<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
REGISTRATION NO. 333-73179
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ARGO-TECH CORPORATION*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3724 31-1521125
- ------------------------------- ------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) NO.)
ORGANIZATION)
</TABLE>
------------------------
23555 EUCLID AVENUE
CLEVELAND, OHIO 44117
(216) 692-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PAUL R. KEEN, ESQ.
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
ARGO-TECH CORPORATION
23555 EUCLID AVENUE
CLEVELAND, OHIO 44117
(216) 692-5800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
DAVID P. PORTER, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
*The Subsidiary Guarantors and Co-Registrants are listed on Table 1 to this
Registration Statement cover page.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OF
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
TABLE 1
ARGO-TECH CORPORATION: SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
SUBSIDIARY FEDERAL ID NUMBER
---------- -----------------
<S> <C>
Argo-Tech Corporation (Aftermarket)......................... 91-1797229
(a Delaware corporation)
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Argo-Tech Corporation (HBP)................................. 06-1100916
(a Delaware Corporation)
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Argo-Tech Corporation (OEM)................................. 31-1521120
(a Delaware Corporation)
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
J.C. Carter Company, Inc.................................... 33-0198905
(a California Corporation)
671 W. Seventeenth Street
Costa Mesa, California 92627-3605
</TABLE>
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. ARGO-TECH
WILL NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. ARGO-TECH IS NOT MAKING THIS
EXCHANGE OFFER IN ANY STATE OR JURISDICTION WHERE IT IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED APRIL 22, 1999.
PROSPECTUS
[ARGO-TECH LOGO]
$55,000,000
ARGO-TECH CORPORATION
Offer to exchange all outstanding
8 5/8% Senior Subordinated Notes due 2007
that were originally issued on December 17, 1998
for new 8 5/8% Senior Subordinated Notes due 2007
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999.
- - Interest on the notes accrues at an annual rate of 8 5/8% and is payable on
April 1 and October 1 of each year. The first interest payment was made on
April 1, 1999.
- - The terms of the new notes are the same as the terms of the outstanding notes
that were issued in a private offering on December 17, 1998, except that the
new notes will not be subject to the transfer restrictions imposed by federal
securities laws.
- - Argo-Tech will exchange all outstanding notes that are validly tendered and
not withdrawn before this exchange offer expires.
- - You may withdraw your tender of notes at any time prior to ,
1999, the expiration date of this exchange offer.
- - The exchange of notes in this exchange offer is not likely to be a taxable
exchange for U.S. federal income tax purposes.
- - You may tender your notes only in denominations of $1,000 and in multiples of
$1,000.
- - This exchange offer is subject only to the condition that it does not violate
applicable law or any applicable interpretation of the staff of the
Securities and Exchange Commission.
- - Argo-Tech will not receive any proceeds from this exchange offer.
- - THIS EXCHANGE OFFER DOES NOT APPLY TO ANY OF ARGO-TECH'S 8 5/8% SENIOR
SUBORDINATED NOTES DUE 2007 THAT WERE ORIGINALLY ISSUED BEFORE DECEMBER 17,
1998. PLEASE EXAMINE THE DATE OF YOUR NOTES CAREFULLY BEFORE TENDERING.
- --------------------------------------------------------------------------------
Please carefully consider the "Risk Factors" beginning on page 7 of this
prospectus.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE NOTES TO BE ISSUED IN THIS EXCHANGE
OFFER, OR DETERMINED IF THE INFORMATION CONTAINED IN THIS PROSPECTUS IS COMPLETE
OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 1999.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................... 1
MARKET INFORMATION.......................................... 1
FORWARD LOOKING INFORMATION................................. 1
PROSPECTUS SUMMARY.......................................... 2
Argo-Tech's Business................................... 2
Recent Recapitalization................................ 2
The Exchange Offer..................................... 3
The New Notes.......................................... 5
Selected Financial Data................................ 6
Ratio of Earnings to Fixed Charges..................... 6
RISK FACTORS................................................ 7
Risks Specific to Argo-Tech's Business................. 7
Risks Associated with the Notes........................ 9
Risks Associated with Not Participating in the Exchange
Offer................................................. 11
USE OF PROCEEDS............................................. 13
THE EXCHANGE OFFER.......................................... 14
Purpose and Effect of the Exchange Offer............... 14
Resale of the New Notes................................ 14
Special Rules for Broker-Dealers....................... 15
Terms of the Exchange Offer............................ 15
Expiration Date; Extensions; Amendments................ 16
Conditions............................................. 17
Procedures for Tendering............................... 17
Book-Entry Transfer.................................... 19
Guaranteed Delivery Procedures......................... 19
Withdrawal of Tenders.................................. 20
Termination of Rights Accorded by the Registration
Rights Agreement...................................... 20
Exchange Agent......................................... 20
Fees and Expenses...................................... 21
Consequences of Failure to Exchange.................... 21
Accounting Treatment................................... 22
SELECTED CONSOLIDATED FINANCIAL INFORMATION................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
Overview............................................... 25
Factors Affecting Argo-Tech's Financial Results........ 25
Results of Operations.................................. 27
Export Sales........................................... 27
13 Week Period Ended January 30, 1999 Compared with the
14 Week Period Ended January 31, 1998................. 27
Fiscal 1998 Compared with Fiscal 1997.................. 28
Fiscal 1997 Compared with Fiscal 1996.................. 29
Fluctuations of Operating Results; Limitations of
Quarterly Comparisons................................. 30
Liquidity and Capital Resources........................ 31
Year 2000.............................................. 33
Accounting Pronouncements.............................. 33
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.................................................... 35
Argo-Tech History and Ownership........................ 35
Information about the Industries in Which Argo-Tech
Competes.............................................. 35
Argo-Tech's Products................................... 36
Aftermarket Sales...................................... 38
Customers.............................................. 39
Sales and Marketing.................................... 39
Suppliers and Raw Materials............................ 39
Manufacturing.......................................... 40
Environmental Matters.................................. 40
Patents and Trademarks................................. 41
Government Regulations................................. 41
Competition............................................ 41
Backlog................................................ 42
Employees.............................................. 42
Properties............................................. 42
Legal Proceedings...................................... 42
MANAGEMENT.................................................. 44
Directors and Officers of Argo-Tech.................... 44
Executive Compensation................................. 45
PRINCIPAL STOCKHOLDERS...................................... 53
New Stockholders' Agreement............................ 54
DESCRIPTION OF AT HOLDINGS' PREFERRED STOCK................. 54
DESCRIPTION OF THE CREDIT FACILITY.......................... 54
DESCRIPTION OF THE NOTES.................................... 57
Terms of the Notes..................................... 57
Optional Redemption.................................... 57
Selection.............................................. 58
Ranking................................................ 58
Subsidiary Guarantees.................................. 61
Change of Control...................................... 62
Covenants.............................................. 64
Merger and Consolidation............................... 72
Defaults............................................... 73
Amendments and Waivers................................. 75
Transfer and Exchange.................................. 76
Defeasance............................................. 76
Concerning the Trustee................................. 77
Governing Law.......................................... 77
Definitions............................................ 77
UNITED STATES FEDERAL TAX CONSEQUENCES...................... 90
Exchange Offer......................................... 90
U.S. Taxation of U.S. Holders.......................... 90
U.S. Taxation of Non-U.S. Holders...................... 92
Withholding and Information Reporting.................. 93
BOOK-ENTRY, DELIVERY AND FORM............................... 95
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certificated Notes..................................... 97
PLAN OF DISTRIBUTION........................................ 98
LEGAL MATTERS............................................... 99
EXPERTS..................................................... 99
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<PAGE> 7
WHERE YOU CAN FIND MORE INFORMATION
Argo-Tech has filed a registration statement on Form S-4 under the
Securities Act of 1933 with the Securities and Exchange Commission regarding
this exchange offer. This prospectus does not contain all of the information in
the registration statement. You will find additional information about Argo-Tech
in the registration statement. Any statements made in this prospectus concerning
the terms of legal documents are not necessarily complete and you should read
the documents that are filed as exhibits to the registration statement.
Argo-Tech is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and files periodic reports, registration
statements and other information with the Securities and Exchange Commission.
You may read and copy any document Argo-Tech files with the Securities and
Exchange Commission at the public reference facility, located at 450 Fifth
Street N.W., Washington D.C. 20549. The Securities and Exchange Commission also
maintains public reference facilities in Chicago, Illinois and New York, New
York. You may call 1-800-SEC-0330 for more information about the public
reference facilities. In addition, the Securities and Exchange Commission
maintains a Web site at http://www.sec.gov, which contains Argo-Tech's reports,
registration statements and other information.
Even if Argo-Tech is not required to be subject to the reporting
requirements of the Securities Exchange Act in the future, Argo-Tech will be
required under the indenture governing the notes to continue to file with the
Securities and Exchange Commission and to provide holders of the notes the
information, documents and other reports specified in Sections 13 and 15(d) of
the Securities Exchange Act of 1934.
MARKET INFORMATION
Market and competitive position data used throughout this prospectus were
obtained through Argo-Tech's research, surveys or studies conducted by third
parties and industry or general publications. Industry publications generally
state that the information contained in the publication has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Argo-Tech has not independently verified market
and competitive position data provided by third parties or industry or general
publications. While this data is inherently imprecise, based on their
understanding of the markets in which Argo-Tech competes, management believes
that this data fairly represents Argo-Tech's relative market share and
competitive position. Similarly, while management believes that Argo-Tech's
internal surveys are reliable, these surveys have not been verified by any
independent sources.
FORWARD-LOOKING INFORMATION
This prospectus contains certain "Forward-Looking Statements." Those
statements include, among other things, the discussions of Argo-Tech's business
strategy and expectations concerning its position in the industry, future
operations, margins, profitability, liquidity and capital resources. All of
these forward-looking statements are based on estimates and assumptions made by
management that, although believed to be reasonable, are inherently uncertain.
