred to as the "SURVIVING CORPORATION."
2. The separate existence of the disappearing corporation shall cease upon the effective date of the merger.
3. The surviving corporation shall continue its existence pursuant to the provisions of the General Corporation Law of the State of California.
4. Upon consummation of the merger, the Amended and Restated Articles of Incorporation of the surviving corporation shall be amended in their entirety to read as follows:
I
The name of this corporation is ZMP, Inc.
II
The name and address in the State of California of this corporation's initial agent for service of process is: CT CORPORATION SYSTEM
III
The nature of the business of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
IV
The total number of shares of shares of stock which this corporation shall have the authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share.
V
The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating,
defining, limiting and regulating the powers of the Corporation and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be altered from time to time in the manner provided in the By-Laws and vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved by the stockholders at the time when the election is held and need not be by ballot.
(c) All corporate powers and authority of the Corporation (except as at the time otherwise provided by law, by these Articles of Incorporation or by the By-laws) shall be vested in and exercised by the Board of Directors.
(d) The Board of Directors shall have the power without the assent or vote of the stockholders to adopt amend alter or repeal the By-Laws of the Corporation, except to the extent that the By-Laws or these Articles of Incorporation otherwise provide, or unless otherwise provided by law.
VI
The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
VII
The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the General Corporation Law of the State of California) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted in Section 317 of the General Corporation Law of the State of California, subject only to the applicable limits set forth in Section 204 of the General Corporation Law of the State of California with respect to actions for breach of duty to the Corporation and its shareholders.
VIII
The Corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by the laws of the State of California, and all rights herein conferred upon stockholders or directors are granted subject to this reservation.
5. Each outstanding share of the common stock of the disappearing corporation shall, upon the effective date of the merger, be converted into one share of the common stock of the surviving corporation.
6. Each share of the capital stock of the Company issued and outstanding immediately prior to the effectiveness of the merger (which consists of 105,435 shares of common stock) shall, upon the effective date of the merger, be converted, in the aggregate, into the right to receive $41.0 million in cash (the "MERGER CONSIDERATION"). The Merger Consideration is subject to adjustment for payments of indebtedness for borrowed money, accrued interest thereon, the amount of success bonuses to be paid to the Company's management, certain transaction costs and indemnification claims, and for changes in net working capital and the failure of the Surviving Corporation to enter into a certain contractual arrangement, as provided in or pursuant to the Agreement and Plan of Reorganization (the "PLAN OF REORGANIZATION") dated as of March 31, 1999 among Parent, Acquisition Subsidiary, the Company and TCW Special Placements Fund II, a California limited partnership solely in its capacity as Shareholders' Representative, and, pursuant to the Plan of Reorganization, a portion of the Merger Consideration will be held in escrow accounts which will satisfy adjustments based solely on changes in net working capital, the failure of the surviving corporation to enter into a certain contractual arrangement and indemnification claims. A copy of the Plan of Reorganization shall be maintained at the principal executive offices of the surviving corporation and shall be provided without charge to any shareholder of Parent, the disappearing corporation or the surviving corporation upon written request therefor.
7. The merger shall have the effects set forth in Section 1107 of the General Corporation Law of the State of California.
8. The disappearing corporation and the surviving corporation hereby agree that they will cause to be executed and filed and/or recorded any document or documents prescribed by the laws of the State of California, and that they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, Parent, Acquisition Subsidiary and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.
"Parent"
TransDigm Inc., a Delaware corporation
By: /s/ W. Nicholas Howley
------------------------------
Name: W. Nicholas Howley
------------------------------
Title: President
------------------------------
By: /s/ Peter B. Radekevich
------------------------------
Name: Peter B. Radekevich
------------------------------
Title: Chief Financial Officer
------------------------------
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"Acquisition Subsidiary"
ARA Acquisition Corporation, a California corporation
By: /s/ W. Nicholas Howley
------------------------------
Name: W. Nicholas Howley
------------------------------
Title: President
------------------------------
By: /s/ Peter B. Radekevich
------------------------------
Name: Peter B. Radekevich
------------------------------
Title: Chief Financial Officer
------------------------------
|
"Company"
ZMP, Inc.,
a California corporation
By: /s/ Charles A. Collins
------------------------------
Name: Charles A. Collins
------------------------------
Title: President and Secretary
------------------------------
|
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
Charles A. Collins certifies that:
(a) He is the President and the Secretary of ZMP, Inc., a corporation organized under the laws of the State of California (the "CORPORATION").
(b) The Corporation has authorized one class of stock, designated Common Stock.
(c) The number of outstanding shares of Common Stock of the Corporation entitled to vote on the Record Date, March 1, 1999, for the Special Meeting or for the written consent of the Shareholders of the Corporation was 105,435 shares.
(d) The principal terms of the agreement relating to the merger of ARA Acquisition Corporation, a California corporation, with and into the Corporation (the "MERGER") in the form attached were approved by the Corporation's Board of Directors and by the vote of a number of shares of Common Stock which equaled or exceeded the vote required.
(e) The percentage vote required of the holders of Common Stock entitled to vote in connection with the Merger is more than 50%.
/s/ Charles A. Collins ---------------------------------- Title: President and Secretary |
Charles A. Collins declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: April 20, 1999
Name: /s/ Charles A. Collins
------------------------
|
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
W. Nicholas Howley and Eileen Fallon certify that:
1. They are the President and the Secretary, respectively, of ARA Acquisition Corporation, a corporation organized under the laws of the State of California (the "CORPORATION").
2. The Corporation has authorized one class of stock, designated Common Stock, of which 1,000 were entitled to vote.
3. The principal terms of the agreement relating to the merger of the Corporation with and into ZMP, Inc., a California corporation, (the "MERGER") in the form attached were approved by the Corporation's Board of Directors and by the vote of a number of shares of each class which equaled or exceeded the vote required.
4. The percentage vote required of the Common Stock entitled to vote in connection with the Merger is more than 50%.
/s/ Nicholas Howley ---------------------------------- Title: President /s/ Eileen Fallon ---------------------------------- Title: Secretary |
W. Nicholas Howley declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: April 20, 1999
Eileen Fallon declares under penalty of perjury under the laws of the State of California that she has read the foregoing certificate and knows the contents thereof and that the same is true of her own knowledge.
Dated: April 19, 1999
CERTIFICATE
OF APPROVAL OF AGREEMENT OF MERGER
Peter B. Radekevich and Eileen Fallon certify that:
1. They are the CFO and the Secretary, respectively, of TransDigm Inc., a corporation organized under the laws of the State of Delaware (the "CORPORATION").
2. The Corporation has authorized one class of stock, designated Common Stock, of which 1,000 were entitled to vote.
3. The principal terms of the agreement relating to the merger of the ARA Acquisition Corporation with and into ZMP, Inc., a California corporation, (the "MERGER") in the form attached were approved by the Corporation's Board of Directors and by the vote of a number of shares of each class which equaled or exceeded the vote required.
4. The Merger was approved by the sole shareholder of the Corporation.
/s/ Peter B. Radekevich ---------------------------------- Title: Chief Financial Officer /s/ Eileen Fallon ---------------------------------- Title: Secretary |
Peter B. Radekevich declares under penalty of perjury under the laws of the State of California that he has read the foregoing certificate and knows the contents thereof and that the same is true of his own knowledge.
Dated: April 19, 1999
Name: /s/ Peter B. Radekevich
-----------------------------
|
Eileen Fallon declares under penalty of perjury under the laws of the State of California that she has read the foregoing certificate and knows the contents thereof and that the same is true of her own knowledge.
Dated: April 19, 1999
Name: /s/ Eileen Fallon
-----------------------------
|
EXHIBIT 3.12
ARTICLES OF INCORPORATION
OF
ARP ACQUISITION CORPORATION
I
The name of this Corporation is ARP ACQUISITION CORPORATION.
II
The purpose of this Corporation is to engage in any lawful act or activity for which a Corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporation Code.
III
The name and address in the State of California of this Corporation's initial agent for service of process is:
M. Glenn Gilbert
Zimmerman Holdings, Inc.
2600 Mission Avenue, Suite 100
San Marino, California 91108
IV
This Corporation is authorized to issue only one class of shares of stock and the total number of shares which this Corporation is authorized to issue is one million (1,000,000).
DATED: July 30, 1986
/s/ Henry Pramov
---------------------------------------
Henry P. Pramov, Incorporator
|
I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed.
/s/ Henry Pramov --------------------------------------- Henry P. Pramov |
Exhibit 3.13
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ARP ACQUISITION CORPORATION
IRWIN D. MILLER and M. GLENN GILBERT certify that:
1. They are the President and the Assistant Secretary, respectively, of ARP Acquisition Corporation, a California corporation.
2. Article I of the Articles of Incorporation of this corporation is amended to read as follows:
"The name of this corporation is Adams Rite Products, Inc."
3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is 50,000. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
DATED: August 13, 1986
/s/ Irwin D. Miller
----------------------------------------
Irwin D. Miller, President
/s/ M. Glenn Gilbert
----------------------------------------
M. Glenn Gilbert, Assistant Secretary
|
Exhibit 3.14
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE PRODUCTS, INC.
R. Michael Briggs and Brian P. Alleman certify that:
1. They are the Chairman of the Board and the Secretary, respectively, of Adams Rite Products, Inc., a California corporation (the "Corporation").
2. The provision set forth below shall be added to the Articles of Incorporation of the Corporation as Article V, to read in full as follows:
"The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law."
3. The provision set forth below shall be added to the Articles of Incorporation of the Corporation as Article VI, to read in full as follows:
"The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted in Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders."
4. The foregoing amendments of Articles of Incorporation have been duly approved by the Board of Directors.
5. The foregoing amendments of Articles of Incorporation have been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the Corporation is 50,000. The number of shares voting in favor of the amendments equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Dated: January 24, 1992
/s/ R. Michael Briggs
------------------------------------
R. Michael Briggs
Chairman of the Board
/s/ Brian P. Alleman
------------------------------------
Brian P. Alleman, Secretary
|
EXHIBIT 3.15
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE PRODUCTS, INC.
Charles A. Collins and Brian P. Alleman certify that:
1. They are the President and Chief Executive Officer and Secretary and Chief Financial Officer, respectively, of Adams Rite Products, Inc., a California corporation (the "Corporation").
2. Articles I of the Articles of Incorporation of the Corporation is amended to read in full as follows:
"Article I
The name of this corporation is Adams Rite Sabre International, Inc."
3. The foregoing amendment to the Articles of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment to the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporation Code. The total number of outstanding shares of the Corporation is 50,000. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Dated: December 23, 1992
/s/ Charles Collins
--------------------------------------
Charles A. Collins
President and Chief Executive Officer
/s/ Brian Alleman
--------------------------------------
Brian P. Alleman
Secretary and Chief Financial Officer
|
Exhibit 3.16
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADAMS RITE SABRE INTERNATIONAL, INC.
Charles A. Collins and Al Chan certify that:
1. They are the President, Chief Executive Officer and Chairman of the Board and the Secretary and Chief Financial Officer, respectively, of Adams Rite Sabre International, Inc., a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of the Corporation is amended to read in full as follows:
I
The name of this Corporation is Adams Rite Aerospace, Inc.
3. The foregoing amendment to the Articles of Incorporation has been duly approved by the Board of Directors of the Corporation.
4. The foregoing amendment to the Articles of Incorporation has been duly approved by the shareholder holding 100% of the outstanding shares of the Corporation. The Corporation has only one class of shares, and the number of outstanding shares is 50,000.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
DATED: August 1, 1997
/s/ Charles A. Collins
-----------------------------------------------
Charles A. Collins, President, Chief Executive
Officer and Chairman of the Board
/s/ Al Chan
-----------------------------------------------
Al Chan, Secretary and Chief Financial Officer
|
Exhibit 3.20
ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
As Adopted on April 23, 1999
ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
SECTION PAGE ------- ---- ARTICLE I SHAREHOLDERS Section 1.01. Annual Meetings...................................................................1 Section 1.02. Special Meetings..................................................................1 Section 1.03. Notice of Meetings; Waiver........................................................1 Section 1.04. Quorum............................................................................2 Section 1.05. Voting............................................................................2 Section 1.06. Voting by Ballot..................................................................3 Section 1.07. Adjournment.......................................................................3 Section 1.08. Proxies...........................................................................4 Section 1.09. Organization; Procedure...........................................................4 Section 1.10. Consent of Shareholders in Lieu of Meeting........................................4 ARTICLE II BOARD OF DIRECTORS Section 2.01. General Powers....................................................................5 Section 2.02. Number and Term of Office.........................................................6 Section 2.03. Election of Directors.............................................................5 Section 2.04. Annual and Regular Meetings.......................................................5 Section 2.05. Special Meetings; Notice..........................................................6 Section 2.06. Quorum; Voting....................................................................6 Section 2.07. Adjournment.......................................................................6 Section 2.08. Action Without a Meeting..........................................................7 Section 2.09. Regulations: Manner of Acting.....................................................7 Section 2.10. Action by Telephonic Communications...............................................8 Section 2.11. Resignations......................................................................7 Section 2.12. Removal of Directors..............................................................7 Section 2.13. Vacancies and Newly Created Directorships.........................................7 Section 2.14. Compensation......................................................................8 Section 2.15. Reliance on Accounts and Reports, etc.............................................9 ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES Section 3.01. How Constituted...................................................................8 Section 3.02. Powers............................................................................8 |
PAGE
----
Section 3.03. Proceedings.......................................................................9
Section 3.04. Quorum and Manner of Acting......................................................11
Section 3.05. Action by Telephonic Communications..............................................10
Section 3.06. Absent or Disqualified Members...................................................10
Section 3.07. Resignations.....................................................................10
Section 3.08. Removal..........................................................................10
Section 3.09. Vacancies........................................................................10
ARTICLE IV OFFICERS
Section 4.01. Number...........................................................................10
Section 4.02. Election.........................................................................11
Section 4.03. Salaries.........................................................................11
Section 4.04. Removal and Resignation; Vacancies...............................................11
Section 4.05. Authority and Duties of Officers.................................................11
Section 4.06. The President....................................................................11
Section 4.07. The Vice President...............................................................12
Section 4.08. The Secretary....................................................................12
Section 4.09. The Treasurer....................................................................13
Section 4.10. Additional Officers..............................................................13
Section 4.11. Security.........................................................................13
ARTICLE V CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.....................................14
Section 5.02. Signatures; Facsimile............................................................14
Section 5.03. Lost, Stolen or Destroyed Certificates...........................................14
Section 5.04. Transfer of Stock................................................................14
Section 5.05. Record Date......................................................................15
Section 5.06. Registered Shareholders..........................................................16
Section 5.07. Transfer Agent and Registrar.....................................................16
ARTICLE VI INDEMNIFICATION
Section 6.01. Nature of Indemnity..............................................................16
Section 6.02. Successful Defense...............................................................17
Section 6.03. Determination That Indemnification Is Proper.....................................17
Section 6.04. Advance Payment of Expenses......................................................17
Section 6.05. Procedure for Indemnification of Directors and Officers..........................18
Section 6.06. Survival; Preservation of Other Rights...........................................19
Section 6.07. Insurance........................................................................19
Section 6.08. Severability.....................................................................19
|
PAGE
----
ARTICLE VII OFFICES
Section 7.01. Principal Office.................................................................19
Section 7.02. Other Offices....................................................................20
ARTICLE VIII GENERAL PROVISIONS
Section 8.01. Dividends........................................................................20
Section 8.02. Reserves.........................................................................20
Section 8.03. Execution of Instruments.........................................................20
Section 8.04. Corporate Indebtedness...........................................................20
Section 8.05. Deposits.........................................................................21
Section 8.06. Checks...........................................................................21
Section 8.07. Sale, Transfer, etc. of Securities...............................................21
Section 8.08. Voting as Shareholder............................................................21
Section 8.09. Fiscal Year......................................................................21
Section 8.10. Seal.............................................................................21
Section 8.11. Books and Records: Inspection....................................................22
ARTICLE IX AMENDMENT OF BY-LAWS
Section 9.01. Amendment........................................................................22
ARTICLE X CONSTRUCTION
Section 10.01. Construction.....................................................................22
|
ZMP, INC.