You should not place undue reliance on these statements and estimates. Argo-Tech
cannot assure you that any of these statements or estimates will be realized and
actual results may differ significantly from those presented in the
forward-looking statements. Factors that may cause a different outcome include,
but are not limited to, those identified in this prospectus under the heading
"Risk Factors." Forward-Looking Statements included in this document should not
be regarded as a representation that Argo-Tech's plans and objectives will be
achieved.
1
<PAGE> 8
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. You are encouraged
to read the entire prospectus.
ARGO-TECH'S BUSINESS
Argo-Tech is a leading designer, manufacturer and servicer of high
performance pumps, valves and other fuel flow devices for the aerospace
industry. Argo-Tech's customers include most commercial and domestic military
aircraft engine and airframe manufacturers, airlines worldwide and the U.S. and
other militaries.
- Argo-Tech is the world's leading supplier of main engine fuel pumps to
the commercial aircraft industry. Main engine fuel pumps are precision
mechanical pumps, mounted to the aircraft's engines, that maintain the
flow of fuel to the engine at a precise rate and pressure.
- Argo-Tech is also a leading supplier of fuel-flow related products found
on a plane's airframe. Airframe fuel pumps and airframe accessories are
used to transfer fuel from fuel tanks to the engine systems and to shift
and control fuel between tanks in order to maintain aircraft balance.
- Argo-Tech's J.C. Carter subsidiary is the leading supplier of aerial
refueling systems. These systems permit military aerial tankers to refuel
fighter, bomber and other military aircraft while in flight.
- J.C. Carter also is a leading supplier of ground fueling system valves
and related components. These systems transfer fuel from fueling trucks
and underground tanks to the underwing fuel receptacle of the aircraft.
RECENT RECAPITALIZATION
On January 4, 1999, Argo-Tech's sole stockholder, AT Holdings Corporation,
repurchased 639,510 shares of AT Holdings' common stock from its majority
stockholder for $79.4 million in cash. This stock repurchase and related fees
and expenses were financed with:
- the proceeds of Argo-Tech's issuance of $55 million in principal
amount of 8 5/8% Senior Subordinated Notes due 2007 in a private offering
on December 17, 1998,
- the proceeds of the issuance by AT Holdings of 30,000 shares of its
preferred stock to Chase Venture Capital Associates, L.P., and
- cash on hand.
As a result of this recapitalization, Argo-Tech's Employee Stock Ownership
Plan became AT Holdings' majority stockholder.
------------------------
Argo-Tech's executive offices and principal production facilities are
located at 23555 Euclid Avenue, Cleveland, Ohio 44117-1795. The telephone number
is (216) 692-6000.
2
<PAGE> 9
THE EXCHANGE OFFER
THE EXCHANGE OFFER............ Argo-Tech is offering to exchange $55.0 million
principal amount of its 8 5/8% Senior
Subordinated Notes due 2007, which have been
registered under the federal securities laws
for $55.0 million principal amount of its
outstanding unregistered 8 5/8% Senior
Subordinated Notes due 2007 that were issued on
December 17, 1998 in a private offering. You
have the right to exchange your outstanding
notes for new notes with substantially
identical terms.
In order for your outstanding notes to be
exchanged, you must properly tender them prior
to the expiration of the exchange offer. All
validly tendered outstanding notes will be
exchanged. Argo-Tech will issue new notes
promptly after the exchange offer expires.
THIS EXCHANGE OFFER DOES NOT APPLY TO THE
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
ORIGINALLY ISSUED BEFORE DECEMBER 17, 1998.
THIS EXCHANGE OFFER WILL
EXTINGUISH REGISTRATION
RIGHTS...................... Argo-Tech sold the outstanding notes to Chase
Securities Inc. on December 17, 1998. At that
time, Argo-Tech signed a registration rights
agreement with Chase Securities Inc., which
requires Argo-Tech to conduct this exchange
offer.
This exchange offer is intended to satisfy the
rights provided by the registration rights
agreement. After the exchange offer is
complete, you will no longer be entitled to
registration rights with respect to outstanding
notes you are entitled to exchange but do not
exchange.
WHAT HAPPENS IF YOU FAIL TO
EXCHANGE YOUR OUTSTANDING
NOTES?...................... If you do not exchange your outstanding notes
for new notes in the exchange offer, you will
continue to be subject to the restrictions on
transfer provided in the outstanding notes and
the indenture governing those notes. In
general, you may not offer or sell your
outstanding notes unless they are registered
under the federal securities laws or are sold
in a transaction exempt from or not subject to
the registration requirements of the federal
securities laws and applicable state securities
laws.
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999,
unless Argo-Tech decides to extend the
expiration date. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to conditions
that Argo-Tech may waive. The exchange offer is
not conditioned on any minimum amount of
outstanding notes being tendered for exchange.
Please read "The Exchange Offer -- Conditions"
for a complete description of the conditions to
the exchange offer.
Argo-Tech reserves the right, subject to
applicable law, at any time and from time to
time:
- to delay the acceptance of the
outstanding notes,
- to terminate the exchange offer if
specified conditions have not been
satisfied,
3
<PAGE> 10
- to extend the expiration date of the
exchange offer and retain all tendered
outstanding notes subject to the right
of tendering holders to withdraw their
tender of outstanding notes, and
- to waive any condition or otherwise
amend the terms of the exchange offer in
any respect.
HOW DO YOU TENDER YOUR
OUTSTANDING NOTES?............ If you wish to tender your outstanding notes
for exchange, you must:
- complete and sign the enclosed Letter of
Transmittal by following the related
instructions, and
- send the Letter of Transmittal, as
directed in the instructions, together
with any other required documents, to
the exchange agent, either
(1) with the outstanding notes to be tendered
or
(2) in compliance with the specified procedures
for guaranteed delivery of the outstanding
notes.
Brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer.
Please do not send your letter of transmittal
or certificates representing your outstanding
notes to Argo-Tech. Those documents should only
be sent to the exchange agent. Questions
regarding how to tender and requests for
information should be directed to the exchange
agent. See "The Exchange Offer -- Exchange
Agent."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If your outstanding notes are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee, Argo-Tech urges
you to contact that person promptly if you wish
to tender your outstanding notes in the
exchange offer. See "The Exchange
Offer -- Procedures for Tendering."
WITHDRAWAL RIGHTS............. You may withdraw the tender of your outstanding
notes any time prior to the expiration date of
the exchange offer by delivering a written
notice of withdrawal to the exchange agent. You
must follow the withdrawal procedures described
under the heading "The Exchange Offer --
Withdrawal of Tenders."
RESALES OF NEW NOTES.......... Argo-Tech believes that you will be able to
offer for resale, resell or otherwise transfer
new notes issued in the exchange offer without
compliance with the registration and prospectus
delivery provisions of the federal securities
laws, as long as:
- you are acquiring the new notes in the
ordinary course of business,
- you are not participating, and have no
arrangement or understanding with any
person to participate, in the
distribution of the new notes, and
- you are not an affiliate of Argo-Tech.
An affiliate of Argo-Tech is a person
that "controls or is controlled by or is
under common control with" Argo-Tech.
Argo-Tech's belief is based on interpretations
by the staff of the Securities and Exchange
Commission set forth in no-action letters
issued to third parties unrelated to Argo-Tech.
The Commission's
4
<PAGE> 11
staff has not considered this exchange offer in
the context of a no-action letter. Argo-Tech
cannot assure you that the Commission's staff
would make a similar determination with respect
to this exchange offer.
If Argo-Tech's belief is not accurate and you
transfer a new note without delivering a
prospectus meeting the requirements of the
federal securities laws or without an exemption
from these laws, you may incur liability under
the federal securities laws. Argo-Tech does not
and will not assume or indemnify you against
this liability.
Each broker-dealer that receives new notes for
its own account in exchange for outstanding
notes which were acquired by such broker-
dealer as a result of market-making or other
trading activities must agree to deliver a
prospectus meeting the requirements of the
federal securities laws in connection with any
resale of the new notes. See "The Exchange
Offer -- Resale of the New Notes."
EXCHANGE AGENT................ Harris Trust and Savings Bank is the exchange
agent for the exchange offer. The address,
telephone and facsimile numbers of the exchange
agent are listed under the heading "The
Exchange Offer -- Exchange Agent."
See "The Exchange Offer" for more detailed information concerning the exchange
offer.
THE NEW NOTES
The terms of the new notes and the outstanding notes are identical in all
material respects, except that the transfer restrictions and registration rights
relating to the outstanding notes do not apply to the new notes.
SECURITIES OFFERED............ $55,000,000 aggregate principal amount of
Argo-Tech's 8 5/8% senior subordinated notes
due October 1, 2007.
INTEREST PAYMENT DATES........ April 1 and October 1 of each year, beginning
on April 1, 1999.
OPTIONAL REDEMPTION........... On or after October 1, 2002, Argo-Tech may
redeem some or all of the notes at the
redemption prices listed under the heading
"Description of Notes -- Optional Redemption,"
plus any accrued and unpaid interest to the
date of redemption.
At any time on or before October 1, 2000,
Argo-Tech may redeem up to 33 1/3% of the
original aggregate principal amount of the
notes with the proceeds of one or more public
equity offerings by Argo-Tech or AT Holdings.
The redemption price will equal 108.625% of the
principal amount of the notes, plus any accrued
and unpaid interest to the date of redemption.
At least 66 2/3% of the original aggregate
principal amount of the notes must remain
outstanding immediately after each redemption.
RANKING....................... The notes will not be secured by any assets,
and:
- will be subordinated to all of Argo-Tech's
existing and future secured indebtedness,
including its credit facility,
- will be effectively subordinated to all
liabilities of Argo-Tech's subsidiaries,
- will rank equal in right of payment with all
of Argo-Tech's existing and future senior
subordinated indebtedness, and
- will rank senior in right of payment to any
of Argo-Tech's indebtedness that is made
subordinate to the notes by agreement of the
creditor.
5
<PAGE> 12
As of October 31, 1998 Argo-Tech had:
- total secured indebtedness of $87.4 million,
and
- $140 million of outstanding senior
subordinated unsecured indebtedness that
would rank equal in right of payment with the
notes.
SUBSIDIARY GUARANTEES......... The notes are fully guaranteed on an unsecured,
senior subordinated basis by Argo-Tech's wholly
owned domestic subsidiaries: Argo-Tech
Corporation (HBP), Argo-Tech Corporation (OEM),
Argo-Tech Corporation (Aftermarket) and J.C.
Carter Company. All of Argo-Tech's future
domestic subsidiaries that incur indebtedness
or guarantee its credit facility will also
become guarantors of the notes.
CHANGE OF CONTROL............. If a change of control event occurs, Argo-Tech
will be required to make an offer to repurchase
all of the new notes at a price equal to 101%
of their principal amount, plus any accrued and
unpaid interest to the date of repurchase.
Events resulting in a "change of control" are
described under the heading "Description of the
Notes -- Change of Control."
COVENANTS..................... The indenture governing the notes contains
covenants which, among other things, restrict
Argo-Tech's ability and the ability of most of
its subsidiaries to:
- incur more debt,
- pay dividends,
- make distributions on Argo-Tech's or its
subsidiaries' stock,
- make certain restricted payments and
investments,
- enter into sale and leaseback transactions,
- create liens,
- enter into transactions with affiliates or
related persons,
- sell assets,
- merge or consolidate,
- sell all or substantially all of Argo-Tech's
or its subsidiaries' assets.
These covenants are subject to important
exceptions and qualifications. See "Description
of the Notes -- Certain Covenants."
SELECTED FINANCIAL DATA
You will find selected financial data of Argo-Tech beginning on page 23 of
this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the ratio of earnings to fixed charges for each of the
years in the five-year period ended October 31, 1998.
<TABLE>
<CAPTION>
13 14 YEAR ENDED OCTOBER 31,
WEEKS ENDED WEEKS ENDED ------------------------------------
JANUARY 30, 1999 JANUARY 31, 1998 1998 1997 1996 1995 1994
---------------- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges... (a) 1.3x 1.3x 2.1x 1.9x 1.3x 1.0x
</TABLE>
- ---------------
(a) No ratio is presented for the 13 weeks ended January 30, 1999 as the
earnings for that period were $224,000 less than the fixed charges.
6
<PAGE> 13
RISK FACTORS
You should consider carefully the following risks and all of the
information set forth in this prospectus before you tender your outstanding
notes in this exchange offer.
RISKS SPECIFIC TO ARGO-TECH'S BUSINESS
- ARGO-TECH'S RESULTS OF OPERATIONS AND CASH FLOW WILL FLUCTUATE BECAUSE OF
THE CYCLICAL NATURE OF THE AEROSPACE INDUSTRY.
Substantially all of Argo-Tech's gross profit and operating income is
derived from its sales of products to the airline industry. The commercial
original equipment segment of the aerospace industry has been subject to
cyclical fluctuations due to general economic conditions that reduce airline
travel. This has periodically reduced orders for commercial aircraft, reduced
utilization of commercial aircraft and led to a corresponding decrease in
Argo-Tech's sales of new components, related income and cash flow. For example,
the commercial airline industry was adversely affected by a severe downturn
during the three year period ended December 31, 1993. This downturn resulted in
record losses for the commercial airline industry and a decrease in production
of commercial engine and airframe assemblies, which caused a corresponding
decline in the aerospace industry from 1993 to 1995. Argo-Tech's commercial
original equipment business experienced a similar decline.
During the downturn, Argo-Tech's aftermarket sales also declined as
airlines delayed purchases of spare parts, preferring to use existing spare
parts inventory. Management believes that airlines currently maintain little or
no spare parts inventory, which should cause future aftermarket sales to remain
relatively stable even in an original equipment segment downturn. However, there
can be no assurance that airlines will not increase their spare parts inventory
in the future. If they do, combined with an economic downturn, there could be a
material adverse effect on Argo-Tech's business and profitability.
The recent economic downturn in Asia, has currently not had a material
effect on Argo-Tech's business or operations. However, it could, in the future,
significantly impact Argo-Tech's customers and the aerospace industry generally.
Such an impact could have a material adverse effect on Argo-Tech's business, and
therefore, on its ability to pay principal and interest on the notes.
- ARGO-TECH IS SUBJECT TO GOVERNMENT REGULATION AND OVERSIGHT OF THE
AEROSPACE INDUSTRY, WHICH MAY ADVERSELY AFFECT ARGO-TECH'S RESULTS OF
OPERATIONS AND CASH FLOW.
The aerospace industry is highly regulated in the United States and in
other countries. Argo-Tech's products must be certified or accepted by the
Federal Aviation Administration, the U.S. Department of Defense and similar
agencies in foreign countries and by individual original equipment manufacturers
in order to sell and service parts and components used in specific aircraft
models. If material certifications, authorizations or approvals were revoked or
suspended, Argo-Tech's operations would be adversely affected. In the future,
new and more demanding government regulations may be adopted or industry
oversight may be increased. This could have an adverse effect on Argo-Tech's
profitability and cash flow, and therefore, on its ability to pay principal and
interest on the notes.
- THE LIMITED NUMBER OF CUSTOMERS FOR ARGO-TECH'S PRODUCTS MAY ADVERSELY
AFFECT ARGO-TECH'S RESULTS OF OPERATIONS AND CASH FLOW.
Due to the relatively small number of customers in the aerospace industry,
especially original equipment manufacturers, customers are often able to
restrict price increases and other terms of sale for Argo-Tech's products. This
influence, as well as the loss of one or more these significant customers, could
have a material adverse effect on Argo-Tech's profitability and, therefore, its
ability to pay interest and principal on these notes. In addition, customers
such as original equipment manufacturers may from time to time consider direct
competition with suppliers, including Argo-Tech. If customers decide to compete
with Argo-Tech directly, there could be a material adverse effect on Argo-Tech's
profitability.
7
<PAGE> 14
- ARGO-TECH'S MILITARY SALES MAY BE ADVERSELY AFFECTED BY REDUCTIONS IN
DEFENSE SPENDING.
Approximately 17.1% of Argo-Tech's sales in fiscal year 1998 were related
to products used in U.S. designed military aircraft. The U.S. defense budget has
been declining in recent years, and this has resulted in reduced demand for new
aircraft and spare parts. In addition, foreign military sales are affected by
U.S. government regulations, regulations by the purchasing foreign government
and political uncertainties in the U.S. and abroad. The U.S. defense budget may
continue to decline and sales of defense related items to foreign governments
may not continue at present levels. In addition, the terms of defense contracts
with the U.S. government generally permit the government to terminate contracts,
with or without cause, at any time. Any unexpected termination of a significant
government contract could have an adverse effect on Argo-Tech's business and
profitability and, therefore its ability to pay interest and principal on these
notes.
- ARGO-TECH'S OPERATIONS COULD BE ADVERSELY AFFECTED IF IT IS UNABLE TO
MAINTAIN A STABLE WORKFORCE.
Argo-Tech's high precision products require a skilled workforce. Because
Argo-Tech maintains a relatively small inventory of finished goods, and because
the aerospace industry operates on relatively long production lead times,
shortages of appropriately skilled production and professional workers or any
interruption due to strikes or work stoppages could have a material adverse
effect on Argo-Tech's business and results of operations. All of the hourly
employees at the Cleveland facility are represented by the United Auto Workers
union.
- ARGO-TECH'S DEPENDENCE ON A LIMITED NUMBER OF SUPPLIERS COULD ADVERSELY
AFFECT ITS OPERATIONS.
Argo-Tech depends on a limited number of suppliers for essential materials
used in its products. The lengthy and expensive Federal Aviation Administration
and original equipment certification processes associated with aerospace
products could prevent efficient replacement of a material or supplier. Each
certification process frequently approves only one specific raw material or
component source. Since Argo-Tech maintains a relatively small inventory of raw
materials and component parts, it could be adversely affected by a reduction of
supply from approved vendors.
Like all other aerospace fuel pump manufacturers, Argo-Tech relies on the
sole supplier of CPM-10V, a powdered metal used in the manufacture of certain
pump components. If that supply ceased to exist, Argo-Tech's ability to
manufacture its products would be adversely affected.
- ARGO-TECH HAS POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES.
Argo-Tech's Cleveland and Costa Mesa, California facilities are currently
the subject of environmental remediation regarding contamination resulting from
the operations of Argo-Tech's predecessors. Those predecessors have indemnified
Argo-Tech for substantially all costs of remediation at each site. There can be
no assurance, however, that those parties will continue to satisfy their
indemnification obligations or that Argo-Tech would not be ultimately
responsible as owner and/or operator of either or both of these sites for
potentially significant remediation costs. Moreover, future changes in
environmental laws or the nature of Argo-Tech's operations may require it to
make significant additional expenditures to ensure future environmental
compliance.
- J.C. CARTER MAY HAVE TO PAY A PRODUCT LIABILITY JUDGMENT.
In October, 1996, J.C. Carter Company was named as a respondent in a
petition filed in federal district court in Santa Ana, California by Alsthom, a
French shipbuilding concern, to enforce an international arbitration award
rendered in Paris, France, in favor of Alsthom and against an entity identified
as J.C. Carter Company. Argo-Tech believes that J.C. Carter is not the J.C.