AMENDED AND RESTATED
BY-LAWS
As adopted on April 23, 1999
ARTICLE I
SHAREHOLDERS
Section 1.01. ANNUAL MEETINGS. The annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held at such place, either within or without the State of California, and at such date and hour, as may be fixed from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting.
Section 1.02. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the President (or, in the event of his absence or disability, by any Vice President), or by the Board of Directors. A special meeting shall be called by the President (or, in the event of his absence or disability, by any Vice President), or by the Secretary, immediately upon receipt of a written request therefor by shareholders holding in the aggregate not less than 10% of the outstanding shares of the Corporation at the time entitled to vote at any meeting of the shareholders. If such officers or the Board of Directors shall fail to call such meeting within 20 days after receipt of such request, any shareholder executing such request may call such meeting to be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. Such special meetings of the shareholders shall be held at such places, within or without the State of California, as shall be specified in the respective notices or waivers of notice thereof.
Section 1.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any Assistant Secretary shall cause written notice of the place, date and hour of each meeting of the shareholders, and, (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders, to be given personally or by first-class mail, not less than ten nor more than sixty days prior to the meeting, to each shareholder of record entitled to vote at such meeting. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of such Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of such Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares pursuant to Section 2007 of such Code, the notice shall also state the general nature of such proposal.
If such notice is mailed, it shall be deemed to have been given to a shareholder when deposited in the United States mail, postage prepaid, directed to the shareholder at his address as it appears on the record of shareholders of the Corporation, or, if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at such other address. If no such address appears on the corporation's books or has been so given, notice shall be deemed to have been given if sent by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where such office is located.
If any notice addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice. Such further notice shall be given as may be required by law.
No notice of any meeting of shareholders need be given to any shareholder who submits a signed waiver of notice, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in a written waiver of notice. The attendance of any shareholder at a meeting of shareholders shall constitute a waiver of notice of such meeting, except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the Secretary, Assistant Secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation.
Section 1.04. QUORUM. Except as otherwise required by law or by the Certificate of Incorporation, the presence in person or by proxy of the holders of record of a majority of the shares entitled to vote at a meeting of shareholders shall constitute a quorum for the transaction of business at such meeting.
Section 1.05. VOTING. If, pursuant to Section 5.05 of these By-Laws, a record date has been fixed, every holder of record of shares entitled to vote at a meeting of shareholders
shall be entitled to one vote for each share outstanding in his name on the books of the Corporation at the close of business on such record date. If no record date has been fixed, then every holder of record of shares entitled to vote at a meeting of shareholders shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation at the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
Any shareholder entitled to vote on any matter (other than the election of directors) may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and voting on any matter (other than the election of directors), provided that the shares voting affirmatively must also constitute at least a majority of the required quorum, shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the California General Corporation Law or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of the shareholder's shares) unless such candidate or candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate such shareholder's votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.
Section 1.06. VOTING BY BALLOT. No vote of the shareholders need be taken by ballot unless required by law (except that all elections for directors must be by ballot upon demand by a shareholder at the meeting and before the voting begins). Any vote which need not be taken by ballot may be conducted by voice vote or in any manner approved by the meeting.
Section 1.07. ADJOURNMENT. If a quorum is not present at any meeting of the shareholders, the shareholders present in person or by proxy shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the shareholders of the Corporation need not be given if the place, date and hour thereof are announced at the meeting at which the adjournment is taken, provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice of the adjourned
meeting, conforming to the requirements of Section 1.03 hereof, shall be given to each shareholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting.
Section 1.08. PROXIES. Any shareholder entitled to vote at any meeting of the shareholders or to express consent to or dissent from corporate action without a meeting may authorize another person or persons to vote at any such meeting and express such consent or dissent for him by proxy. A shareholder may authorize a valid proxy by executing a written instrument signed by such shareholder, or by causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature, or by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person designated as the holder of the proxy, a proxy solicitation firm or a like authorized agent. A proxy must be filed with the Secretary of the corporation. No such proxy shall be voted or acted upon after the expiration of eleven months from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the shareholder executing it, except in those cases where applicable law provides that a proxy shall be irrevocable. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary. Proxies by telegram, cablegram or other electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 1.09. ORGANIZATION; PROCEDURE. At every meeting of shareholders the presiding officer shall be the President or, in the event of his absence or disability, a presiding officer chosen by a majority of the shareholders present in person or by proxy. The Secretary, or in the event of his absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as Secretary of the meeting. The order of business and all other matters of procedure at every meeting of shareholders may be determined by such presiding officer.
Section 1.10. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. To the fullest extent permitted by law, whenever the vote of shareholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action,
such action may be taken without a meeting, without prior notice and without a vote of shareholders, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. In the case of election of directors, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy not created by removal and not filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.
Every written consent shall bear the date of signature of each shareholder or member who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by law to the Corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the Corporation. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holder, may revoke the consent by a writing received by the Secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. GENERAL POWERS. Except as may otherwise be provided by law, by the Certificate of Incorporation or by these By-Laws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation.
Section 2.02. NUMBER AND TERM OF OFFICE. The number of Directors constituting the entire Board of Directors shall be not less than one nor more than thirteen, which number may be modified from time to time by resolution of the Board of Directors, but in no event shall the number of Directors be less than one. Each Director (whenever elected) shall hold office until his successor has been duly elected and qualified, or until his earlier death, resignation or removal.
Section 2.03. ELECTION OF DIRECTORS. Except as otherwise provided in Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each annual meeting of the shareholders. If the annual meeting for the election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon thereafter as convenient. At each meeting of the shareholders for the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in such election.
Section 2.04. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board of Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as possible following adjournment of the annual meeting of the shareholders at the place of such annual meeting of the shareholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of California) and the date and hour of such meetings. Notice of regular meetings need not be given, provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telegram, radio or cable, to each Director who shall not have been present at the meeting at which such action was taken, addressed to him at his usual place of business, or shall be delivered to him personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting.
Section 2.05. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors shall be held whenever called by the President or, in the event of his absence or disability, by any Vice President, at such place (within or without the State of California), date and hour as may be specified in the respective notices or waivers of notice of such meetings. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
Special meetings of the Board of Directors may be called on 24 hours' notice, if notice is given to each Director personally or by telephone or telegram, or on five days' notice, if notice is mailed to each Director, addressed to him at his usual place of business. Notice of any special meeting need not be given to any Director who attends such meeting without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat.
Section 2.06. QUORUM; VOTING. At all meetings of the Board of Directors, the presence of a majority of the total authorized number of Directors shall constitute a quorum for the transaction of business. Except as otherwise required by law, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, subject to the provisions of Section 310 of the Corporations Code of California (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 (appointment of committees), and Section 317 (e) (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.
Section 2.07. ADJOURNMENT. A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the meeting is adjourned for more than twenty-four (24) hours or unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.05 shall be given to each Director.
Section 2.08. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent or consents shall be filed with the minutes of the proceedings of the Board.
Section 2.09. REGULATIONS: MANNER OF ACTING. To the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board, and the individual Directors shall have no power as such.
Section 2.10. ACTION BY TELEPHONIC COMMUNICATIONS. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
Section 2.11. RESIGNATIONS. Any Director may resign at any time by delivering a written notice of resignation, signed by such Director, to the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.
Section 2.12. REMOVAL OF DIRECTORS. Any Director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such Director, cast at a special meeting of shareholders called for the purpose, or by court order. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by the shareholders entitled to vote for the election of the Director so removed. If such shareholders do not fill such vacancy at such meeting (or in the written instrument effecting such removal, if such removal was effected by consent without a meeting), such vacancy may be filled in the manner provided in Section 2.13 of these By-Laws.
Section 2.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue
to act, and such vacancies and newly created directorships may be filled by a majority of the Directors then in office, although less than a quorum. A Director elected to fill a vacancy or a newly created directorship shall hold office until his successor has been elected and qualified or until his earlier death, resignation or removal. Any such vacancy or newly created directorship may also be filled at any time by vote of the shareholders.
Section 2.14. COMPENSATION. The amount, if any, which each Director shall be entitled to receive as compensation for his services as such shall be fixed from time to time by resolution of the Board of Directors.
Section 2.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A Director, or a member of any Committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or Committees designated by the Board of Directors, or by any other person as to the matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. HOW CONSTITUTED. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more Committees, including an Executive Committee, each such Committee to consist of two or more Directors as from time to time may be fixed by the Board of Directors. The Board of Directors may designate one or more Directors as alternate members of any such Committee, who may replace any absent or disqualified member or members at any meeting of such Committee. Thereafter, members (and alternate members, if any) of each such Committee may be designated at the annual meeting of the Board of Directors. Any such Committee may be abolished or re-designated from time to time by the Board of Directors. Each member (and each alternate member) of any such Committee (whether designated at an annual meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold office until his successor shall have been designated or until he shall cease to be a Director, or until his earlier death, resignation or removal.
Section 3.02. POWERS. During the intervals between the meetings of the Board of Directors, the Executive Committee, except as otherwise provided in this section, shall have and may exercise all the powers and authority of the Board of Directors in the management of the property, affairs and business of the Corporation, including the power to declare dividends and to authorize the issuance of stock. Each such other Committee, except as otherwise provided in this section, shall have and may exercise such powers of the Board of Directors as may be provided
by resolution or resolutions of the Board of Directors. Neither the Executive Committee nor any such other Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets,
(d) to recommend to the shareholders a dissolution of the Corporation or a revocation of a dissolution,
(e) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares,
(f) the filling of vacancies on the Board of Directors or in any committee,
(g) the fixing of compensation of the directors for serving on the board or on any committee,
(h) the amendment or repeal of bylaws or the adoption of new bylaws,
(i) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable, or
(j) the appointment of any other committees of the Board of Directors or the members thereof.
The Executive Committee shall have, and any such other Committee may be granted by the Board of Directors, power to authorize the seal of the Corporation to be affixed to any or all papers which may require it.
Section 3.03. PROCEEDINGS. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article II of these bylaws, with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of
committees may be determined by resolution of the Board of Directors as well as the committee, special meetings of committees may also be called by resolution of the Board of Directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. Each such Committee may fix its own rules of procedure not inconsistent with the provisions of these bylaws and may meet at such place (within or without the State of California), at such time and upon such notice, if any, as it shall determine from time to time. Each such Committee shall keep minutes of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following any such proceedings.
Section 3.04. QUORUM AND MANNER OF ACTING. Except as may be otherwise provided in the resolution creating such Committee, at all meetings of any Committee the presence of members (or alternate members) constituting a majority of the total authorized membership of such Committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the minutes of the proceedings of the Committee. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such.
Section 3.05. ACTION BY TELEPHONIC COMMUNICATIONS. Members of any Committee designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
Section 3.06. ABSENT OR DISQUALIFIED MEMBERS. In the absence or disqualification of a member of any Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Section 3.07. RESIGNATIONS. Any member (and any alternate member) of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. REMOVAL. Any member (and any alternate member) of any Committee may be removed at any time, either for or without cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. VACANCIES. If any vacancy shall occur in any Committee, by reason of disqualification, death, resignation, removal or otherwise, the remaining members (and any alternate members) shall continue to act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. There may also be a Chairman of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, as the Board of Directors may determine. Any number of offices may be held by the same person. No officer need be a Director of the Corporation.
Section 4.02. ELECTION. Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such annual meeting, officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall hold office until his successor has been elected and qualified, or until his earlier death, resignation or removal.
Section 4.03. SALARIES. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 4.04. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be removed for or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors.
Section 4.05. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law.
Section 4.06. THE PRESIDENT. The President shall preside at all meetings of the shareholders and directors at which he is present, shall be the chief executive officer and the chief operating officer of the Corporation, shall have general control and supervision of the policies and operations of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall manage and administer the Corporation's business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer and a chief operating officer of a corporation. He shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and other documents and instruments in connection with the business of the Corporation, and together with the Secretary or an Assistant Secretary, conveyances of real estate and other documents and instruments to which the seal of the Corporation is affixed. He shall have the authority to cause the employment or appointment of such employees and agents of the Corporation as the conduct of the business of the Corporation may require, to fix their compensation, and to remove or suspend any employee or agent elected or appointed by the President or the Board of Directors. The President shall perform such other duties and have such other powers as the Board of Directors or the Chairman may from time to time prescribe.
Section 4.07. THE VICE PRESIDENT. Each Vice President shall perform such duties and exercise such powers as may be assigned to him from time to time by the President. In the absence of the President, the duties of the President shall be performed and his powers may be exercised by such Vice President as shall be designated by the President, or failing such designation, such duties shall be performed and such powers may be exercised by each Vice President in the order of their earliest election to that office; subject in any case to review and superseding action by the President.