Carter Company referenced in the arbitration award. On January 22, 1999, Alsthom
filed a Motion for Summary Judgment against J.C. Carter to enforce the
international arbitration award. On February 23, 1999, the district court
granted Alsthom's motion and agreed that Alsthom is entitled to a judgment in
the amount of 67,900,000 French Francs (approximately $11.4 million) plus
interest at the French official rate from January 30, 1993 to the date of actual
payment. The district court has ordered, however, that judgment not be entered
at this time because of the claims against the remaining parties. J.C. Carter
intends to seek reconsideration of the district court's decision, and, if an
adverse judgment is entered against it, to appeal any such judgment to the Ninth
Circuit Court of
8
<PAGE> 15
Appeals. J.C. Carter also intends to pursue vigorously its claims for
declaratory relief and equitable indemnification against prior owners of assets
relating to the arbitration. J.C. Carter believes that it is entitled to
indemnification relating to this claim from a previous owner, which has defended
the lawsuit since its filing. Management believes that J.C. Carter's
indemnification rights will be adequate to cover this judgment. However, if
indemnification rights are unavailable or inadequate, J.C. Carter would be
required to pay the judgment and this could have a material adverse effect on
Argo-Tech.
While Argo-Tech has never been a defendant in a products liability case
involving its aerospace or ground fueling products, Argo-Tech's overall
operations expose it to potential liabilities for personal injury or death as a
result of the failure of aircraft components or products that have been
designed, manufactured or serviced by Argo-Tech. If Argo-Tech's insurance
coverage is inadequate to cover any product liability claim, there could be a
material adverse effect on Argo-Tech.
RISKS ASSOCIATED WITH THE NOTES
- ARGO-TECH HAS SUBSTANTIAL INDEBTEDNESS THAT COULD PREVENT IT FROM
FULFILLING ITS OBLIGATIONS UNDER THESE NOTES.
Argo-Tech has a substantial amount of outstanding debt. A large amount of
its indebtedness is secured indebtedness, which ranks senior in right of payment
to these notes. The table below shows selected credit information as of January
30, 1999:
<TABLE>
<S> <C>
TOTAL INDEBTEDNESS: $278.5 million
SECURED INDEBTEDNESS: $86.2 million
SENIOR SUBORDINATED INDEBTEDNESS: $192.3 million
RATIO OF EARNINGS TO FIXED CHARGES: No ratio is presented, as the earnings
were $224,000 less than the fixed
charges.
</TABLE>
Argo-Tech's substantial indebtedness could have important consequences to
you. For example, it could:
- make it more difficult for Argo-Tech to satisfy its obligations under
these notes,
- require Argo-Tech to dedicate a substantial portion of its cash flow
from operations to payments on its indebtedness, which would reduce
the availability of cash flow for other general corporate purposes,
- limit Argo-Tech's ability to fund future working capital, capital
expenditures, acquisitions, investments and other general corporate
requirements,
- along with the financial and other covenants in its indebtedness,
limit Argo-Tech's ability to borrow additional funds,
- place Argo-Tech at a competitive disadvantage compared to its
competitors that have less debt, and
- limit Argo-Tech's flexibility in responding to changes in its business
and in the aerospace industry generally.
In addition, a portion of Argo-Tech's borrowings under its credit facility
are, and will continue to be, at variable rates of interest. This exposes
Argo-Tech to the risk of increased interest rates.
- ADDITIONAL BORROWINGS ARE AVAILABLE -- THE RISKS DESCRIBED ABOVE COULD
INCREASE IF ARGO-TECH BORROWS MORE MONEY THROUGH ITS CREDIT FACILITY.
Despite Argo-Tech's high level of indebtedness, its credit facility, the
indenture governing these notes and the indenture governing its senior
subordinated notes that were issued in September 1997, permit Argo-Tech to
borrow additional money. Any additional debt could rank senior in right of
payment to the notes. If Argo-Tech borrows more money, the related risks
described above could be significantly increased.
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<PAGE> 16
- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO ALL OF
ARGO-TECH'S EXISTING SENIOR INDEBTEDNESS.
These notes rank behind in right of payment to all of Argo-Tech's existing
indebtedness, other than trade payables. These notes will also rank behind in
right of payment to all of Argo-Tech's future borrowings, other than trade
payables, unless that future indebtedness expressly provides that it ranks equal
with, or is subordinated in right of payment to, these notes and the subsidiary
guarantees of these notes. As a result, upon any distribution to Argo-Tech's
creditors or the creditors of any subsidiary guarantor in a bankruptcy,
liquidation, reorganization or similar proceeding, the holders of Argo-Tech's
senior debt would be entitled to be paid in full in cash before any payment
would be made on these notes or the subsidiary guarantees of these notes.
Holders of the notes may receive less, ratably, than holders of trade payables
in any such proceeding.
In addition, holders of the notes will have to participate in any
distribution along with all other holders of subordinated indebtedness of
Argo-Tech, including trade creditors and holders of the 8 5/8% Senior
Subordinated Notes due 2007 issued in September 1997. In any of these cases,
Argo-Tech may not have sufficient funds to pay all of its creditors. Holders of
the notes could receive no payments, or could receive less than holders of
senior debt. Moreover, upon the occurrence of certain events of default under
its credit facility, Argo-Tech would be prohibited from making any payments on
the notes.
- THESE NOTES ARE NOT SECURED BY ANY OF ARGO-TECH'S ASSETS.
The notes will not be secured by any of Argo-Tech's assets. In contrast,
Argo-Tech's obligations under its credit facility are secured by substantially
all of Argo-Tech's assets. If Argo-Tech became insolvent or was liquidated, or
if payment under its credit facility is accelerated, the lenders under the
credit facility would be entitled to exercise the remedies available to a
secured lender under applicable law. This would mean that bank lenders would
have a claim on Argo-Tech's assets before the holders of these notes.
- ARGO-TECH MAY BE UNABLE TO PURCHASE YOUR NOTES UPON THE OCCURRENCE OF A
CHANGE OF CONTROL EVENT.
Upon a change of control event described in the indenture, Argo-Tech will
be required to offer to repurchase your notes at 101% of their face value, plus
any accrued interest. It is possible that Argo-Tech will not have enough funds
at the time of the change of control event to repurchase your notes. Also,
restrictions in Argo-Tech's credit facility may not allow it to repurchase your
notes.
In addition to the required repurchase of these notes, upon a change of
control Argo-Tech:
- may be required to immediately repay the outstanding principal, any
accrued interest on and any other amounts owed under its credit
facility, and
- would be required to offer to purchase all of its outstanding 8 5/8%
Senior Subordinated Notes due 2007 that were issued in September 1997.
To fulfill all of these obligations upon the occurrence of a change of
control, Argo-Tech may have to refinance its outstanding indebtedness, which may
not be possible. Even if it is possible, such a refinancing may be on terms
unfavorable to Argo-Tech. Events that result in a "change of control" are
described under the heading titled "Description of the Notes -- Change of
Control."
- FEDERAL AND STATE STATUTES MAY ALLOW COURTS TO VOID THE GUARANTEES OF THE
NOTES BY ARGO-TECH'S SUBSIDIARIES AND REQUIRE NOTEHOLDERS TO RETURN ANY
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims based on a
guarantee could be subordinated to all other debts of the guarantor, if the
guarantor, at the time it incurred the indebtedness evidenced by the guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of the guarantee, and
- was insolvent or rendered insolvent because of the incurrence of the
guarantee, or
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<PAGE> 17
- was engaged or was about to engage in a business or transaction for
which the guarantor's remaining assets constituted unreasonably small
capital, or
- intended to, or believed that it would incur, debts beyond its ability
to pay such debts as they matured.
In addition, any voided payment by that guarantor could be required to be
returned to the guarantor, or returned to a fund for the benefit of the
creditors of that guarantor.
The measure of insolvency for purposes of fraudulent transfer laws will
vary depending upon the law of the jurisdiction being applied. Generally a
guarantor will be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair salable value of its assets, or
- the fair salable value of its assets was 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 on historical financial information, recent operating history and
other factors, management believes that each of Argo-tech's subsidiary
guarantors, after giving effect to their guarantees of these notes:
- will not be insolvent,
- will not have unreasonably small capital to run its business
effectively, and
- will not have incurred debts beyond its ability to pay when they
mature.
Argo-Tech cannot be certain that a court would apply this standard or that
a court would agree with Argo-Tech's conclusions.
- THE SUBSIDIARY GUARANTEES MAY BE UNENFORCEABLE.
Argo-Tech is a holding company and derives all of its operating income from
its subsidiaries. Argo-Tech must rely upon distributions from its subsidiaries
to generate the funds necessary to meet its obligations, including the payment
of principal and interest on these notes. The holders of these notes will have
no direct claim against the guarantor subsidiaries other than a claim created by
the subsidiary guarantees. The subsidiary guarantees may themselves be subject
to legal challenge in a bankruptcy or reorganization case or a lawsuit by or on
behalf of creditors of a subsidiary guarantor. If such a challenge were upheld,
the subsidiary guarantees of the notes would be invalid and unenforceable, and
the rights of holders of the notes to participate in any distribution of assets
of any subsidiary guarantor upon liquidation, bankruptcy, reorganization or
similar proceeding would be subject to the prior claims of creditors of that
subsidiary guarantor.
The indenture contains covenants that restrict the ability of Argo-Tech's
subsidiaries to enter into any agreement that limits distributions and
transfers, including dividends. However, the ability of Argo-Tech's subsidiaries
to make distributions may be restricted by, among other things, applicable state
corporate laws and other laws and regulations or by terms of agreements to which
they are a party or become a party to in the future. In addition, such
distributions may not be adequate to fund the interest and principal payments on
Argo-Tech's credit facility and the notes when those obligations become due.
RISKS ASSOCIATED WITH NOT PARTICIPATING IN THE EXCHANGE OFFER
- ANY MARKET FOR THE OUTSTANDING NOTES IS LIKELY TO DECLINE AFTER THE
COMPLETION OF THE EXCHANGE OFFER.