Section 4.08. THE SECRETARY. The Secretary shall have the following powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings of the meetings of the shareholders and of the Board of Directors in books provided for that purpose.
(b) He shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution of the Board of Directors, he shall furnish a copy of such resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to all certificates representing shares of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized in accordance with these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports, statements, certificates and all other documents and records required by law, the Certificate of Incorporation
or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the Corporation and shall cause the stock and transfer books to be kept in such manner as to show at any time the number of shares of stock of the Corporation of each class issued and outstanding, the names (alphabetically arranged) and the addresses of the holders of record of such shares, the number of shares held by each holder and the date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or Assistant Secretary shall have signed) certificates representing shares of the Corporation the issuance of which shall have been authorized by the Board of Directors.
(h) He shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these By-Laws or as may be assigned to him from time to time by the Board of Directors, or the President.
Section 4.09. THE TREASURER. The Treasurer shall be the chief financial officer of the Corporation and shall have the following powers and duties:
(a) He shall have charge and supervision over and be responsible for the moneys, securities, receipts and disbursements of the Corporation, and shall keep or cause to be kept full and accurate records of all receipts of the Corporation.
(b) He shall cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Section 8.05 of these By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed by checks or drafts (signed as provided in Section 8.06 of these By-Laws) upon the authorized depositaries of the Corporation and cause to be taken and preserved proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President, whenever requested, a statement of the financial condition of the Corporation and of all his transactions as Treasurer, and render a full financial report at the annual meeting of the shareholders, if called upon to do so.
(e) He shall be empowered from time to time to require from all officers or agents of the Corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary or an Assistant Secretary shall have signed) certificates representing stock of the Corporation the issuance of which shall have been authorized by the Board of Directors.
(g) He shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these By-Laws or as may be assigned to him from time to time by the Board of Directors, or the President.
Section 4.10. ADDITIONAL OFFICERS. The Board of Directors may appoint such other officers and agents as it may deem appropriate, and such other officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors. The Board of Directors from time to time may delegate to any officer or agent the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any such officer or agent may remove any such subordinate officer or agent appointed by him, for or without cause.
Section 4.11. SECURITY. The Board of Directors may require any officer, agent or employee of the Corporation to provide security for the faithful performance of his duties, in such amount and of such character as may be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the Corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until each certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation, by the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws.
Section 5.02. SIGNATURES; FACSIMILE. All of such signatures on the certificate may be a facsimile, engraved or printed, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 5.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon delivery to the Board of Directors of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.
Section 5.04. TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law of the State of California. Subject to the provisions of the Certificate of Incorporation and these By-Laws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation.
Section 5.05. RECORD DATE. In order to determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty nor less than ten days before the date of such meeting nor more than sixty days prior to such action without a meeting. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If no record date has been fixed by the Board of Directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice if given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
In order that the Corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, (i) when no prior action by the Board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the
Board has been taken, shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
In order that the Corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action (other than action by shareholders by written consent without a meeting), the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, (i) when no prior action by the Board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Board has been taken, shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
Section 5.06. REGISTERED SHAREHOLDERS. Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interests. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so.
Section 5.07. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. NATURE OF INDEMNITY. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to 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 or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer, of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) , judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
The termination of any action, suit or proceeding by judgment, order settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 6.01 hereof or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
Section 6.03. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any indemnification of a director or officer of the Corporation under Section 6.01 hereof (unless ordered by a court) shall be made by the Corporation unless a determination is made that indemnification of the director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Section 6.01 hereof. Any indemnification of an employee or agent of the Corporation under Section 6.01 hereof (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.01 hereof. Any such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or
(3) by the shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon, or
(4) by the court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.
Section 6.04. ADVANCE PAYMENT OF EXPENSES. Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's counsel to represent such director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.
No indemnification or advance shall be made under this section, except as provided in Section 6.02 or paragraph (4) of Section 6.03, in any circumstance where it appears: (1) that it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification or (2) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
Section 6.05. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any indemnification of a director or officer of the Corporation under Sections 6.01 and 6.02, or advance of costs, charges and expenses to a director or officer under Section 6.04 of this Article, shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article is required, and the Corporation fails to respond within sixty days to a written request for indemnity, the Corporation shall be deemed to have approved such request. If the Corporation denies a written request for indemnity or advancement of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 6.04 of this Article where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 6.01 of this Article, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel, and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.01 of this Article, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel, and its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 6.06. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing indemnification provisions shall be deemed to be a contract between the Corporation and each director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the California Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 6.07. INSURANCE. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, PROVIDED that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors.
Section 6.08. SEVERABILITY. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. PRINCIPAL OFFICES. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall likewise fix and designate a principal business office in the State of California.
Section 7.02. OTHER OFFICES. The Corporation may maintain offices or places of business at such other locations within or without the State of California as the Board of Directors may from time to time determine or as the business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. DIVIDENDS. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors and any such dividend may be paid in cash, property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee designated by the Board of Directors shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or Committees of the Board of Directors, or by any other person as to matters the Director reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid.
Section 8.02. RESERVES. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. EXECUTION OF INSTRUMENTS. The President, any Vice President, the Secretary or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the President may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments.
Section 8.04. CORPORATE INDEBTEDNESS. No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors or the President. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors or the President shall authorize. When so authorized by the Board of Directors or the President, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. DEPOSITS. Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositaries as may be determined by the Board of Directors or the President, or by such officers or agents as may be authorized by the Board of Directors or the President to make such determination.
Section 8.06. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors or the President from time to time may determine.
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES . To the extent authorized by the Board of Directors or by the President, any Vice President, the Secretary or the Treasurer or any other officers designated by the Board of Directors or the President may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its
corporate seal, any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. VOTING AS SHAREHOLDER. Unless otherwise determined by resolution of the Board of Directors, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of shareholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons.
Section 8.09. FISCAL YEAR. The fiscal year of the Corporation shall commence on the first day of January of each year (except for the Corporation's first fiscal year which shall commence on the date of incorporation) and shall terminate in each case on December 31.
Section 8.10. SEAL. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "California". The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner.
Section 8.11. BOOKS AND RECORDS: INSPECTION. Except to the extent otherwise required by law, the books and records of the Corporation shall be kept at such place or places within or without the State of California as may be determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. AMENDMENT. These By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at any special or regular meeting of the Board if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the shareholders if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.
ARTICLE X
CONSTRUCTION
Section 10.01. CONSTRUCTION. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the certificate of incorporation of the Corporation as in effect from time to time, the provisions of such certificate of incorporation shall be controlling.
ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
As Adopted on April 23, 1999
ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
SECTION PAGE ------- ---- ARTICLE I SHAREHOLDERS Section 1.01. Annual Meetings.....................................................1 Section 1.02. Special Meetings....................................................1 Section 1.03. Notice of Meetings; Waiver..........................................1 Section 1.04. Quorum..............................................................2 Section 1.05. Voting..............................................................2 Section 1.06. Voting by Ballot....................................................3 Section 1.07. Adjournment.........................................................3 Section 1.08. Proxies.............................................................4 Section 1.09. Organization; Procedure.............................................4 Section 1.10. Consent of Shareholders in Lieu of Meeting..........................4 ARTICLE II BOARD OF DIRECTORS Section 2.01. General Powers......................................................5 Section 2.02. Number and Term of Office...........................................6 Section 2.03. Election of Directors...............................................5 Section 2.04. Annual and Regular Meetings.........................................5 Section 2.05. Special Meetings; Notice............................................6 Section 2.06. Quorum; Voting......................................................6 Section 2.07. Adjournment.........................................................6 Section 2.08. Action Without a Meeting............................................7 Section 2.09. Regulations: Manner of Acting.......................................7 Section 2.10. Action by Telephonic Communications.................................8 Section 2.11. Resignations........................................................7 Section 2.12. Removal of Directors................................................7 Section 2.13. Vacancies and Newly Created Directorships...........................7 Section 2.14. Compensation........................................................8 Section 2.15. Reliance on Accounts and Reports, etc...............................9 ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES Section 3.01. How Constituted.....................................................8 Section 3.02. Powers..............................................................8 |
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Section 3.03. Proceedings.........................................................9
Section 3.04. Quorum and Manner of Acting........................................11
Section 3.05. Action by Telephonic Communications................................10
Section 3.06. Absent or Disqualified Members.....................................10
Section 3.07. Resignations.......................................................10
Section 3.08. Removal............................................................10
Section 3.09. Vacancies..........................................................10
ARTICLE IV OFFICERS
Section 4.01. Number.............................................................10
Section 4.02. Election...........................................................11
Section 4.03. Salaries...........................................................11
Section 4.04. Removal and Resignation; Vacancies.................................11
Section 4.05. Authority and Duties of Officers...................................11
Section 4.06. The President......................................................11
Section 4.07. The Vice President.................................................12
Section 4.08. The Secretary......................................................12
Section 4.09. The Treasurer......................................................13
Section 4.10. Additional Officers................................................13
Section 4.11. Security...........................................................13
ARTICLE V CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.......................14
Section 5.02. Signatures; Facsimile..............................................14
Section 5.03. Lost, Stolen or Destroyed Certificates.............................14
Section 5.04. Transfer of Stock..................................................14
Section 5.05. Record Date........................................................15
Section 5.06. Registered Shareholders............................................16
Section 5.07. Transfer Agent and Registrar.......................................16
ARTICLE VI INDEMNIFICATION
Section 6.01. Nature of Indemnity................................................16
Section 6.02. Successful Defense.................................................17
Section 6.03. Determination That Indemnification Is Proper.......................17
Section 6.04. Advance Payment of Expenses........................................17
Section 6.05. Procedure for Indemnification of Directors and Officers............18
Section 6.06. Survival; Preservation of Other Rights.............................19
Section 6.07. Insurance..........................................................19
Section 6.08. Severability.......................................................19
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ARTICLE VII OFFICES
Section 7.01. Principal Office...................................................19
Section 7.02. Other Offices......................................................20
ARTICLE VIII GENERAL PROVISIONS
Section 8.01. Dividends..........................................................20
Section 8.02. Reserves...........................................................20
Section 8.03. Execution of Instruments...........................................20
Section 8.04. Corporate Indebtedness.............................................20
Section 8.05. Deposits...........................................................21
Section 8.06. Checks.............................................................21
Section 8.07. Sale, Transfer, etc. of Securities.................................21
Section 8.08. Voting as Shareholder..............................................21
Section 8.09. Fiscal Year........................................................21
Section 8.10. Seal...............................................................21
Section 8.11. Books and Records: Inspection......................................22
ARTICLE IX AMENDMENT OF BY-LAWS
Section 9.01. Amendment..........................................................22
ARTICLE X CONSTRUCTION
Section 10.01. Construction.......................................................22
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ADAMS RITE AEROSPACE, INC.
AMENDED AND RESTATED
BY-LAWS
As adopted on April 23, 1999
ARTICLE I
SHAREHOLDERS
Section 1.01. ANNUAL MEETINGS. The annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held at such place, either within or without the State of California, and at such date and hour, as may be fixed from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting.
Section 1.02. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the President (or, in the event of his absence or disability, by any Vice President), or by the Board of Directors. A special meeting shall be called by the President (or, in the event of his absence or disability, by any Vice President), or by the Secretary, immediately upon receipt of a written request therefor by shareholders holding in the aggregate not less than 10% of the outstanding shares of the Corporation at the time entitled to vote at any meeting of the shareholders. If such officers or the Board of Directors shall fail to call such meeting within 20 days after receipt of such request, any shareholder executing such request may call such meeting to be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. Such special meetings of the shareholders shall be held at such places, within or without the State of California, as shall be specified in the respective notices or waivers of notice thereof.
Section 1.03. NOTICE OF MEETINGS; WAIVER. The Secretary or any Assistant Secretary shall cause written notice of the place, date and hour of each meeting of the shareholders, and, (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders, to be given personally or by first-class mail, not less than ten nor more than sixty days prior to the meeting, to each shareholder of record entitled to vote at such meeting. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of such Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of such Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares pursuant to Section 2007 of such Code, the notice shall also state the general nature of such proposal.
If such notice is mailed, it shall be deemed to have been given to a shareholder when deposited in the United States mail, postage prepaid, directed to the shareholder at his address as it appears on the record of shareholders of the Corporation, or, if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at such other address. If no such address appears on the corporation's books or has been so given, notice shall be deemed to have been given if sent by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where such office is located.
If any notice addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice. Such further notice shall be given as may be required by law.
No notice of any meeting of shareholders need be given to any shareholder who submits a signed waiver of notice, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in a written waiver of notice. The attendance of any shareholder at a meeting of shareholders shall constitute a waiver of notice of such meeting, except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the Secretary, Assistant Secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation.
Section 1.04. QUORUM. Except as otherwise required by law or by the Certificate of Incorporation, the presence in person or by proxy of the holders of record of a majority of the shares entitled to vote at a meeting of shareholders shall constitute a quorum for the transaction of business at such meeting.
Section 1.05. VOTING. If, pursuant to Section 5.05 of these By-Laws, a record date has been fixed, every holder of record of shares entitled to vote at a meeting of shareholders
shall be entitled to one vote for each share outstanding in his name on the books of the Corporation at the close of business on such record date. If no record date has been fixed, then every holder of record of shares entitled to vote at a meeting of shareholders shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation at the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
Any shareholder entitled to vote on any matter (other than the election of directors) may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and voting on any matter (other than the election of directors), provided that the shares voting affirmatively must also constitute at least a majority of the required quorum, shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the California General Corporation Law or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of the shareholder's shares) unless such candidate or candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate such shareholder's votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.
Section 1.06. VOTING BY BALLOT. No vote of the shareholders need be taken by ballot unless required by law (except that all elections for directors must be by ballot upon demand by a shareholder at the meeting and before the voting begins). Any vote which need not be taken by ballot may be conducted by voice vote or in any manner approved by the meeting.
Section 1.07. ADJOURNMENT. If a quorum is not present at any meeting of the shareholders, the shareholders present in person or by proxy shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the shareholders of the Corporation need not be given if the place, date and hour thereof are announced at the meeting at which the adjournment is taken, provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice of the adjourned
meeting, conforming to the requirements of Section 1.03 hereof, shall be given to each shareholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting.