As outstanding notes are tendered and accepted in the exchange offer, the
principal amount of remaining outstanding notes will decrease. This decrease
will reduce the liquidity of the trading market for the outstanding notes. There
can be no assurance that any trading market that has developed for the
outstanding notes will continue to exist after the completion of the exchange
offer. See "The Exchange Offer -- Consequences of Failure to Exchange."
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<PAGE> 18
- IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, YOU WILL REMAIN SUBJECT TO
TRANSFER RESTRICTIONS.
Argo-Tech has not registered the outstanding notes under the federal
securities laws. Outstanding notes that are not exchanged and remain outstanding
after the completion of the exchange offer will remain subject to the transfer
restrictions under applicable securities laws. This means that you will be able
to transfer, sell or trade your outstanding notes only through an exemption from
the registration requirements of the federal securities laws. See "The Exchange
Offer -- Consequences of Failure to Exchange."
12
<PAGE> 19
USE OF PROCEEDS
There will be no cash proceeds from the issuance of the new notes. The
proceeds from the issuance and sale of the outstanding notes were used to pay a
dividend to AT Holdings that was used, along with the proceeds of AT Holdings'
sale of its preferred stock and cash on hand, to repurchase shares of AT
Holdings' stock from its then majority stockholder and to pay fees and expenses
incurred in connection with those transactions.
13
<PAGE> 20
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On December 17, 1998, Argo-Tech sold $55,000,000 in principal amount at
maturity of the outstanding notes in a private placement through Chase
Securities Inc. In connection with this sale, Argo-Tech entered into a
registration rights agreement with Chase Securities Inc. This agreement requires
Argo-Tech to
- use its best efforts to file a registration statement covering the
exchange offer with the Securities and Exchange Commission,
- cause the registration statement to become effective under the Securities
Act of 1933, and
- offer each holder of outstanding notes the opportunity to exchange their
notes for an equal principal amount of new notes upon the effectiveness
of the registration statement.
A copy of the registration rights agreement has been filed as an exhibit to
the registration statement which was filed with the Securities and Exchange
Commission. The registration statement also includes this prospectus.
You are a holder, or a person to which this exchange offer is made, if you
are a person in whose name any outstanding notes are registered on Argo-Tech's
books or if you have obtained a properly completed assignment of those notes
from a registered holder.
In order to participate in the exchange offer, you must represent to
Argo-Tech that:
- the new notes being acquired in the exchange offer are being obtained in
the ordinary course of business of the person receiving those new notes,
- neither you nor any other person receiving the new notes is engaging in
or intends to engage in a distribution of the new notes,
- neither you nor any other person receiving the new notes has an
arrangement or understanding with any person to participate in the
distribution of the new notes, and
- neither you nor any other person receiving the new notes is an
"affiliate" of Argo-Tech. An affiliate is any person who "controls, is
controlled by, or is under common control with," Argo-Tech.
RESALE OF THE NEW NOTES
In exchange for properly tendered outstanding notes, the new notes will be
issued without a restrictive legend and may be reoffered and resold by the
holder without the restrictions and limitations imposed by the Securities Act of
1933 on the outstanding notes. Outstanding notes that are not tendered for
exchange under the exchange offer will remain outstanding and holders of those
notes will be entitled to the rights as set forth in the indenture. However, the
holders of the outstanding notes will not retain any rights under the
registration rights agreement, including the right to receive additional
incremental interest on the outstanding notes in the event that the registration
statement has not been filed or become effective within specified time periods.
Untendered outstanding notes will remain subject to the transfer restrictions
imposed by the Securities Act of 1933. See "Consequences of Failure to
Exchange."
The conclusion that the new notes may be reoffered and resold by the holder
without transfer restrictions is based on previous interpretations by the Staff
of the Securities and Exchange Commission in no-action letters issued to third
parties, including "Exxon Capital Holdings Corporation" (available May 13,
1988), "Morgan Stanley & Co. Incorporated" (the "Morgan Stanley Letter"), "Mary
Kay Cosmetics, Inc." (available June 5, 1991), "Warnaco, Inc." (available
October 11, 1991), and "K-III Communications Corp." (available May 14, 1993).
This conclusion also relies on the representations described above that must be
made by you and any other tendering holder before participating in the exchange
offer.
Any holder who tenders in the exchange offer with the intention of
participating in a distribution of the new notes cannot rely on this conclusion
and must comply with the registration and prospectus delivery
14
<PAGE> 21
requirements of the Securities Act of 1933 in connection with any resale
transaction. If Argo-Tech's conclusion regarding resale of the new notes is
inaccurate, holders who transfer new notes in violation of the prospectus
delivery provisions of the Securities Act of 1933 and without an exemption from
registration may incur liability. Argo-Tech will not assume, or indemnify
holders against, this liability.
The exchange offer is not being made to, and Argo-Tech will not accept
tenders from, holders of outstanding notes in any jurisdiction where the
exchange offer or the acceptance of outstanding notes would not be in compliance
with the securities or blue sky laws of that jurisdiction.
SPECIAL RULES FOR BROKER-DEALERS
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes, where the outstanding notes were acquired by that
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 the new notes. In order to facilitate the disposition of new
notes by broker-dealers participating in the exchange offer, Argo-Tech has
agreed, subject to specific conditions, to make this prospectus, as it may be
amended or supplemented from time to time, available for delivery by those
broker-dealers to satisfy their prospectus delivery obligations under the
Securities Act of 1933.
Argo-Tech is obligated to deal with only one entity representing the
broker-dealers participating in the exchange offer. This entity is, and will be,
Chase Securities Inc. unless Chase elects not to act as the representative of
the broker-dealers. Any holder that is a broker-dealer participating in the
exchange offer must notify Chase Securities Inc. at the telephone number set
forth in the enclosed Letter of Transmittal and must comply with the procedures
for brokers-dealers participating in the exchange offer. Among other things,
Chase Securities Inc. is required to confirm with Argo-Tech on a weekly basis
that the prospectus is available. In addition, broker-dealers participating in
the exchange offer will be required to confirm this availability with Chase
Securities inc. on a weekly basis. Under the registration rights agreement,
Argo-Tech is not required to amend or supplement the prospectus for a period
exceeding 90 days after the expiration date of the exchange offer, except in
limited circumstances where Argo-Tech suspends use of the registration
statement. Argo-Tech has not entered into any arrangement or understanding with
any person to distribute the exchange notes to be received in the exchange
offer. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
If the terms and conditions described in this prospectus and in the
accompanying Letter of Transmittal are met, Argo-Tech will accept any and all
outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the expiration date.
This prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of the outstanding notes. There will be no fixed record
date for determining registered holders of the outstanding notes entitled to
participate in the exchange offer. Instead, holders of the outstanding notes
must tender their certificates or cause their outstanding notes to be tendered
by book-entry transfer prior to the expiration date in order to participate.
The exchange agent, Harris Trust and Savings Bank, will act as agent for
the tendering holders for the purposes of receiving the new notes from
Argo-Tech. Argo-Tech will be deemed to have accepted validly tendered
outstanding notes when it has given oral or written notice to the exchange
agent. If any tendered outstanding notes are not accepted for exchange because
of an invalid tender or any other reason, certificates for those unaccepted
outstanding notes will be returned, without expense to the tendering holder, as
promptly as practicable after the expiration date. Any unaccepted outstanding
notes tendered by book-entry transfer will be credited to an account maintained
with The Depository Trust Company, without expense to the tendering holder, as
promptly as practicable after the expiration date. See "Procedures for
Tendering."
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the accompanying Letter of Transmittal, transfer taxes with respect to the
exchange.
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<PAGE> 22
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date will be 5:00 p.m., New York City time on
, 1999, unless Argo-Tech, in its sole discretion, extends
the exchange offer. If extended, the expiration date will then be the latest
date and time to which the exchange offer is extended.
Argo-Tech will notify the exchange agent 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 and will also make a public
announcement of any extension.
Argo-Tech reserves the right, in its sole discretion to:
- delay accepting any outstanding notes,
- extend the exchange offer, if any of the conditions set forth below under
"Conditions" have not been satisfied, or
- terminate the exchange offer if any of the conditions set forth below
under "Conditions" have not been satisfied, or
- amend the terms of the exchange offer in any manner consistent with the
registration rights agreement.
Any delay in acceptances, extension, termination, or amendment of the
exchange offer will be followed as promptly as practicable by oral or written
notice to the registered holders. Argo-Tech has no obligation to publish,
advertise or otherwise communicate this notice other than its obligation to make
a timely release to a news agency.
If the exchange offer is amended in a manner determined by Argo-Tech to
constitute a material change, Argo-Tech will promptly disclose that amendment in
a prospectus supplement that will be distributed to all registered holders.
Depending upon the significance of the amendment and the manner of disclosure to
the registered holders, Argo-Tech will also extend the exchange offer for a
period of five to ten business days, if the exchange offer would otherwise
expire during that five to ten business day period.
Issuance of the new notes in exchange for accepted outstanding notes will
be made only after the exchange agent receives:
- certificates for the outstanding notes, or a timely confirmation of
book-entry transfer of such outstanding notes into the exchange agent's
account at The Depository Trust Company, and
- a properly completed and duly executed Letter of Transmittal, and
- all other required documents.
However, Argo-Tech reserves the absolute right to waive any defects or
irregularities in the tender of outstanding notes or in the satisfaction of
conditions of the exchange offer by a holder. If:
- any tendered outstanding notes are not accepted for any reason,
- the holder withdraws their previously tendered outstanding notes, or
- outstanding notes are submitted for a greater principal amount of
outstanding notes than the holder desires to exchange,
then any such unaccepted, withdrawn or portion of non-exchanged outstanding
notes will be returned as promptly as practicable after the expiration or
termination of the exchange offer without expense to the tendering holder. In
the case of outstanding notes tendered by book-entry transfer, such unaccepted,
withdrawn or portion of non-exchanged outstanding notes will be credited to an
account maintained with The Depository Trust Company without expense to the
tendering holder.