Section 1.08. PROXIES. Any shareholder entitled to vote at any meeting of the shareholders or to express consent to or dissent from corporate action without a meeting may authorize another person or persons to vote at any such meeting and express such consent or dissent for him by proxy. A shareholder may authorize a valid proxy by executing a written instrument signed by such shareholder, or by causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature, or by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person designated as the holder of the proxy, a proxy solicitation firm or a like authorized agent. A proxy must be filed with the Secretary of the corporation. No such proxy shall be voted or acted upon after the expiration of eleven months from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the shareholder executing it, except in those cases where applicable law provides that a proxy shall be irrevocable. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary. Proxies by telegram, cablegram or other electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. Any copy, facsimile telecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 1.09. ORGANIZATION; PROCEDURE. At every meeting of shareholders the presiding officer shall be the President or, in the event of his absence or disability, a presiding officer chosen by a majority of the shareholders present in person or by proxy. The Secretary, or in the event of his absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as Secretary of the meeting. The order of business and all other matters of procedure at every meeting of shareholders may be determined by such presiding officer.
Section 1.10. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. To the fullest extent permitted by law, whenever the vote of shareholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, such action may be taken without a meeting, without prior notice and without a vote of shareholders, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. In the case of election of directors, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy not created by removal and not filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.
Every written consent shall bear the date of signature of each shareholder or member who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by law to the Corporation, written consents signed by a sufficient number of holders or members to take action are delivered to the Corporation. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holder, may revoke the consent by a writing received by the Secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. GENERAL POWERS. Except as may otherwise be provided by law, by the Certificate of Incorporation or by these By-Laws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation.
Section 2.02. NUMBER AND TERM OF OFFICE. The number of Directors constituting the entire Board of Directors shall be not less than one nor more than thirteen, which number may be modified from time to time by resolution of the Board of Directors, but in no event shall the number of Directors be less than one. Each Director (whenever elected) shall hold office until his successor has been duly elected and qualified, or until his earlier death, resignation or removal.
Section 2.03. ELECTION OF DIRECTORS. Except as otherwise provided in Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each annual meeting of the shareholders. If the annual meeting for the election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon thereafter as convenient. At each meeting of the shareholders for the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in such election.
Section 2.04. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board of Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as possible following adjournment of the annual meeting of the shareholders at the place of such annual meeting of the shareholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of California) and the date and hour of such meetings. Notice of regular meetings need not be given, provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telegram, radio or cable, to each Director who shall not have been present at the meeting at which such action was taken, addressed to him at his usual place of business, or shall be delivered to him personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting.
Section 2.05. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors shall be held whenever called by the President or, in the event of his absence or disability, by any Vice President, at such place (within or without the State of California), date and hour as may be specified in the respective notices or waivers of notice of such meetings. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
Special meetings of the Board of Directors may be called on 24 hours' notice, if notice is given to each Director personally or by telephone or telegram, or on five days' notice, if notice is mailed to each Director, addressed to him at his usual place of business. Notice of any special meeting need not be given to any Director who attends such meeting without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat.
Section 2.06. QUORUM; VOTING. At all meetings of the Board of Directors, the presence of a majority of the total authorized number of Directors shall constitute a quorum for the transaction of business. Except as otherwise required by law, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, subject to the provisions of Section 310 of the Corporations Code of California (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 (appointment of committees), and Section 317 (e) (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.
Section 2.07. ADJOURNMENT. A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the meeting is adjourned for more than twenty-four (24) hours or unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.05 shall be given to each Director.
Section 2.08. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent or consents shall be filed with the minutes of the proceedings of the Board.
Section 2.09. REGULATIONS: MANNER OF ACTING. To the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board, and the individual Directors shall have no power as such.
Section 2.10. ACTION BY TELEPHONIC COMMUNICATIONS. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
Section 2.11. RESIGNATIONS. Any Director may resign at any time by delivering a written notice of resignation, signed by such Director, to the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.
Section 2.12. REMOVAL OF DIRECTORS. Any Director may be removed at any time, either for or without cause, upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such Director, cast at a special meeting of shareholders called for the purpose, or by court order. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by the shareholders entitled to vote for the election of the Director so removed. If such shareholders do not fill such vacancy at such meeting (or in the written instrument effecting such removal, if such removal was effected by consent without a meeting), such vacancy may be filled in the manner provided in Section 2.13 of these By-Laws.
Section 2.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue
to act, and such vacancies and newly created directorships may be filled by a majority of the Directors then in office, although less than a quorum. A Director elected to fill a vacancy or a newly created directorship shall hold office until his successor has been elected and qualified or until his earlier death, resignation or removal. Any such vacancy or newly created directorship may also be filled at any time by vote of the shareholders.
Section 2.14. COMPENSATION. The amount, if any, which each Director shall be entitled to receive as compensation for his services as such shall be fixed from time to time by resolution of the Board of Directors.
Section 2.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. A Director, or a member of any Committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or Committees designated by the Board of Directors, or by any other person as to the matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. HOW CONSTITUTED. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more Committees, including an Executive Committee, each such Committee to consist of two or more Directors as from time to time may be fixed by the Board of Directors. The Board of Directors may designate one or more Directors as alternate members of any such Committee, who may replace any absent or disqualified member or members at any meeting of such Committee. Thereafter, members (and alternate members, if any) of each such Committee may be designated at the annual meeting of the Board of Directors. Any such Committee may be abolished or re-designated from time to time by the Board of Directors. Each member (and each alternate member) of any such Committee (whether designated at an annual meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold office until his successor shall have been designated or until he shall cease to be a Director, or until his earlier death, resignation or removal.
Section 3.02. POWERS. During the intervals between the meetings of the Board of Directors, the Executive Committee, except as otherwise provided in this section, shall have and may exercise all the powers and authority of the Board of Directors in the management of the property, affairs and business of the Corporation, including the power to declare dividends and to authorize the issuance of stock. Each such other Committee, except as otherwise provided in this section, shall have and may exercise such powers of the Board of Directors as may be provided
by resolution or resolutions of the Board of Directors. Neither the Executive Committee nor any such other Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets,
(d) to recommend to the shareholders a dissolution of the Corporation or a revocation of a dissolution,
(e) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares,
(f) the filling of vacancies on the Board of Directors or in any committee,
(g) the fixing of compensation of the directors for serving on the board or on any committee,
(h) the amendment or repeal of bylaws or the adoption of new bylaws,
(i) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable, or
(j) the appointment of any other committees of the Board of Directors or the members thereof.
The Executive Committee shall have, and any such other Committee may be granted by the Board of Directors, power to authorize the seal of the Corporation to be affixed to any or all papers which may require it.
Section 3.03. PROCEEDINGS. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article II of these bylaws, with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of
committees may be determined by resolution of the Board of Directors as well as the committee, special meetings of committees may also be called by resolution of the Board of Directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. Each such Committee may fix its own rules of procedure not inconsistent with the provisions of these bylaws and may meet at such place (within or without the State of California), at such time and upon such notice, if any, as it shall determine from time to time. Each such Committee shall keep minutes of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following any such proceedings.
Section 3.04. QUORUM AND MANNER OF ACTING. Except as may be otherwise provided in the resolution creating such Committee, at all meetings of any Committee the presence of members (or alternate members) constituting a majority of the total authorized membership of such Committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the minutes of the proceedings of the Committee. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such.
Section 3.05. ACTION BY TELEPHONIC COMMUNICATIONS. Members of any Committee designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
Section 3.06. ABSENT OR DISQUALIFIED MEMBERS. In the absence or disqualification of a member of any Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Section 3.07. RESIGNATIONS. Any member (and any alternate member) of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. REMOVAL. Any member (and any alternate member) of any Committee may be removed at any time, either for or without cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. VACANCIES. If any vacancy shall occur in any Committee, by reason of disqualification, death, resignation, removal or otherwise, the remaining members (and any alternate members) shall continue to act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. There may also be a Chairman of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, as the Board of Directors may determine. Any number of offices may be held by the same person. No officer need be a Director of the Corporation.
Section 4.02. ELECTION. Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such annual meeting, officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall hold office until his successor has been elected and qualified, or until his earlier death, resignation or removal.
Section 4.03. SALARIES. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 4.04. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be removed for or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors.
Section 4.05. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law.
Section 4.06. THE PRESIDENT. The President shall preside at all meetings of the shareholders and directors at which he is present, shall be the chief executive officer and the chief operating officer of the Corporation, shall have general control and supervision of the policies and operations of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall manage and administer the Corporation's business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer and a chief operating officer of a corporation. He shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and other documents and instruments in connection with the business of the Corporation, and together with the Secretary or an Assistant Secretary, conveyances of real estate and other documents and instruments to which the seal of the Corporation is affixed. He shall have the authority to cause the employment or appointment of such employees and agents of the Corporation as the conduct of the business of the Corporation may require, to fix their compensation, and to remove or suspend any employee or agent elected or appointed by the President or the Board of Directors. The President shall perform such other duties and have such other powers as the Board of Directors or the Chairman may from time to time prescribe.
Section 4.07. THE VICE PRESIDENT. Each Vice President shall perform such duties and exercise such powers as may be assigned to him from time to time by the President. In the absence of the President, the duties of the President shall be performed and his powers may be exercised by such Vice President as shall be designated by the President, or failing such designation, such duties shall be performed and such powers may be exercised by each Vice President in the order of their earliest election to that office; subject in any case to review and superseding action by the President.
Section 4.08. THE SECRETARY. The Secretary shall have the following powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings of the meetings of the shareholders and of the Board of Directors in books provided for that purpose.
(b) He shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution of the Board of Directors, he shall furnish a copy of such resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to all certificates representing shares of the Corporation prior to the issuance thereof and to all instruments the execution of which on behalf of the Corporation under its seal shall have been duly authorized in accordance with these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports, statements, certificates and all other documents and records required by law, the Certificate of Incorporation
or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the Corporation and shall cause the stock and transfer books to be kept in such manner as to show at any time the number of shares of stock of the Corporation of each class issued and outstanding, the names (alphabetically arranged) and the addresses of the holders of record of such shares, the number of shares held by each holder and the date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or Assistant Secretary shall have signed) certificates representing shares of the Corporation the issuance of which shall have been authorized by the Board of Directors.
(h) He shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these By-Laws or as may be assigned to him from time to time by the Board of Directors, or the President.
Section 4.09. THE TREASURER. The Treasurer shall be the chief financial officer of the Corporation and shall have the following powers and duties:
(a) He shall have charge and supervision over and be responsible for the moneys, securities, receipts and disbursements of the Corporation, and shall keep or cause to be kept full and accurate records of all receipts of the Corporation.
(b) He shall cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Section 8.05 of these By-Laws.
(c) He shall cause the moneys of the Corporation to be disbursed by checks or drafts (signed as provided in Section 8.06 of these By-Laws) upon the authorized depositaries of the Corporation and cause to be taken and preserved proper vouchers for all moneys disbursed.
(d) He shall render to the Board of Directors or the President, whenever requested, a statement of the financial condition of the Corporation and of all his transactions as Treasurer, and render a full financial report at the annual meeting of the shareholders, if called upon to do so.
(e) He shall be empowered from time to time to require from all officers or agents of the Corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation.
(f) He may sign (unless an Assistant Treasurer or the Secretary or an Assistant Secretary shall have signed) certificates representing stock of the Corporation the issuance of which shall have been authorized by the Board of Directors.
(g) He shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these By-Laws or as may be assigned to him from time to time by the Board of Directors, or the President.
Section 4.10. ADDITIONAL OFFICERS. The Board of Directors may appoint such other officers and agents as it may deem appropriate, and such other officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors. The Board of Directors from time to time may delegate to any officer or agent the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any such officer or agent may remove any such subordinate officer or agent appointed by him, for or without cause.
Section 4.11. SECURITY. The Board of Directors may require any officer, agent or employee of the Corporation to provide security for the faithful performance of his duties, in such amount and of such character as may be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. CERTIFICATES OF STOCK, UNCERTIFICATED SHARES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the Corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until each certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation, by the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws.
Section 5.02. SIGNATURES; FACSIMILE. All of such signatures on the certificate may be a facsimile, engraved or printed, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 5.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon delivery to the Board of Directors of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.
Section 5.04. TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law of the State of California. Subject to the provisions of the Certificate of Incorporation and these By-Laws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation.
Section 5.05. RECORD DATE. In order to determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty nor less than ten days before the date of such meeting nor more than sixty days prior to such action without a meeting. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If no record date has been fixed by the Board of Directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice if given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
In order that the Corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, (i) when no prior action by the Board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the
Board has been taken, shall be at the close of business on the day
on which the Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is later.
In order that the Corporation may determine the shareholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the shareholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action
(other than action by shareholders by written consent without a meeting), the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty days prior to such action. If no record
date is fixed, the record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, (i) when no prior action by the Board
has been taken, shall be the day on which the first written consent is given, or
(ii) when prior action of the Board has been taken, shall be at the close of
business on the day on which the Board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such other action, whichever is
later.
Section 5.06. REGISTERED SHAREHOLDERS. Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interests. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so.
Section 5.07. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. NATURE OF INDEMNITY. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to 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 or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer, of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) , judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
The termination of any action, suit or proceeding by judgment, order settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 6.01 hereof or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
Section 6.03. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any indemnification of a director or officer of the Corporation under Section 6.01 hereof (unless ordered by a court) shall be made by the Corporation unless a determination is made that indemnification of the director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Section 6.01 hereof. Any indemnification of an employee or agent of the Corporation under Section 6.01 hereof (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.01 hereof. Any such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or
(3) by the shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon, or
(4) by the court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the corporation.
Section 6.04. ADVANCE PAYMENT OF EXPENSES. Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's counsel to represent such director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.
No indemnification or advance shall be made under this section, except as provided in Section 6.02 or paragraph (4) of Section 6.03, in any circumstance where it appears: (1) that it would be inconsistent with a provision of the articles, bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification or (2) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
Section 6.05. PROCEDURE FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any indemnification of a director or officer of the Corporation under Sections 6.01 and 6.02, or advance of costs, charges and expenses to a director or officer under Section 6.04 of this Article, shall be made promptly, and in any event within 30 days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article is required, and the Corporation fails to respond within sixty days to a written request for indemnity, the Corporation shall be deemed to have approved such request. If the Corporation denies a written request for indemnity or advancement of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 6.04 of this Article where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 6.01 of this Article, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel, and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.01 of this Article, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel, and its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 6.06. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing indemnification provisions shall be deemed to be a contract between the Corporation and each director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the California Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 6.07. INSURANCE. The Corporation shall purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article, PROVIDED that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the entire Board of Directors.