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<PAGE> 23
CONDITIONS
Argo-Tech will not be required to exchange any new notes for outstanding
notes, and may terminate the exchange offer before the acceptance of any
outstanding notes for exchange, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in Argo-Tech's reasonable judgment, might materially impair its
ability to proceed with the exchange offer, or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any interpretation of any existing law, statute, rule or regulation is
issued by the Staff of the Securities and Exchange Commission, which, in
Argo-Tech's reasonable judgment, might materially impair its ability to
proceed with the exchange offer, or
- any governmental approval or approval by holders of the outstanding notes
has not been obtained, if Argo-Tech deems, in its reasonable judgment,
that such approval is necessary for the consummation of the exchange
offer.
If Argo-Tech determines in its sole discretion that any of these conditions
are not satisfied, Argo-Tech may:
- refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders, or, in the case of
outstanding notes tendered by book-entry transfer, credit such
outstanding notes to an account maintained with The Depository Trust
Company,
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject to the rights of holders
to withdraw their tender of outstanding notes, or
- waive any unsatisfied conditions and accept all properly tendered
outstanding notes that have not been withdrawn.
See "-- Expiration Date; Extensions; Amendments."
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must:
- complete, sign and date the Letter of Transmittal, or a facsimile,
- 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 facsimile to the
exchange agent before the expiration date.
In addition, a holder must comply with the guaranteed delivery procedures
described below if:
- certificates for outstanding notes and the Letter of Transmittal will not
be received by the exchange agent before the expiration date, or
- a timely confirmation of book-entry transfer of outstanding notes into
the exchange agent's account at The Depository Trust Company will not be
received by the exchange agent before the expiration date.
To be effectively tendered, the Letter of Transmittal and other required
documents must be received by the exchange agent at the address set forth below
under "-- Exchange Agent" before the expiration date.
A tender by a holder of outstanding notes that is not withdrawn before the
expiration date will constitute an agreement between Argo-Tech and the holder in
accordance with the terms, and subject to the conditions, set forth in this
prospectus and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING 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, YOU SHOULD USE AN OVERNIGHT OR HAND DELIVERY
SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND
THE LETTER OF TRANSMITTAL OR
17
<PAGE> 24
OUTSTANDING NOTES TO ARGO-TECH. YOU MAY REQUEST THAT YOUR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TENDER YOUR OUTSTANDING
NOTES FOR YOU.
If you are a beneficial owner whose outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust company, or other nominee, and
you wish to tender your outstanding notes, you should contact the registered
holder promptly and instruct the registered holder to tender your outstanding
notes on your behalf. If you are a beneficial owner and wish to tender your
outstanding notes on your own behalf, you must, before completing and executing
the Letter of Transmittal and delivering your outstanding notes, either make
appropriate arrangements to register ownership of the outstanding notes in your
name or obtain a properly completed assignment from the registered holder. The
transfer of registered ownership of outstanding notes may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless the outstanding notes are
- tendered by a registered holder who has not completed the box entitled
"Special Payment Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal, or
- tendered for the account of an eligible institution.
If signatures on a Letter of Transmittal or a notice of withdrawal are required
to be guaranteed, the guarantor must be an eligible institution. Eligible
institutions include:
- a member firm of a registered national securities exchange,
- a member firm of the National Association of Securities Dealers, Inc.,
- a commercial bank having an office or correspondent in the U.S.,
- a commercial trust company having an office or correspondent in the U.S.
and
- an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934.
If the Letter of Transmittal is signed by a person other than the
registered holder, those outstanding notes must be endorsed or accompanied by a
properly completed bond power. The bond power must be signed by the registered
holder as their name appears on their outstanding notes.
If the Letter of Transmittal, any outstanding notes or any bond power is
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should indicate their capacity when signing. Unless
waived, evidence satisfactory to Argo-Tech of that person's authority to act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility, time of receipt,
acceptance of tendered outstanding notes, and withdrawal of tendered outstanding
notes will be determined by Argo-Tech in its sole discretion, which will be
final and binding. Argo-Tech reserves the absolute right to reject any and all
outstanding notes not properly tendered. Argo-Tech'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
outstanding notes must be cured within the time period Argo-Tech determines.
Although Argo-Tech intends to notify holders of defects or irregularities in the
tender of outstanding notes, neither Argo-Tech, nor the exchange agent or any
other person will be liable for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until all defects or
irregularities have been cured or waived. Any outstanding 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 the expiration date.
In addition, Argo-Tech reserves the right, in its sole discretion, to
purchase or make offers for any outstanding notes that remain outstanding
subsequent to the expiration date. To the extent permitted by applicable law and
the terms of its agreements relating to its outstanding indebtedness, Argo-Tech
may
18
<PAGE> 25
purchase outstanding 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.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
outstanding notes at The Depository Trust Company for the purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in The Depository Trust Company's
system may make book-entry delivery of outstanding notes by causing The
Depository Trust Company to transfer such outstanding notes into the exchange
agent's account at The Depository Trust Company in accordance with its transfer
procedures. Even though delivery of outstanding notes may be effected through
book-entry transfer at The Depository Trust Company,
- a holder must comply with the guaranteed delivery procedures described
below, or
- the Letter of Transmittal or a facsimile, with any required signature
guarantees and any other required documents, must be received by the
exchange agent at the address set forth below under "Exchange Agent" on
or before the expiration date.
Delivery of documents to The Depository Trust Company in accordance with
its procedures does not constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If your outstanding notes are not immediately available or you are unable
to deliver your outstanding notes, the Letter of Transmittal, or any other
required documents to the exchange agent prior to the expiration date, you may
effect a tender if:
(1) the tender is made through an eligible institution,
(2) before the expiration date, the exchange agent receives from an
eligible institution a properly completed and duly executed "Notice of
Guaranteed Delivery" substantially in the form provided by Argo-Tech
which
(a) states the name and address of the holder,
(b) states the certificate number(s) of such outstanding notes,
(c) states the principal amount of outstanding notes tendered,
(d) states that the tender is being made through the guaranteed delivery
procedures, and
(e) guarantees that, within three New York Stock Exchange trading days
after the expiration date the following documents will be deposited by
the eligible institution with the exchange agent
- the Letter of Transmittal, or a facsimile, and
- the certificate(s) representing the outstanding notes in proper
form for transfer or a confirmation book-entry transfer, and
- any other documents required by the Letter of Transmittal, and
(3) A properly completed and executed Letter of Transmittal, or a
facsimile, the certificate(s) representing all tendered outstanding
notes in proper form for transfer and other documents required by the
Letter of Transmittal are received by the exchange agent within three
New York Stock Exchange trading days after the expiration date.
Upon request, the exchange agent will send a Notice of Guaranteed Delivery
to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
19
<PAGE> 26
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of outstanding notes, a written, or facsimile
transmission, notice of withdrawal must be received by the exchange agent at its
address set forth in this prospectus 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 who deposited the outstanding notes that
are being withdrawn,
- identify the tendered outstanding notes to be withdrawn, including the
certificate number(s),
- be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the exchange agent register the
transfer of such outstanding notes in the name of the person withdrawing
the tender, and
- specify the name in which any such outstanding notes are to be
registered, if different from that of the person who deposited the notes
to be withdrawn.
Any outstanding notes so withdrawn will be deemed not to have been validly
tendered for purposes of the exchange offer, and no new notes will be issued
unless the withdrawn outstanding notes are validly retendered. Properly
withdrawn outstanding notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
expiration date.
TERMINATION OF RIGHTS ACCORDED BY THE REGISTRATION RIGHTS AGREEMENT
All rights under the registration rights agreement accorded to holders of
outstanding notes will terminate upon the consummation of the exchange offer.
However, Argo-Tech will be obligated:
- to keep the registration statement effective until the closing of the
exchange offer, and
- for up to 90 days after the expiration date, to provide copies of the
latest version of this prospectus to any broker-dealer that requests copies of
the prospectus for use in connection with any resale of new notes received for
its own account through the exchange of outstanding notes acquired for its own
account as a result of market-making or other trading activities, subject to the
conditions described under "-- Resale of the Exchange Notes."
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed exchange agent for this
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or the Letter of Transmittal, and requests for copies
of the Notice of Guaranteed Delivery should be addressed to the exchange agent
as follows:
<TABLE>
<S> <C>
By Hand or Overnight Courier: By Registered or Certified Mail:
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
88 Pine Street P.O. Box 1010
19th Floor Wall Street Station
New York, New York 10005 New York, New York 10268-1010
</TABLE>
By Telephone (to confirm receipt of facsimile):(212) 701-7624
By Facsimile (for eligible institutions only): (212) 701-7636
20
<PAGE> 27
FEES AND EXPENSES
Argo-Tech will pay the expenses of soliciting tenders in connection with
the exchange offer. The principal solicitation is being made by mail. Additional
solicitation may be made by telecopier, telephone, or in person by officers and
regular employees of Argo-Tech and its affiliates.
Argo-Tech has not retained any dealer-manager in connection with the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer. However, Argo-Tech will pay the
exchange agent reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses.
The cash expenses Argo-Tech expects to incur and pay in connection with the
exchange offer are estimated to be approximately $75,000. Such expenses include
registration fees, fees and expenses of the exchange agent, accounting and legal
fees, and printing costs.
Argo-Tech will pay all transfer taxes, if any, applicable to the exchange
of the outstanding notes in the exchange offer. If, however,
- certificates representing outstanding notes not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of outstanding notes tendered,
or,
- if tendered, the certificates representing outstanding notes are
registered in the name of any person other than the person signing the
Letter of Transmittal, or
- if a transfer tax is imposed for any reason other than the exchange of
the outstanding notes pursuant to the exchange offer,
then the holder must pay those transfer taxes, whether imposed on the registered
holder or any other persons. If satisfactory evidence of payment of such
transfer taxes or an exemption from payment is not submitted with the Letter of
Transmittal, the amount of the transfer taxes will be billed directly to such
tendering holder. New notes will not be delivered until such transfer taxes are
paid.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of the
outstanding notes are urged to consult their financial and tax advisors in
making their own decisions on whether or not to participate in the exchange
offer.
Outstanding notes that are not exchanged for new notes in the exchange
offer will remain "restricted securities" for the purposes of the federal
securities laws. Accordingly, those outstanding notes may not be offered, sold,
pledged, or otherwise transferred except:
- to Argo-Tech or any of its subsidiaries,
- to a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act of 1933 purchasing for its own account or for
the account of a qualified institutional buyer in a transaction meeting
the requirements of Rule 144A,
- in an offshore transaction complying with Rule 904 of Regulation S under
the Securities Act of 1933,
- pursuant to an exemption from registration under the Securities Act of
1933 provided by Rule 144 thereunder, if available,
- to "Institutional Accredited Investors" in a transaction exempt from the
registration requirements of the Securities Act of 1933, or
- pursuant to an effective registration statement under the Securities Act
of 1933, in accordance with all other applicable securities laws.
Outstanding notes not exchanged for new notes in the exchange offer will
not retain any rights under the registration rights agreement.
21
<PAGE> 28
ACCOUNTING TREATMENT
For accounting purposes, Argo-Tech will recognize no gain or loss as a
result of the exchange offer. The new notes will be recorded at the same
carrying value as the outstanding notes, as reflected in Argo-Tech's accounting
records on the date of the exchange. The expenses of the exchange offer will be
amortized over the term of the notes.
22
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical financial and other data
of Argo-Tech for the 13 weeks ended January 30, 1999 and the 14 weeks ended
January 31, 1998, which have been derived from Argo-Tech's unaudited condensed
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 for the unaudited
interim periods and the fiscal years 1994 through 1998, which have been derived
from our audited consolidated financial statements for those years. Results for
the 13 weeks ended January 30, 1999 are not necessarily indicative of results
that may be expected for the entire year. Our fiscal year ends on the last
Saturday in October and is identified according to the calendar year in which it
ends. For example, the fiscal year ended October 31, 1998 is referred to as
"fiscal 1998." The fiscal year ended October 31, 1998 consisted of 53 weeks and
all other fiscal years presented consisted of 52 weeks. The information
presented below should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
13 14 -------------------------------------------------------------------
WEEKS ENDED WEEKS ENDED OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28, OCTOBER 29,
JANUARY 30, 1999 JANUARY 31, 1998 1998 1997 1996 1995 1994
---------------- ---------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........ $ 40,143 $ 44,462 $174,143 $117,086 $ 96,437 $ 86,671 $ 79,709
-------- -------- -------- -------- -------- -------- --------
Gross profit........ 18,150 16,980 66,940 46,132 38,555 32,449 25,433
Operating
expenses.......... 12,926 9,071 38,881 19,482 19,277 17,390 14,789
-------- -------- -------- -------- -------- -------- --------
Income from
operations........ 5,224 7,909 28,059 26,650 19,278 15,059 10,644
Interest expense.... 5,670 6,084 21,030 12,827 10,138 11,924 10,117
Other, net.......... (222) (254) (268) (404) (112) (588) 75
Income tax
provision......... 977 643 3,400 4,841 3,608 1,553 279
Extraordinary
loss(a)........... -- -- -- 1,529 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income/(loss)... $ (1,201) $ 1,436 $ 3,897 $ 7,857 $ 5,644 $ 2,170 $ 173
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets........ $292,893 $302,050 $288,195 $300,960 $167,106 $167,057 $183,826
Working capital..... 32,772 45,249 36,917 42,647 25,531 23,098 34,506
Long-term debt
(including current
maturities)....... 278,461 246,114 227,386 248,862 107,607 118,607 137,607
Redeemable preferred
stock............. -- -- -- -- 25,908 25,908 25,908
Redeemable common
stock............. -- 4,813 6,713 4,813 4,067 3,311 2,862
Redeemable ESOP
stock, net........ 42,610 19,326 32,235 18,906 11,974 5,767 680
Shareholders'
equity/(deficiency).. (86,978) (25,631) (36,286) (27,941) (28,219) (25,617) (20,390)
OTHER DATA:
Gross margin........ 45.2% 38.2% 38.4% 39.4% 40.0% 37.4% 31.9%
EBITDA(b)........... $ 8,778 $ 11,551 $ 42,348 $ 34,175 $ 26,740 $ 22,231 $ 19,370
EBITDA margin....... 21.9% 26.0% 24.3% 29.2% 27.7% 25.6% 24.3%
Adjusted EBITDA(b).. $ 10,673 $ 17,345 $ 56,940 $ 38,591 $ 29,069 $ 23,901 $ 20,210
Adjusted EBITDA
margin............ 26.6% 39.0% 32.7% 33.0% 30.1% 27.6% 25.4%
Net cash flows
provided by
operating
activities........ $ 5,221 $ 11,236 $ 29,771 $ 17,597 $ 15,942 $ 17,846 $ 17,531
Net cash flows used
in investing
activities........ (1,358) (313) (5,610) (110,252) (3,355) (2,918) (1,475)
Net cash flows
provided by (used
in) financing
activities........ (10,040) (2,934) (21,994) 88,460 (11,000) (19,730) (5,855)
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
13 14 -------------------------------------------------------------------
WEEKS ENDED WEEKS ENDED OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28, OCTOBER 29,
JANUARY 30, 1999 JANUARY 31, 1998 1998 1997 1996 1995 1994
---------------- ---------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation,
goodwill,
identified
intangibles and
deferred financing
fee
amortization...... 3,926 3,908 15,279 8,412 8,653 8,577 10,177
Capital
expenditures...... 1,358 313 5,610 2,690 3,355 2,918 1,475
Cash interest
expense(c)........ 5,298 5,818 20,040 11,940 8,947 10,519 8,666
Ratio of Adjusted
EBITDA to cash
interest
expense........... 2.0x 3.0x 2.8x 3.2x 3.2x 2.3x 2.3x
Ratio of earnings to
fixed
charges(d)........ -- 1.3x 1.3x 2.1x 1.9x 1.3x 1.0x
</TABLE>
- ---------------
(a) The extraordinary loss, which is net of federal income tax benefits of
$1,019, relates to the write-off of unamortized debt issuance costs of a
credit facility that was refinanced on July 18, 1997.
(b) EBITDA and Adjusted EBITDA represents income from operations plus non-cash
charges as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
13 14 -------------------------------------------------------------------
WEEKS ENDED WEEKS ENDED OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28, OCTOBER 29,
JANUARY 30, 1999 JANUARY 31, 1998 1998 1997 1996 1995 1994
---------------- ---------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from
operations............ $ 5,224 $ 7,909 $ 28,059 $ 26,650 $ 19,278 $ 15,059 $ 10,644
Depreciation, goodwill
and intangible
amortization.......... 3,554 3,642 14,289 7,525 7,462 7,172 8,726
------- ------- -------- -------- -------- -------- --------
EBITDA.................. 8,778 11,551 42,348 34,175 26,740 22,231 19,370
Compensation expense --
Employee Stock
Ownership Plan........ 1,895 1,306 3,911 2,920 2,329 1,670 840
Write-off of Inventory
acquisition step-up... -- 4,488 10,681 1,496 -- -- --
------- ------- -------- -------- -------- -------- --------
Adjusted EBITDA......... $10,673 $17,345 $ 56,940 $ 38,591 $ 29,069 $ 23,901 $ 20,210
======= ======= ======== ======== ======== ======== ========
</TABLE>
- ---------------
EBITDA and Adjusted EBITDA are not intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of
operating performance or to cash flow as a measure of liquidity. Argo-Tech
has included information concerning EBITDA and Adjusted EBITDA because it
understands that it is used by certain investors as one measure of a
borrower's historical ability to service its debt. EBITDA and Adjusted
EBITDA, as presented, may not be comparable to similarly titled measures
reported by other companies, since not all companies necessarily calculate
EBITDA and Adjusted EBITDA in an identical manner, and therefore is not
necessarily an accurate means of comparison between companies.
(c) Cash interest expense represents interest expense less amortization of
deferred financing fees of $372,000, $266,000, $990,000, $887,000,
$1,191,000, $1,405,000, and $1,451,000 in the 13 weeks ended January 30,
1999, 14 weeks ended January 31, 1998 and the fiscal years ended October 31,
1998, October 25, 1997, October 26, 1996, October 28, 1995, and October 29,
1994, respectively.
(d) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees and fixed loan guarantee
fees. No ratio is presented for the 13 weeks ended January 30, 1999 as the
earnings for that period were $224,000 less than the fixed charges.
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion and analysis together with "Selected
Consolidated Financial Information" and Argo-Tech's financial statements and the
related notes included in this prospectus. Some of the statements in the
following discussion are forward-looking statements or discussion of trends
which involve substantial risks and uncertainties that could significantly
affect expected results. Actual future results and trends may differ materially
from those described below depending on a variety of factors, including those
detailed under the caption "Risk Factors" elsewhere in this prospectus.
Argo-Tech's fiscal year ends on the last Saturday of October and is identified
according to the calendar year in which it ends. For example, the fiscal year
ended October 31, 1998 is referred to as "fiscal 1998." The fiscal year ended
October 31, 1998 consisted of 53 weeks and all other fiscal years discussed
consisted of 52 weeks.
OVERVIEW
In fiscal 1998, the aerospace business generated approximately 88% of
Argo-Tech's net revenues. The balance of net revenues were generated from sales
of ground fueling equipment, certain industrial products and revenues from the
operation of Heritage Business Park. Approximately 80% of the aerospace revenues
were derived from sales to commercial original equipment manufacturers and
commercial aftermarket customers, while military revenues represented
approximately 20% of aerospace revenues.