Section 6.08. SEVERABILITY. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. PRINCIPAL OFFICES. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the Board of Directors shall likewise fix and designate a principal business office in the State of California.
Section 7.02. OTHER OFFICES. The Corporation may maintain offices or places of business at such other locations within or without the State of California as the Board of Directors may from time to time determine or as the business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. DIVIDENDS. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors and any such dividend may be paid in cash, property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee designated by the Board of Directors shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or Committees of the Board of Directors, or by any other person as to matters the Director reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid.
Section 8.02. RESERVES. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. EXECUTION OF INSTRUMENTS. The President, any Vice President, the Secretary or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the President may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments.
Section 8.04. CORPORATE INDEBTEDNESS. No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors or the President. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors or the President shall authorize. When so authorized by the Board of Directors or the President, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. DEPOSITS. Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositaries as may be determined by the Board of Directors or the President, or by such officers or agents as may be authorized by the Board of Directors or the President to make such determination.
Section 8.06. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors or the President from time to time may determine.
Section 8.07. SALE, TRANSFER, ETC. OF SECURITIES . To the extent authorized by the Board of Directors or by the President, any Vice President, the Secretary or the Treasurer or any other officers designated by the Board of Directors or the President may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its
corporate seal, any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. VOTING AS SHAREHOLDER. Unless otherwise determined by resolution of the Board of Directors, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of shareholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons.
Section 8.09. FISCAL YEAR. The fiscal year of the Corporation shall commence on the first day of January of each year (except for the Corporation's first fiscal year which shall commence on the date of incorporation) and shall terminate in each case on December 31.
Section 8.10. SEAL. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "California". The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner.
Section 8.11. BOOKS AND RECORDS: INSPECTION. Except to the extent otherwise required by law, the books and records of the Corporation shall be kept at such place or places within or without the State of California as may be determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. AMENDMENT. These By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at any special or regular meeting of the Board if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the shareholders if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.
ARTICLE X
CONSTRUCTION
Section 10.01. CONSTRUCTION. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the certificate of incorporation of the Corporation as in effect from time to time, the provisions of such certificate of incorporation shall be controlling.
Exhibit 4.2
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as of April 23, 1999 among Adams Rite Aerospace, Inc. a California corporation, ZMP, Inc. a California corporation (collectively, the "GUARANTEEING SUBSIDIARIES," and, each a "GUARANTEEING SUBSIDIARY"), each a subsidiary of TransDigm Inc., a Delaware corporation (the "COMPANY"), the Company, TransDigm Holding Company, a Delaware corporation ("HOLDINGS") and Marathon Power Technologies Company, a Delaware corporation ("MARATHON" and together with Holdings and the Guaranteeing Subsidiaries, the "GUARANTORS") and State Street Bank and Trust Company, as trustee under the indenture referred to below (the "TRUSTEE").
W I T N E S S E T H
WHEREAS, the Company, Holdings and Marathon have heretofore executed and delivered to the Trustee an indenture (the "INDENTURE"), dated as of December 3, 1998 providing for the issuance of an aggregate principal amount of up to $200.0 million of 10 3/8% Senior Subordinated Notes due 2008 (the "Notes") and the guarantees thereof by Holdings and Marathon;
WHEREAS, the Indenture provides that under certain circumstances newly acquired Subsidiaries of the Company shall execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiaries shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth therein (the "GUARANTEE"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
(a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor.
(c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever.
(d) This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture or pursuant to Section 6 hereof.
(e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
(f) Each Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee.
(h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 11.03 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture, the obligations of each Guaranteeing Subsidiary shall be limited to the maximum amount as will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance.
3. SUBORDINATION. The obligations of each Guaranteeing Subsidiary under its guarantee pursuant to this Supplemental Indenture shall be junior and subordinated to the Senior Debt of each such Guaranteeing Subsidiary on the same basis as the Notes are junior and subordinated to the Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by each Guaranteeing Subsidiary only at such time as they may receive and/or retain payments in respect of the notes pursuant to the indenture, including article 10 thereof.
4. EXECUTION AND DELIVERY. Each guaranteeing subsidiary agrees that the guarantees shall remain in full force and effect notwithstanding any failure to endorse on each note a notation of such guarantee.
5. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. Each Guaranteeing Subsidiary will be subject to Section 11.05 of the Indenture.
6. RELEASES. In the event of a sale or other disposition of all of the assets of any guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the
capital stock of any Guarantor, then such guarantor (in the event of a sale or
other disposition, by way of merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) will be released and relieved of any obligations under
its Guarantee; PROVIDED that the net proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture,
including without limitation section 4.10 of the Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of the indenture, including without limitation
Section 4.10 of the Indenture, the Trustee shall execute any documents
reasonably required in order to evidence the release of any Guarantor from its
obligations under its Guarantee.
(a) Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the and for the other obligations of any guarantor under the indenture as provided in Article 10 of the indenture.
7. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of either Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy.
8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
9. COUNTERPARTS The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
Dated: April 23, 1999
TRANSDIGM, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
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TRANSDIGM HOLDING COMPANY
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
|
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
|
ADAMS RITE AEROSPACE, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
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ZMP, INC.
By: /s/ Peter B. Radekevich
-----------------------------------------
Name: Peter B. Radekevich
Title: Chief Financial Officer
|
STATE STREET BANK AND TRUST COMPANY, as
Trustee
By: /s/ Michael Hopkins
-----------------------------------------
Name: Michael Hopkins
Title: Vice President
|
Exhibit 4.11
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of April 23, 1999, among TRANSDIGM HOLDING COMPANY, a Delaware corporation ("Holdings"), TRANSDIGM INC., a Delaware corporation (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Lender" and, collectively, the "Lenders"), and BANKERS TRUST COMPANY, as Administrative Agent for the Lenders (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of December 3, 1998 (as amended through, but not including, the date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENTS TO CREDIT AGREEMENT.
1. Section 1.01 of the Credit Agreement is hereby amended by deleting clause (a) thereof in its entirety and inserting the following new clause (a) in lieu thereof:
"(a) Subject to and upon the terms and conditions set forth herein, (A) each Lender with an A Term Loan Commitment on the Initial Borrowing Date severally agrees to make on such date, and (B) each Lender with an A Term Loan Commitment on the AR Acquisition Date severally agrees to make on such date, in each case, a term loan (each, an "A Term Loan" and, collectively, the "A Term Loans") to the Borrower, which A Term Loans: (i) shall be incurred pursuant to two single drawings, the first of which shall be on the Initial Borrowing Date and the second of which shall be on the AR Acquisition Date; (ii) shall be denominated in U.S. Dollars; (iii) except as hereafter provided, shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) all A Term Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of A Term Loans of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), no more than four Borrowings of A Term Loans to be maintained as Eurodollar Loans may be incurred prior to the 60th day after the Initial Borrowing Date (each of which Borrowings of Eurodollar Loans may only have an Interest Period of (A) in the case of the first two such Borrowings, seven days, and (B) in the case of the remaining two Borrowings, one month, and the first of which Borrowings may only be made on the Initial Borrowing Date or on or prior to the sixth Business Day after the
Initial Borrowing Date and with each such Borrowing made thereafter to be made only on the last day of the Interest Period of the immediately preceding Borrowing); and (iv) shall not exceed for any such Lender at the time of incurrence thereof on the Initial Borrowing Date or the AR Acquisition Date, as the case may be, that aggregate principal amount as is equal to the A Term Loan Commitment of such Lender as in effect on the Initial Borrowing Date or the AR Acquisition Date, as the case may be (before giving effect to any reductions thereto on such respective date pursuant to Section 3.03(b)). Once repaid, A Term Loans incurred hereunder may not be reborrowed."
2. Section 1.01 of the Credit Agreement is hereby further amended by deleting clause (b) thereof in its entirety and inserting the following new clause (b) in lieu thereof:
"(b) Subject to and upon the terms and conditions set forth
herein, (A) each Lender with a B Term Loan Commitment on the Initial
Borrowing Date severally agrees to make on such date, and (B) each
Lender with a B Term Loan Commitment on the AR Acquisition Date
severally agrees to make on such date, in each case, a term loan (each,
a "B Term Loan" and, collectively, the "B Term Loans" and, together
with the A Term Loans, the "Term Loans") to the Borrower, which B Term
Loans: (i) shall be incurred pursuant to two single drawings, the first
of which shall be on the Initial Borrowing Date and the second of which
shall be on the AR Acquisition Date; (ii) shall be denominated in U.S.
Dollars; (iii) except as hereafter provided, shall, at the option of
the Borrower, be incurred and maintained as, and/or converted into,
Base Rate Loans or Eurodollar Loans, provided that (x) all B Term Loans
made as part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of B Term Loans of the same Type and (y)
unless the Administrative Agent has determined that the Syndication
Date has occurred (at which time this clause (y) shall no longer be
applicable), no more than four Borrowings of B Term Loans to be
maintained as Eurodollar Loans may be incurred prior to the 60th day
after the Initial Borrowing Date (each of which Borrowings of
Eurodollar Loans (I) may only have the same Interest Period as is then
permitted for a Borrowing of A Term Loans that are maintained as
Eurodollar Loans and (II) shall begin and end on the same day as a
Borrowing of A Term Loans that are maintained as Eurodollar Loans); and
(iv) shall not exceed for any such Lender at the time of incurrence
thereof on the Initial Borrowing Date or the AR Acquisition Date, as
the case may be, that aggregate principal amount as is equal to the B
Term Loan Commitment of such Lender as in effect on the Initial
Borrowing Date or the AR Acquisition Date, as the case may be (before
giving effect to any reductions thereto on such respective date
pursuant to Section 3.03(c)). Once repaid, B Term Loans incurred
hereunder may not be reborrowed."
3. Section 3.03 of the Credit Agreement is hereby amended by deleting clauses (b) and (c) thereof in their entirety and inserting the following new clauses (b) and (c), respectively, in lieu thereof:
"(b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total A Term Loan Commitment (and the A Term Loan
Commitment of each Lender) shall terminate in its entirety on the Initial Borrowing Date (after giving effect to the incurrence of A Term Loans on such date); provided that, notwithstanding the foregoing, the portion of the Total A Term Loan Commitment effected pursuant to the Second Amendment shall terminate in its entirety on the AR Acquisition Date (after giving effect to the incurrence of A Term Loans on such date).
(c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total B Term Loan Commitment (and the B Term Loan Commitment of each Lender) shall terminate in its entirety on the Initial Borrowing Date (after giving effect to the incurrence of B Term Loans on such date); provided that, notwithstanding the foregoing, the portion of the Total B Term Loan Commitment effected pursuant to the Second Amendment shall terminate in its entirety on the AR Acquisition Date (after giving effect to the incurrence of B Term Loans on such date)."
4. Section 4.02 of the Credit Agreement is hereby amended by deleting the table appearing in clause (b) thereof in its entirety and inserting the following new table in lieu thereof:
"TRANCHE A SCHEDULED REPAYMENT DATE AMOUNT
----------------------------------- ----------
August 15, 1999 $4,133,333
November 15, 1999 $1,705,000
February 15, 2000 $1,705,000
May 15, 2000 $1,705,000
August 15, 2000 $1,705,000
November 15, 2000 $2,583,333
February 15, 2001 $2,583,333
May 15, 2001 $2,583,334
August 15, 2001 $2,583,333
November 15, 2001 $2,583,333
February 15, 2002 $2,583,334
May 15, 2002 $2,583,333
August 15, 2002 $2,583,333
November 15, 2002 $3,461,667
February 15, 2003 $3,461,667
May 15, 2003 $3,461,667
August 15, 2003 $3,461,666
November 15, 2003 $3,306,667
February 15, 2004 $3,306,667
May 15, 2004 $3,306,667
August 15, 2004 $3,306,667
A Term Loan Maturity Date $3,306,666".
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5. Section 4.02 of the Credit Agreement is hereby further amended by deleting the table appearing in clause (c) thereof in its entirety and inserting the following new table in lieu thereof:
"TRANCHE B SCHEDULED REPAYMENT DATE AMOUNT
----------------------------------- --------
August 15, 1999 $310,000
November 15, 1999 $310,000
February 15, 2000 $155,000
May 15, 2000 $155,000
August 15, 2000 $155,000
November 15, 2000 $155,000
February 15, 2001 $155,000
May 15, 2001 $155,000
August 15, 2001 $155,000
November 15, 2001 $155,000
February 15, 2002 $155,000
May 15, 2002 $155,000
August 15, 2002 $155,000
November 15, 2002 $155,000
February 15, 2003 $155,000
May 15, 2003 $155,000
August 15, 2003 $155,000
November 15, 2003 $155,000
February 15, 2004 $155,000
May 15, 2004 $155,000
August 15, 2004 $155,000
November 15, 2004 $155,000
February 15, 2005 $9,713,333
May 15, 2005 $9,713,333
August 15, 2005 $9,713,334
November 15, 2005 $9,713,333
February 15, 2006 $9,713,333
B Term Loan Maturity Date $9,713,334".
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6. Section 4.02 of the Credit Agreement is hereby further amended by inserting the following new clause (m) at the end thereof:
"(m) In addition to any other mandatory repayments pursuant to this Section 4.02, on any date upon which Holdings or any of its Subsidiaries receives proceeds from any purchase price adjustment effected pursuant to the AR Acquisition Agreement, 100% of such proceeds shall be applied to repay Revolving Loans (if any) outstanding at such time (with no corresponding reduction to the Total Revolving Loan Commitment)."
7. Section 7.02 of the Credit Agreement is hereby amended by
(i) inserting the words "and the AR Transaction Documents" immediately following
the words "Transaction Documents" in each place such words appear therein and
(ii) inserting the words "and AR Transaction Document" immediately following the
words "Transaction Document" in each place such words appear therein.
8. Section 7.03 of the Credit Agreement is hereby amended by inserting the words "or the AR Transaction Documents" immediately following the words "Transaction Documents" appearing therein.
9. Section 7.05(a) of the Credit Agreement is hereby amended by deleting such clause (a) in its entirety and inserting the following new clause (a) in lieu thereof:
"(a) All proceeds of Term Loans incurred (i) on the Initial Borrowing Date, shall be used by the Borrower to finance the Transaction and to pay fees and expenses incurred in connection therewith and (ii) on the AR Acquisition Date, shall be used by the Borrower to finance the AR Transaction and to pay fees and expenses incurred in connection therewith, provided that such fees and expenses shall not exceed $2,000,000.
10. Section 7.05(b) of the Credit Agreement is hereby amended by inserting the following parenthetical at the end thereof:
"(exclusive of Revolving Loans and Swingline Loans incurred to finance the AR Transaction, although no more than $8,000,000 of Revolving Loans and Swingline Loans in the aggregate may be used to finance the AR Transaction)".
11. Section 7.06 of the Credit Agreement is hereby amended by
(i) inserting "(a)" immediately after the heading thereof and (ii) inserting the
following new clause (b) at the end thereof:
"(b) Except as may have been obtained or made on or prior to the AR Acquisition Date (and which remain in full force and effect on the AR Transaction Date), no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any AR Transaction Document or (ii) the legality, validity, binding effect or enforceability of any AR Transaction Document."
12. Section 7.09 of the Credit Agreement is hereby amended by
(i) inserting the words "and the AR Projections" immediately following the word
"Projections" appearing in the first parenthetical thereof and (ii) inserting
the words "and the AR Transaction Documents" immediately following the words
"Transaction Documents" appearing in the third parenthetical thereof.
13. Section 7.10(a) of the Credit Agreement is hereby amended by (i) inserting a reference to "and the AR Acquisition Date" immediately following the reference to "Initial Borrowing Date" appearing therein, (ii) inserting a reference to "and, to the extent applicable, the AR Transaction," immediately following the reference to "Transaction" appearing therein and (iii) inserting a reference to "and, to the extent applicable, the AR Transaction Documents," immediately following the reference to "Transaction Documents" appearing therein.
14. Section 7.10(b) of the Credit Agreement is hereby amended by inserting the following new clauses (iii) and (iv) at the end thereof:
"(iii) The audited consolidated balance sheets of AR Holdings
and its Subsidiaries for the fiscal years ended June 28, 1996, June 27,
1997 and June 26, 1998, respectively, and the unaudited consolidated
balance sheet or AR Holdings and its Subsidiaries for its fiscal
quarter ended December 31, 1998, and (in each case) the related
consolidated statements of income, cash flows and shareholders' equity
of AR Holdings and its Subsidiaries for the fiscal years or six month
period, as the case may be, ended on such dates, copies of which have
been furnished to the Lenders prior to the Second Amendment Effective
Date, present fairly in all material respects the consolidated
financial position of AR Holdings and its Subsidiaries at the date of
such balance sheets and the consolidated results of the operations of
AR Holdings and its Subsidiaries for the periods covered thereby. All
of the foregoing historical financial statements have been prepared in
accordance with GAAP consistently applied except as otherwise disclosed
in the notes thereto and, in the case of the six month financial
statements, (x) such financial statements shall reflect adjustments
consistent with those reflected in such statements delivered to the
Administrative Agent prior to the Second Amendment Effective Date and
(y) the absence of footnotes and normal year-end audit adjustments.
(iv) The PRO FORMA consolidated balance sheet of Holdings and
its Subsidiaries at December 31, 1998 and the PRO FORMA consolidated
statement of income of Holdings and its Subsidiaries for the twelve
months ended December 31, 1998, in each case after giving effect to the
Transaction and the financing therefor, copies of which have been
furnished to the Lenders prior to the Second Amendment Effective Date,
present fairly in all material respects the PRO FORMA consolidated
financial position of Holdings and its Subsidiaries as of December 31,
1998 and the PRO FORMA consolidated results of operations of Holdings
and its Subsidiaries for the twelve-month period ended on December 31,
1998. Such pro forma financial statements have been prepared on a basis
consistent with the historical financial statements set forth in clause
(i) of this Section 7.10(b)."
15. Section 7.10(d) of the Credit Agreement is hereby amended by (i) inserting the phrase "and the AR Acquisition Date" immediately after the phrase "Initial Borrowing Date" appearing therein and (ii) inserting the word "each" immediately after the word "on" appearing in the first parenthetical thereof.
16. Section 7.10(e) of the Credit Agreement is hereby amended by (i) inserting "(i)" immediately after the reference to "(e)" thereof and (ii) inserting the following new clause (ii) at the end thereof:
"(ii) The AR Projections have been prepared on a basis consistent with the financial statements referred to in Section 7.10(b) (except as may otherwise be indicated in the AR Projections), and are based on good faith estimates and assumptions made by the management of Holdings. On the AR Acquisition Date (i) such management believed that the AR Projections were reasonable and attainable and (ii) there is no fact known to Holdings or any of its Subsidiaries which could have a Material Adverse Effect which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the AR Transaction."
17. Section 7.24 of the Credit Agreement is hereby amended by
(i) inserting the words "and in the AR Transaction Documents" immediately after
the words "Transaction Documents" appearing therein and (ii) inserting the words
"or the AR Acquisition Date, as the case may be," immediately following the
words "Initial Borrowing Date" appearing therein.
18. Section 7 of the Credit Agreement is hereby further amended by inserting the following new Section 7.28 immediately after Section 7.27 appearing therein:
"7.28 CONSUMMATION OF AR TRANSACTION. At the time of consummation thereof, the AR Transaction shall have been consummated in all material respects in accordance with the terms of the respective AR Transaction Documents and all applicable laws. At the time of consummation thereof, all necessary and material consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities required to make or consummate the AR Transaction have been obtained, given, filed or taken or waived and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the AR Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the AR Transaction, or the occurrence of any Credit Event or the performance by Holdings and its Subsidiaries of their respective obligations under the AR Transaction Documents and all applicable laws. The AR Transaction has been consummated in all material respects in accordance with the respective AR Transaction Documents and all applicable laws."
19. Section 8.10 of the Credit Agreement is hereby amended by inserting the following new sentence at the end thereof:
"Notwithstanding the foregoing, AR Holdings and its Subsidiaries may have a fiscal year end and fiscal quarter ends on dates that are different than those of Holdings and its other Subsidiaries, although Holdings agrees to cause AR Holdings to change its and its Subsidiaries' fiscal year and fiscal quarter ends to dates that are consistent with those of
Holdings and its other Subsidiaries as promptly as practicable following the Second Amendment Effective Date."
20. Section 8.14(a) of the Credit Agreement is hereby amended by inserting the following new sentence at the end thereof:
"The Borrower and the Lenders hereby agree that the AR Acquisition shall be a Permitted Acquisition subject to the terms of this Section 8.14 although clauses (viii) and (ix) above shall be determined without regard to, and shall not apply to, the AR Acquisition so long as (x) the aggregate consideration paid in connection with the AR Acquisition (without giving effect to any Indebtedness acquired and refinanced in connection therewith) does not exceed $29,000,000, (y) substantially all Indebtedness of AR Holdings and its Subsidiaries is refinanced at the time of the consummation of the AR Transaction and (z) the AR Transaction is financed with no more than $34,000,000 of Term Loans and no more than $8,000,000 of Revolving Loans and Swingline Loans."
21. Section 9.08(a) of the Credit Agreement is hereby amended by (i) deleting the reference to the amount "$6,500,000" appearing in clause (i) thereof and inserting the amount "$7,500,000" in lieu thereof, (ii) deleting in its entirety the table appearing in said Section and inserting the following new table in lieu thereof:
"FISCAL YEAR ENDING AMOUNT ------------------ ------ September 30, 2000 $7,500,000 September 30, 2001 $7,500,000 September 30, 2002 $7,500,000 September 30, 2003 $7,500,000 September 30, 2004 $7,500,000 September 30, 2005 $8,500,000 September 30, 2006 $9,000,000"; |
and (iii) inserting the parenthetical "(other than the AR Acquisition)" immediately following the words "any Permitted Acquisition" appearing in the second sentence thereof.
22. Section 9.09 of the Credit Agreement is hereby amended by
(i) deleting in its entirety the table appearing in said Section and inserting
the following new table in lieu thereof:
"FISCAL QUARTER ENDING CLOSEST TO AMOUNT
-------------------------------- ------
December 31, 1998 $40,000,000
March 31, 1999 $44,000,000
June 30, 1999 $44,000,000
September 30, 1999 $48,000,000
December 31, 1999 $48,000,000
March 31, 2000 $48,000,000
June 30, 2000 $48,000,000
8
|
September 30, 2000 $52,000,000 December 31, 2000 $52,000,000 March 31, 2001 $52,000,000 June 30, 2001 $52,000,000 September 30, 2001 $56,000,000 December 31, 2001 $56,000,000 March 31, 2002 $56,000,000 June 30, 2002 $56,000,000 September 30, 2002 $62,000,000 December 31, 2002 $62,000,000 March 31, 2003 $62,000,000 June 30, 2003 $62,000,000 September 30, 2003 and the last day of each fiscal quarter of Holdings ending thereafter $69,000,000"; |
and (ii) inserting the parenthetical "(other than the AR Acquisition)" immediately following the words "any Permitted Acquisition" appearing in the second sentence thereof.
23. Section 9.10 of the Credit Agreement is hereby amended by deleting in its entirety the table appearing in said Section and inserting the following new table in lieu thereof:
"FISCAL QUARTER ENDING CLOSEST TO RATIO -------------------------------- ----- March 31, 1999 1.65:1.00 June 30, 1999 1.65:1.00 September 30, 1999 1.65:1.00 December 31, 1999 1.75:1.00 March 31, 2000 1.85:1.00 June 30, 2000 1.85:1.00 September 30, 2000 1.85:1.00 December 31, 2000 2.00:1.00 March 31, 2001 2.00:1.00 June 30, 2001 2.00:1.00 September 30, 2001 2.15:1.00 December 31, 2001 2.25:1.00 March 31, 2002 2.25:1.00 June 30, 2002 2.25:1.00 September 30, 2002 and the last day of each fiscal quarter of Holdings ending thereafter 2.50:1.00" |
24. Section 9.11 of the Credit Agreement is hereby amended by deleting the reference therein to "5.00" and inserting a reference to "5.25" in lieu thereof.
25. Section 11 of the Credit Agreement is hereby amended by deleting the definitions of "A Term Loan Commitment" and "B Term Loan Commitment" appearing therein and inserting the following new definitions of "A Term Loan Commitment" and "B Term Loan Commitment" in lieu thereof:
"A Term Loan Commitment" shall mean, with respect to each Lender, the amount set forth opposite such Lender's name in Annex I (as in effect on the Initial Borrowing Date in the case of A Term Loans incurred on such date and as in effect on the AR Acquisition Date in the case of A Term Loans incurred on such date, in either case) directly below the column entitled "A Term Loan Commitment," as the same may be terminated pursuant to Sections 3.03 and/or Section 10.
"B Term Loan Commitment" shall mean, with respect to each Lender, the amount set forth opposite such Lender's name in Annex I (as in effect on the Initial Borrowing Date in the case of B Term Loans incurred on such date and as in effect on the AR Acquisition Date in the case of B Term Loans incurred on such date, in either case) directly below the column entitled "B Term Loan Commitment," as the same may be terminated pursuant to Sections 3.03 and/or Section 10.
26. Section 11 of the Credit Agreement is hereby further amended by (i) inserting the text "and up to $1,750,000 in the aggregate of one-time cash and non-cash severance expenses directly associated with the AR Acquisition" immediately following the reference to "Subordinated Note Offering Memorandum" appearing in the definition of "Consolidated EBITDA" and (ii) deleting the word "and" appearing at the end of the final clause (x) appearing in the definition of "Consolidated EBITDA" and inserting the following new clause (z) at the end of said definition:
"and (z) in determining Consolidated EBITDA for purposes of Sections 9.09 and 9.10, Consolidated EBITDA for any period shall be calculated on a Pro Forma Basis to give effect to the AR Acquisition to the extent such acquisition occurred during such period and the assets acquired pursuant to such acquisition were not subsequently sold or otherwise disposed of by Holdings or any of its Subsidiaries during such period".
27. Section 11 of the Credit Agreement is hereby further amended by inserting in the appropriate alphabetical order the following new definitions:
"Adams Rite Aerospace" shall mean Adams Rite Aerospace, Inc., a California corporation.
"AR Acquisition" shall mean the merger of a Wholly-Owned Domestic Subsidiary of the Borrower with and into AR Holdings, with AR Holdings being the surviving corporation of such merger, pursuant to the terms of the AR Acquisition Agreement and the other AR Acquisition Documents.
"AR Acquisition Agreement" shall mean the Agreement and Plan of Reorganization, dated as of February __, 1999, by and among the Borrower, a Wholly-
Owned Domestic Subsidiary of the Borrower, AR Holdings and a representative for the shareholders of AR Holdings.
"AR Acquisition Date" shall mean the date on which the AR Transaction is consummated and the incurrence of Term Loans pursuant to the Second Amendment is made, which date shall be the Second Amendment Effective Date.
"AR Acquisition Documents" shall mean the AR Acquisition Agreement and any other agreements, instruments and documents entered into in connection with the AR Acquisition.
"AR Holdings" shall mean ZMP, Inc., a California corporation and the owner of all of the outstanding capital stock of Adams Rite Aerospace.
"AR Projections" shall mean the projections, dated __________, 1999, which were prepared by or on behalf of Holdings in connection with the AR Transaction and which were delivered to the Lenders prior the Second Amendment Effective Date.
"AR Refinancing" shall mean the refinancing of substantially all of the Indebtedness of AR Holdings and its Subsidiaries as part of the AR Acquisition.
"AR Refinancing Documents" shall mean any agreements, instruments and documents entered into in connection with the AR Refinancing.
"AR Transaction" shall mean, collectively, the AR Acquisition and the AR Refinancing.
"AR Transaction Documents" shall mean the AR Acquisition Documents and the AR Refinancing Documents.
"Second Amendment" shall mean the Second Amendment to this Agreement, dated as of February 16, 1999.
"Second Amendment Effective Date" shall have the meaning provided in paragraph II.6. of the Second Amendment.
28. Annexes I and II to the Credit Agreement are hereby amended by deleting same in their entirety and inserting in lieu thereof Schedules I and II, respectively, attached hereto.
29. In connection with the incurrence of A Term Loans and B Term Loans pursuant to this Amendment, the Lenders and the Borrower hereby agree that, notwithstanding anything to the contrary contained in the Credit Agreement, the Borrower and the Administrative Agent may take all such actions as may be necessary to ensure that all Lenders with outstanding A Term Loans and B Term Loans, as the case may be, continue to participate in each Borrowing of outstanding A Term Loans and B Term Loans (after giving effect to the incurrence of A Term Loans and B Term Loans pursuant to this Amendment) on a PRO RATA basis (including by having
the A Term Loans or B Term Loans, as the case may be, incurred pursuant to this Amendment added to the then outstanding Borrowings of A Term Loans or B Term Loans, as the case may be, on a pro rata basis even though as a result thereof such new A Term Loan or B Term Loan, as the case may be, may effectively have a shorter Interest Period than the existing A Term Loans or B Term Loans, as the case may be), and it is hereby agreed that (x) to the extent any existing Borrowings of A Term Loans and B Term Loans that are maintained as Eurodollar Loans are affected as a result thereof, any breakage costs of the type described in Section 1.11 of the Credit Agreement incurred by such Lenders in connection therewith shall be for the account of the Borrower or (y) to the extent the A Term Loans and B Term Loans that are incurred pursuant to this Amendment are added to the then outstanding Borrowings of A Term Loans or B Term Loans, as the case may be, which are maintained as Eurodollar Loans, the Lenders that have made such additional A Term Loans or B Term Loans, as the case may be, shall be entitled to receive an effective interest rate on such additional Term Loans as is equal to the Eurodollar Rate as in effect two Business Days prior to the incurrence of such additional Term Loans plus the then Applicable Eurodollar Margin.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this Amendment, each of Holdings and the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Second Amendment Effective Date (as defined below), both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Second Amendment Effective Date, both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date).
2. All parties hereto hereby acknowledge and agree that all extensions of credit (including all Term Loans and all amounts owing with respect thereto) pursuant to the Credit Agreement, as amended hereby, shall be entitled to the benefits of all Guaranties and Security Documents executed and delivered pursuant to the Credit Agreement, and to the benefit of all other Credit Documents.
3. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document.
4. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when the following conditions have been met to the satisfaction of the Administrative Agent and the Required Lenders (determined immediately after the occurrence of the Second Amendment Effective Date):
(i) each of Holdings, the Borrower, each Subsidiary Guarantor, the Required Lenders (determined before giving effect to this Amendment) and each Lender which is providing an A Term Loan Commitment and/or a B Term Loan Commitment pursuant to this Amendment shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office;
(ii) (x) there shall have been delivered to the Administrative Agent and the Lenders true and correct copies of all AR Transaction Documents, certified as such by an Authorized Officer of Holdings or the Borrower, and all terms and conditions of the AR Transaction Documents shall be in form and substance reasonably satisfactory to the Administrative Agent, and (y) the AR Transaction shall have been consummated in accordance with the AR Transaction Documents (without giving effect to any amendment or modification thereof or waiver with respect thereto unless consented to by the Administrative Agent) and the relevant requirements of the Credit Agreement (as amended hereby);
(iii) the Administrative Agent shall have received from each Credit Party (including any Credit Party acquired pursuant to the AR Acquisition) certified copies of resolutions of the Board of Directors or statements of unanimous written consent in lieu thereof of such Credit Party with respect to the matters set forth in this Amendment and the transactions contemplated herein and such resolutions shall be in form and substance reasonably satisfactory to the Administrative Agent;
(iv) (A) AR Holdings and each Domestic Subsidiary thereof acquired in connection with the AR Acquisition (including Adams Rite Aerospace) shall have (i) executed and delivered to the Administrative Agent a subsidiary assumption agreement pursuant to which each such Person shall become a party to the Subsidiaries Guaranty, the Pledge Agreement and the Security Agreement and (ii) complied with any other requirements of Sections 8.11 and 9.15 of the Credit Agreement to the extent required by the Administrative Agent to be complied with on the Second Amendment Effective Date and (B) Holdings and the other Credit Parties shall have duly pledged and delivered to the Collateral Agent any additional Pledge Agreement Collateral acquired pursuant to the AR
Acquisition, together with the officer's certificate referred to in
Section 3.3 of the Pledge Agreement;
(v) the Administrative Agent shall have received a solvency certificate from the Chief Financial Officer of Holdings in the form of Exhibit J to the Credit Agreement, except that such certificate shall be dated the Second Amendment Effective Date and shall be modified (to the satisfaction of the Administrative Agent) to provide that such certificate is being provided after giving effect to the AR Transaction;
(vi) the Administrative Agent shall have received a
certificate, dated the Second Amendment Effective Date and signed on
behalf of the Borrower by the President or any Vice President of the
Borrower, stating that all of the conditions in clause (i) of this
Paragraph 6 and in Section 6.01 of the Credit Agreement have been
satisfied, and all of the representations and warranties contained in
Section 7 of the Credit Agreement (as amended hereby) are true and
correct in all material respects, in each such case, on such date;
(vii) the Administrative Agent shall have received (x) true
and correct copies of the historical financial statements, the pro
forma financial statements and the AR Projections referred to in
Sections 7.10(b)(iii), (b)(iv) and (e)(ii) of the Credit Agreement (as
amended hereby), all of which shall be in form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders and
(y) true and correct copies of the certificates required to be
delivered pursuant to Section 8.14(a) of the Credit Agreement (as
amended hereby);
(viii) the Borrower shall have paid to the Administrative Agent and the Lenders all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the Administrative Agent and the Lenders to the extent then due;
(ix) all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Amendment and the AR Transaction Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings or governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which the Administrative Agent may have reasonably requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities;
(x) the Administrative Agent shall have received, and shall be reasonably satisfied with both the form and substance of, an opinion of Latham & Watkins, counsel to Holdings and the Borrower, with respect to the matters contemplated by this Amendment; and
(xi) the Administrative Agent shall have received (A) executed Financing Statements (Form UCC-1) in appropriate form for filing under the UCC or other
appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests in all of the Collateral acquired pursuant to the AR Acquisition, (B) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name AR Holdings or any of its Subsidiaries as debtor and that are filed in the jurisdictions referred to in clause (A) above, together with copies of such other financing statements that name AR Holdings or any of its Subsidiaries as debtors (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Collateral Agent shall have received appropriate termination statements executed by the secured party thereunder), (C) evidence of the completion of all other recordings and filings of, or with respect to, such security interests as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the Security Documents, and (D) evidence (including appropriate pay-off letters, UCC-3 termination statements, mortgage releases and other release documents) that the capital stock of AR Holdings and its Subsidiaries and all assets of such Persons have been acquired pursuant to the AR Acquisition free and clear of all Liens.
Notwithstanding anything to the contrary contained above or elsewhere in this
Second Amendment, unless both the Second Amendment Effective Date and the AR
Acquisition Date occur on or prior to March 31, 1999, the Second Amendment
Effective Date shall not thereafter occur and this Amendment shall be of no
further force or effect. Unless the Administrative Agent has received actual
notice from any Lender that the conditions contained above have not been met,
upon the satisfaction of the condition described in clause (i) of the
immediately preceding sentence and upon the Administrative Agent's good faith
determination that the other conditions described above have been met, the
Second Amendment Effective Date shall be deemed to have occurred, regardless of
any subsequent determination that one or more of the conditions thereto had not
been met (although the occurrence of the Second Amendment Effective Date shall
not release the Borrower from any liability for failure to satisfy one or more
of the applicable conditions specified above). The Administrative Agent will
give the Borrower and each Lender prompt notice of the occurrence of the Second
Amendment Effective Date. The acceptance by the Borrower of the proceeds of the
Loans on the AR Acquisition Date shall be deemed to constitute a representation
and warranty by the Borrower (including, without limitation, for purposes of
Section 10.02 of the Credit Agreement) to the effect that all conditions
contained above in this Paragraph 6 have been satisfied as of the Second
Amendment Effective Date.
7. From and after the Second Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby.
* * *
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.
TRANSDIGM HOLDING COMPANY
By /s/ Peter B. Radekevich -------------------------------------------- Title: Chief Financial Officer |
TRANSDIGM INC.
By /s/ Peter B. Radekevich -------------------------------------------- Title: Chief Financial Officer |
MARATHON POWER TECHNOLOGIES COMPANY
By /s/ Peter B. Radekevich -------------------------------------------- Title: Chief Financial Officer |
BANKERS TRUST COMPANY, Individually and as Administrative Agent
By /s/ Gregory Shefrin -------------------------------------------- Title: Principal |
CREDIT SUISSE FIRST BOSTON,
Individually and as Syndication Agent
By /s/ Bill O'Daly -------------------------------------------- Title: Vice President By /s/ Robert Hetu -------------------------------------------- Title: Vice President |
BANK OF NOVA SCOTIA
By /s/ Robert Gaviglio -------------------------------------------- Title: Senior Relationship Manager |
FLEET NATIONAL BANK,
Individually and as Documentation Agent
By /s/ James C. Silva -------------------------------------------- Title: Vice President |
NBD BANK
By /s/ Gary L. Wilson ------------------------------------------ Title: First Vice President |
GENERAL ELECTRIC CAPITAL CORPORATION
HELLER FINANCIAL, INC.
By /s/ Scott Ziemke ------------------------------------------ Title: Assistant Vice President |
NATIONAL CITY BANK
By /s/ Joseph D. Robison ------------------------------------------ Title: Vice President |
INDOSUEZ CAPITAL FUNDING II A, LIMITED
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano ------------------------------------------ Title: Vice President |
INDOSUEZ CAPITAL FUNDING IV, L.P.
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano ------------------------------------------ Title: Vice President |
PARIBAS CAPITAL FUNDING LLC
By /s/ Jeffrey J. Youle ------------------------------------------ Title: |
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By /s/ Diane Exter ------------------------------------------ Title: Portfolio Manager |
TORONTO DOMINION (NEW YORK), INC.
ANNEX I
Outstanding Outstanding A B Revolving
Lender A B Term Loan Term Loan Loan
------ Term Loans Term Loans Commitment Commitment Commitment
---------- ---------- ---------- ---------- ----------
Bankers Trust Company $7,672,500 $9,012,500 $0 $0 $5,115,000
Credit Suisse First Boston $6,277,500 $1,237,500 $0 $0 $4,185,000
Bank of Nova Scotia $6,000,000 $0 $0 $1,000,000 $4,000,000
Fleet National Bank $4,125,000 $4,125,000 $2,000,000 $1,500,000 $2,750,000
NBD Bank $6,000,000 $0 $4,000,000 $2,000,000 $4,000,000
General Electric Capital $4,125,000 $4,125,000 $3,500,000 $2,000,000 $2,750,000
Corporation
Heller Financial, Inc. $5,400,000 $2,000,000 $2,000,000 $1,000,000 $3,600,000
National City Bank. $5,400,000 $2,000,000 $3,500,000 $2,000,000 $3,600,000
Indosuez Capital Funding $0 $3,750,000 $0 $0 $0
II A, Ltd.
Indosuez Capital Funding $0 $3,750,000 $1,000,000 $1,000,000 $0
IV, L.P.
Paribas Capital Funding $0 $7,500,000 $1,000,000 $2,000,000 $0
LLC
Sankaty High Yield Asset $0 $7,500,000 $0 $2,500,000 $0
Partners, L.P.
Toronto Dominion (New $0 $0 $0 $2,000,000 $0
York), Inc.
TOTAL: $45,000,000 $45,000,000 $17,000,000 $17,000,000 $30,000,000
|
Annex II
BANKERS TRUST COMPANY 130 Liberty Street
New York, NY 10006
Attention: Greg Shefrin
Telephone No.: (212) 250-1724
Facsimile No.: (212) 250-7218
CREDIT SUISSE FIRST BOSTON 11 Madison Avenue
New York, NY 10010
Attention: Bill O'Daly
Telephone No.: (212) 325-9909
Facsimile No.: (212) 325-8388
BANK OF NOVA SCOTIA One Liberty Plaza
New York, NY 10006
Attention: Robert Gaviglio
Telephone No.: (212) 225-5054
Facsimile No.: (212) 225-5090
FLEET BANK One Federal Street
Mail Stop: MA OF D03C
Boston, MA 02110
Attention: Jim Silva
Telephone No.: (617) 346-4399
Facsimile No.: (617) 346-4806
NBD BANK 611 Woodward Street
Detroit, MI 48226
Attention: Paul DeMelo
Telephone No.: (313) 225-2520
Facsimile No.: (313) 225-1212
GE CAPITAL CORPORATION 335 Madison Avenue
New York, NY 10017
Attention: Kenneth Li
Telephone No.: (212) 370-8040
Facsimile No.: (212) 983-8767
HELLER FINANCIAL INC. 500 West Monroe Street
Chicago, IL 60661
Attention: Linda Wolf
Telephone No.: (312) 441-7894
Facsimile No.: (312) 441-7357
|
Annex II
Page 2
NATIONAL CITY BANK 1900 East North Street
7th Floor
Cleveland, OH 44114
Attention: Joseph Robinson
Telephone No.: (216) 575-9254
Facsimile No.: (216) 575-9396
INDOSUEZ CAPITAL FUNDING 1211 Avenue of the Americas
New York, NY 10036
Attention: Maklikah Buchweitz
Telephone No.: (212) 278-2213
Facsimile No.: (212) 278-2254
PARIBAS CAPITAL LLC 787 Seventh Avenue
New York, NY 10019
Attention: Francois Gauvin
Telephone No.: (212) 841-2548
Facsimile No.: (212) 841-2363
SANKATY HIGH YIELD ASSET PARTNERS, L.P. 2 Copley Place
Boston, MA 02116
Attention: Diane Exter
Telephone No.: (617) 572-3216
Facsimile No.: (617) 572-3274
TORONTO DOMINION (NEW YORK), INC 909 Fannie Street
Suite 1700
Houston, TX 77101
Attention: David Parker
Telephone No.: (713) 653-8248
Facsimile No.: (713)
----------
|
Exhibit 4.12
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of April 23, 1999, among TRANSDIGM HOLDING COMPANY, a Delaware corporation ("Holdings"), TRANSDIGM INC., a Delaware corporation (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Lender" and, collectively, the "Lenders"), and BANKERS TRUST COMPANY, as Administrative Agent for the Lenders (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of December 3, 1998 (as amended through, but not including, the date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENT TO CREDIT AGREEMENT.
1. Section 11 of the Credit Agreement is hereby amended by deleting the definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin" appearing therein and inserting the following new definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin" in lieu thereof:
"Applicable Base Rate Margin" shall mean:
(a) in the case of A Term Loans, Revolving Loans and Swingline
Loans maintained as Base Rate Loans, (i) for the period from the
Initial Borrowing Date through but not including February 16, 1999,
2.50%, (ii) for the period from February 16, 1999 through but including
the first Start Date after the Initial Borrowing Date, 2.25% and (iii)
from and after any Start Date to and including the corresponding End
Date, the respective percentage per annum set forth in clause (A), (B),
(C) or (D) below if, but only if, as of the Test Date for such Start
Date the applicable condition set forth in clause (A), (B), (C), or (D)
below, as the case may be, is met:
(A) 2.25% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be greater than or equal to 4.00:1.00;
(B) 2.00% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 4.00:1.00 and greater than or equal to 3.00:1.00;
(C) 1.75% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 3.00:1.00 but greater than or equal to 2.50:1.00; or
(D) 1.50% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 2.50:1.00
Notwithstanding anything to the contrary contained above in this clause
(a), (x) each of the percentages set forth above in this definition
which would otherwise be in effect for any Applicable Margin Period
shall be reduced by .25% from and after the respective Start Date to
and including the corresponding End Date for such Applicable Margin
Period if, but only if, as of the Test Date for such Start Date both
the Senior Leverage Ratio for the Test Period ended on such Test Date
shall be less than 2.75:1.00 and the Consolidated Interest Coverage
Ratio for such Test Period shall be greater than 1.80:1.00 and (y) the
Applicable Base Rate Margin for A Term Loans, Revolving Loans and
Swingline Loans shall be 2.25% at all times when a Default or an Event
of Default shall exist; and
(b) in the case of B Term Loans maintained as Base Rate Loans, 2.50%.
"Applicable Eurodollar Rate Margin" shall mean:
(a) in the case of A Term Loans and Revolving Loans maintained as Eurodollar Loans, (i) for the period from the Initial Borrowing Date through but not including February 16, 1999, 3.50%, (ii) for the period from February 16, 1999 through but including the first Start Date after the Initial Borrowing Date, 3.25% and (iii) from and after any Start Date to and including the corresponding End Date, the respective percentage per annum set forth in clause (A), (B), (C) or (D) below if, but only if, as of the Test Date for such Start Date the applicable condition set forth in clause (A), (B), (C) or (D) below, as the case may be, is met:
(A) 3.25% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be greater than or equal to 4.00:1.00;
(B) 3.00% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 4.00:1.00 and greater than or equal to 3.00:1.00;
(C) 2.75% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 3.00:1.00 and greater than or equal to 2.50:1.00; or
(D) 2.50% if, but only if, as of the Test Date for such Start Date the Total Leverage Ratio for the Test Period ended on such Test Date shall be less than 2.50:1.00.
Notwithstanding anything to the contrary contained above in this clause
(a), (x) each of the percentages set forth above in this definition
which would otherwise be in effect for any Applicable Margin Period
shall be reduced by .25% from and after the respective Start Date to
and including the corresponding End Date for such Applicable Margin
Period if, but only if, as of the Test Date for such Start Date both
the Senior Leverage Ratio for the Test Period ended on such Test Date
shall be less than 2.75:1.00 and the Consolidated Interest Coverage
Ratio for such Test Period shall be greater than 1.80:1.00 and (y) the
Applicable Eurodollar Rate Margin for A Term Loans and Revolving Loans
maintained as Eurodollar Loans shall be 3.25% at all times when a
Default or an Event of Default shall exist; and
(b) in the case of B Term Loans maintained as Eurodollar Loans, 3.50%.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Lenders to enter into this Amendment, each of Holdings and the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Third Amendment Effective Date (as defined below), both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Third Amendment Effective Date, both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Third Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Third Amendment Effective Date") when each of Holdings, the Borrower and each Lender shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office.
6. From and after the Third Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby.
* * *
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.
TRANSDIGM HOLDING COMPANY
By /s/ Peter B. Radekevich -------------------------------------------- Title: Chief Financial Officer |
TRANSDIGM INC.
By /s/ Peter B. Radekevich -------------------------------------------- Title: Chief Financial Officer |
BANKERS TRUST COMPANY, Individually and as Administrative Agent
By /s/ Gregory Shefrin -------------------------------------------- Title: Principal |
CREDIT SUISSE FIRST BOSTON,
Individually and as Syndication Agent
By /s/ Bill O'Daly -------------------------------------------- Title: Vice President By /s/ Robert Hetu -------------------------------------------- Title: Vice President |
BANK OF NOVA SCOTIA
By /s/ Robert Gaviglio -------------------------------------------- Title: Senior Relationship Manager |
FLEET NATIONAL BANK,
Individually and as Documentation Agent
By /s/ James C. Silva -------------------------------------------- Title: Vice President |
NBD BANK
By /s/ Gary C. Wilson ------------------------------------------ Title: First Vice President |
GENERAL ELECTRIC CAPITAL CORPORATION
HELLER FINANCIAL, INC.
By /s/ Scott Ziemke ------------------------------------------ Title: Assistant Vice President |
NATIONAL CITY BANK
By /s/ Joseph D. Robison ------------------------------------------ Title: Vice President |
INDOSUEZ CAPITAL FUNDING II A, LIMITED
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano ------------------------------------------ Title: Vice President |
INDOSUEZ CAPITAL FUNDING IV, L.P.
By Indosuez Capital Luxembourg,
as Collateral Agent
By /s/ Melissa Marano ------------------------------------------ Title: Vice President |
PARIBAS CAPITAL FUNDING LLC
By /s/ Jeffrey J. Youle ------------------------------------------ Title: |
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By /s/ Diane Exter ------------------------------------------ Title: Portfolio Manager |
TORONTO DOMINION (NEW YORK), INC.
Title:
Exhibit 5.1
[Letterhead]
April 23, 1999
(File No.) 027584-0001
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
8233 Imperial Drive
Waco, Texas 76712
Re: Registration Statement on Form S-4
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
FILE NO. 333-71397
Ladies and Gentlemen:
In connection with the registration of $125,000,000 in aggregate principal amount of 10-3/8% Senior Subordinated Notes due 2008 (the "New Notes") by TransDigm Inc., a Delaware corporation (the "Company"), and the guarantees of the New Notes (the "New Guarantees") by each of TransDigm Holding Company, a Delaware corporation ("Holdings"), Marathon Power Technologies Company, a Delaware corporation ("Marathon"), ZMP, Inc., a
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
California corporation ("ZMP"), and Adams Rite Aerospace, Inc., a California corporation ("Adams Rite Aerospace" and, together with Holdings, Marathon and ZMP, the "Guarantors"), in each case, under the Securities Act of 1933, as amended (the "Act"), on Form S-4 filed with the Securities and Exchange Commission (the "Commission") on January 29, 1999 (File No. 333-50219), as the same has been amended on or prior to the date hereof, and as it may be further amended (collectively the "Registration Statement"), you have requested our opinion with respect to the matters set forth below. The New Notes and the New Guarantees will be issued pursuant to an indenture, dated as of December 3, 1998, among the Company, Holdings and Marathon and State Street Bank and Trust Company, as trustee (the "Trustee"), as supplemented by a supplemental indenture, dated April 23, 1999, among the Company, the Guarantors and the Trustee (such indenture, as supplemented by such supplemental indenture, the "Indenture"). The New Notes and the New Guarantees will be issued in exchange for the Company's outstanding 10-3/8% Senior Subordinated Notes due 2008 (the "Old Notes") and the guarantees of the Old Notes by the Guarantors (the "Old Guarantees") on the terms set forth in the prospectus contained in the Registration Statement and the Letter of Transmittal filed as an exhibit thereto (the "Exchange Offer").
In our capacity as your special counsel, we are familiar with the proceedings taken and proposed to be taken by the Company and the Guarantors in connection with the authorization and issuance of the New Notes and the New Guarantees, respectively, and for the purposes of this opinion, have assumed such proceedings will be timely completed in the manner currently proposed. In addition, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as copies. As to facts material to the opinions, statements and assumptions expressed herein, we have, with your consent, relied upon oral or written statements and representations of officers and other representatives of the Company, the Guarantors and others.
We are opining herein as to the effect on the subject transaction only of the federal laws of the United States, the internal laws of the States of New York and California and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
Delaware, any other laws, or as to any matters of municipal law or the laws of any other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof:
(1) The New Notes to be exchanged for the Old Notes pursuant to the Exchange Offer have been duly authorized by all necessary corporate action on the part of the Company, and, when duly executed, issued and authenticated in accordance with the terms of the Exchange Offer and the Indenture and exchanged for the Old Notes in accordance with the terms of the Exchange Offer, will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.
(2) Each of the New Guarantees has been duly authorized by all necessary corporate action on the part of the Guarantors, and, when duly executed and endorsed on the New Notes in accordance with the terms of the Indenture and upon the due execution, issuance and authentication of the New Notes in accordance with the terms of the Exchange Offer and the Indenture and exchange of the New Notes for the Old Notes in accordance with the terms of the Exchange Offer, will be the legally valid and binding obligation of each of the Guarantors, enforceable against each of the Guarantors in accordance with its terms.
The opinions rendered in paragraphs 1 and 2 relating to the enforceability of the New Notes and the New Guarantees are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought and (iii) we express no opinion concerning the enforceability of the waiver of rights or defenses contained in Section 4.06 of the Indenture.
To the extent that the obligations of the Company or any of the
Guarantors under the Indenture, the New Notes or the New Guarantees may be
dependent upon such matters, we have assumed for purposes of this opinion that
(i) the Trustee (a) is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (b) has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture; (c) is duly qualified to engage in the activities contemplated by
the Indenture; (d) has duly authorized, executed and delivered the Indenture and
(e) has complied with any applicable requirement to file returns and pay taxes
under the Franchise Tax Law of the State of California; (ii) the Indenture is
the legally valid and binding agreement of the Trustee, enforceable against
Latham & Watkins
TransDigm Inc.
TransDigm Holding Company
Marathon Power Technologies Company
ZMP, Inc.
Adams Rite Aerospace, Inc.
April 23, 1999
the Trustee in accordance with its terms; and (iii) that the Trustee is in compliance, generally and with respect to acting as Trustee under the Indenture, with all applicable laws and regulations. We have also assumed, with your consent, that the choice of law provisions in the Indenture would be enforced by any court in which enforcement thereof might be sought.
We have not been requested to express and, with your knowledge and consent, do not render any opinion as to the applicability to the obligations of the Company and the Guarantors under the Indenture, the New Notes and the New Guarantees, as applicable, of Sections 547 and 548 of the Bankruptcy Code or applicable state law (including, without limitation, Article 10 of the New York Debtor & Creditor Law) relating to preferences and fraudulent transfers and obligations.
We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained under the heading "Legal Matters."
Very truly yours,
/s/ Latham & Watkins |
Exhibit 12.1
TRANSDIGM INC.
Computation of Ratio of Earnings to Fixed Charges
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------ ------ ------ ------ ------ --------- ------------ ---------- ----------
Earnings:
Total earnings (loss) $(5,323) $ (261) $1,175 $3,172 $14,137 6,328 4,118 (24,824) 2,094
Income tax provision (credit) (2,307) 134 2,045 5,193 12,986 4,000 2,590 (7,566) 1,281
Extraordinary Item 1,462
---------------------------------------------------------------------------------------------
Pre-tax earnings (loss) (7,630) (127) 3,220 9,827 27,123 10,328 6,708 (32,390) 3,375
---------------------------------------------------------------------------------------------
Fixed charges:
Interest charges 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
Interest factor of operating
rents 198 190 188 178 197 300 50 50 75
---------------------------------------------------------------------------------------------
Total fixed charges 5,021 5,383 4,698 3,641 3,372 29,252 1,096 2,326 6,959
---------------------------------------------------------------------------------------------
Earnings as adjusted (2,609) 5,256 7,918 13,468 30,495 39,580 7,804 (30,064) 10,334
---------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges - - 1.7 3.7 9.0 1.4 7.1 -- 1.5
---------------------------------------------------------------------------------------------
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Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
EBITDA (as defined) $ 9,875 $13,168 $17,213 $24,522 $43,547 49,014 9,651 11,078 12,824
Interest expense 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 2.1 2.5 3.8 7.1 13.7 1.7 9.2 4.9 1.9
|
Exhibit 12.3
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- ------- ------------ ---------- ----------
EBITDA (As Defined) $9,875 $13,168 $17,213 $24,522 $43,547 $49,014 9,651 11,078 12,824
Less - capital expenditures 1,941 1,702 2,494 2,285 5,061 8,888 628 712 1,402
------- ------- ------- ------- ------- ------- ------ ------ ------
7,934 11,466 14,719 22,237 38,486 40,126 9,023 10,366 11,422
Interest expense 4,823 5,193 4,510 3,463 3,175 28,952 1,046 2,276 6,884
------- ------- ------- ------- ------- ------- ------ ------ ------
Ratio 1.6 2.2 3.3 6.4 12.1 1.4 8.6 4.6 1.7
|
Exhibit 12.4
Thirteen
Weeks Ended Unaudited
Unaudited ------------------------ Pro Forma
Pro Forma December 26, January 1, January 1,
1994 1995 1996 1997 1998 1998 1997 1999 1999
------- ------- ------- ------- ------- -------- ------------ ---------- ----------
Total debt $36,399 $32,074 $19,124 $50,000 $45,000 271,291 50,000 236,200 278,200
EBITDA (as defined) 9,875 13,168 17,213 24,522 43,547 49,014 9,651 11,078 12,824
------- ------- ------- ------- ------- -------- ------ ------- -------
Ratio 3.7 2.4 1.1 2.0 1.0 5.5 5.2 21.3 21.7
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Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-71397 of TransDigm Inc. of our report dated November 9, 1998 (except for Note 18 for which the date is December 3, 1998) relating to the consolidated financial statements of TransDigm Holding Company appearing in the Prospectus, which is part of this Registration Statement, and of our report dated November 9, 1998 relating to the consolidated financial statement schedule appearing elsewhere in the Registration Statement.
We also consent to the reference to us under the headings "Summary Historical and Pro Forma Financial Data," "Selected Historical Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP Cleveland, Ohio April 23, 1999 |
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of TransDigm, Inc. of our report dated January 17, 1997 relating to the consolidated financial statements of Marathon Power Technologies Company for the years ended December 31, 1996 and 1995, which appear in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Dallas, Texas April 23, 1999 |
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-71397 of TransDigm, Inc. of our report dated August 26, 1998 (except for Note 9 as to which the date is April 23, 1999) appearing in the Prospectus, which is a part of such Registration Statement, and to the reference to us under the headings "Summary Historical Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP Costa Mesa, California April 23, 1999 |