In fiscal 1998, sales to commercial original equipment manufacturers
represented approximately 34% of commercial aerospace revenues. Once qualified,
original equipment products generally are sold at or below cost of production in
anticipation of receiving orders for commercial spare parts and overhaul
services at significantly higher margins. Over the approximately 25 year life
cycle of an aircraft program, commercial spare parts and overhaul services for
products Argo-Tech manufactures often generate six or more times the aggregate
net revenues of the original equipment sales program.
FACTORS AFFECTING ARGO-TECH'S FINANCIAL RESULTS
Argo-Tech's historical financial results are affected by a variety of
factors which impact the aerospace industry, in general, or Argo-Tech, in
particular. Significant factors include:
- THE CYCLICALITY OF THE COMMERCIAL AEROSPACE INDUSTRY.
During the period 1993 to 1995, the aerospace industry experienced a
significant downturn in its business cycle. During this period, Argo-Tech
initiated a workforce reduction of approximately 30%, including early retirement
programs. In addition, Argo-Tech undertook process improvement programs, which
are ongoing, such as our certified operator and certified supplier programs.
Argo-Tech refers to these programs, together with the workforce reduction, as
"cost reductions." As the aerospace industry has moved into its recovery phase,
the increase in volume coupled with the cost reductions has allowed Argo-Tech to
increase its absorption of fixed manufacturing costs. This increased absorption
of fixed costs is referred to as "operating leverage."
- THE FORMATION OF THE EMPLOYEE STOCK OWNERSHIP PLAN.
Argo-Tech established its Employee Stock Ownership Plan in 1994 by
purchasing 420,000 shares of common stock of its sole stockholder and parent
company, AT Holdings. The purchase of common stock was made with the proceeds of
a $16.8 million ten-year loan funded through a credit facility that was
refinanced on July 18, 1997. The plan, which includes approximately 300 of
Argo-Tech's salaried employees, represents an ownership interest in AT Holdings
of approximately 30%. Generally accepted accounting principles require that
non-cash plan compensation expense and a corresponding increase in stockholders'
equity be recorded annually as shares held by the plan are allocated to
participants and the loan made to the plan is repaid. Generally accepted
accounting principles also require that this non-cash plan compensation expense
be added back to net income in the determination of cash flow from operations.
The aggregate amount of such non-cash plan compensation expense was $3.9
million, $2.9 million and $2.3 million for the fiscal years ended
25
<PAGE> 32
1998, 1997 and 1996, respectively. Management believes that the Employee Stock
Ownership Plan has been successful in motivating and compensating salaried
employees on a cost-efficient basis.
- FUNDING OF NEW AEROSPACE PRODUCT DEVELOPMENT PROGRAMS.
In connection with new aerospace product development programs, Argo-Tech
incurs significant research and development expenditures to design, test and
qualify main engine fuel pumps and accessories for engine and airframe original
equipment manufacturers. Prior to 1990, these engine and airframe original
equipment manufacturers reimbursed Argo-Tech for a majority of these research
and development expenditures. Since 1990, commercial original equipment
manufacturers have significantly reduced, and in many cases eliminated, the
reimbursement of these development programs. This has resulted in an increase in
the level of research and development expenditures Argo-Tech funds. Research and
development expenditures are expensed as incurred, and such expenses are
expected to continue at historical levels.
In contrast to the practice in the commercial aerospace industry, Argo-Tech
is generally reimbursed for the design, test and qualification costs of
equipment used on military aircraft. Military original equipment shipments
generally are sold at cost plus a reasonable profit. Due to lower aircraft
utilization, military aftermarket sales are less significant than commercial
aftermarket sales. Aftermarket margins for military products are at a level
higher than original equipment shipments.
- OWNERSHIP OF HERITAGE BUSINESS PARK.
Argo-Tech owns and operates Heritage Business Park, a 150 acre, 1.8 million
square foot business park in Cleveland, Ohio. In 1990, Argo-Tech underwent a
corporate restructuring and disposed of substantially all of its operations
except for its aircraft accessories business and Heritage Business Park.
Argo-Tech entered into lease and service agreements with the operations located
in the business park that were disposed of in the restructuring. These service
agreements covered support functions, including computerized information
services, equipment maintenance, and certain office administrative services. The
service agreements ensured that these businesses would have the necessary
support functions to operate during a four to seven year transition period until
they became self sufficient. The planned elimination of services to these
tenants has resulted in a continual reduction of service-related revenues during
the transition period. In addition to providing space and services to operations
formerly owned by Argo-Tech, space in Heritage Business Park is leased to other
manufacturers. Argo-Tech is working to increase its rental and other income from
the business park.
- ACQUISITION OF J.C. CARTER COMPANY.
On September 26, 1997, Argo-Tech acquired all of the outstanding shares of
J.C. Carter, a manufacturer of aircraft fluid control component parts,
industrial marine cryogenic pumps and ground fueling components for $107.6
million, including acquisition costs. The acquisition was funded by the
simultaneous issuance of $140.0 million in principal amount of 8 5/8% Senior
Subordinated Notes due 2007. The results of J.C. Carter's operations have been
combined with Argo-Tech's results of operations since the date of the
acquisition. The purchase price of $107.6 million exceeded the net assets of
J.C. Carter at the date of acquisition by $99.7 million. Of that excess, $60.6
million was assigned to identified intangible assets and the remainder of $39.1
million was considered goodwill that is being amortized on a straight-line basis
over 40 years. The acquisition was accounted for using the purchase method of
accounting. Accordingly, an allocation of the purchase price has been made using
estimated fair market values of the assets acquired and liabilities assumed as
of the acquisition date.
- J.C. CARTER MAY HAVE TO PAY A PRODUCT LIABILITY JUDGMENT.
Please see "Risk Factors -- Risks Specific to Argo-Tech's Business -- J.C.
Carter may have to pay a product liability judgment."
26
<PAGE> 33
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, selected items in
Argo-Tech's consolidated statements of income as a percentage of net revenues.
The fiscal year ended October 25, 1997 includes the results of J.C. Carter from
September 26, 1997, the date of its acquisition, to October 25, 1997.
<TABLE>
<CAPTION>
13 14 FISCAL YEAR ENDED
WEEKS ENDED WEEKS ENDED ---------------------------------------------------------
JANUARY 30, 1999 JANUARY 31, 1998 OCTOBER 31, 1998 OCTOBER 25, 1997 OCTOBER 26, 1996
---------------- ---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues............. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............. 45.2% 38.2% 38.4% 39.4% 40.0%
Operating expenses....... 32.2% 20.4% 22.3% 16.6% 20.0%
Income from operations... 13.0% 17.8% 16.1% 22.8% 20.0%
Interest expense......... 14.1% 13.7% 12.1% 11.0% 10.5%
Other, net............... (0.5)% (0.5)% (0.2)% (0.3)% (0.1)%
Income before income
taxes.................. (0.6)% 4.6% 4.2% 12.1% 9.6%
Income tax provision..... 2.4% 1.4% 2.0% 4.1% 3.7%
Income before
extraordinary items.... (3.0)% 3.2% 2.2% 8.0% 5.9%
Extraordinary loss....... -- -- -- 1.3% --
Net income/(loss)........ (3.0)% 3.2% 2.2% 6.7% 5.9%
</TABLE>
EXPORT SALES
Substantially all of Argo-Tech's export sales are denominated in U.S.
dollars. Export sales for fiscal years 1998, 1997 and 1996 were $82.2 million,
$59.5 million, and $44.1 million, respectively. Sales to Europe were $29.8
million, $18.8 million and $13.2 million. Export sales to all other regions,
individually less than 10%, were $52.4 million, $40.7 million and $30.9 million
for fiscal years 1998, 1997 and 1996, respectively. See Note 13 to Notes to
Consolidated Financial Statements for more information regarding sales to
foreign customers.
13 WEEK PERIOD ENDED JANUARY 30, 1999 COMPARED WITH THE 14 WEEK PERIOD ENDED
JANUARY 31, 1998
Net revenues for the 13 week period ended January 30, 1999 decreased $4.4
million, or 9.9%, to $40.1 million from $44.5 million for the 14 week period
ended January 31, 1998. This decrease was primarily due to a reduction in
aerospace revenues of $4.6 million offset by a slight increase of $0.3 million
in industrial and other revenues. The reduction in aerospace revenues was
attributable to a decrease of $3.5 million of commercial revenues and $1.1
million in military revenues. The commercial original equipment revenues
decreased $0.4 million, or 4.3%, to $8.8 million and commercial aftermarket
revenues decreased $3.1 million, or 13.8% to $19.4 million in the 13 week period
ended January 30, 1999. The decrease in commercial original equipment revenues
was due to one less week in the period as compared to last year. Commercial
aftermarket revenues were lower primarily due to a reduction of overhaul and
repair services of $2.3 million and a reduction in the demand for spare parts of
$0.8 million. In addition to the fact that there was one less week in the period
as compared to last year, aftermarket revenues tend to occur unevenly, the
timing of which significantly impacts quarterly comparisons. The 14 week period
ended January 31, 1998 reflected large volumes shipped to a distributor
resulting in a comparatively high level of aftermarket sales as a percentage of
total sales. Military revenues decreased $1.1 million primarily due to decreased
F-15 foreign military sales. Industrial revenues included increased ground
fueling revenues of $0.6 million and increased rental revenues at Heritage
Business Park of $0.1 million, offset by a reduction in demand for industrial
marine products of $0.4 million.
Gross profit for the 13 week period ended January 30, 1999 increased $1.2
million, or 7.1%, to $18.2 million from $17.0 million in the 14 week period
ended January 31, 1998 due to the non-recurrence of $4.5 million of amortization
related to the step-up of inventory to fair market value at J.C. Carter that
occurred in the first quarter of 1998 offset by lower aerospace revenues and
higher non-cash Employee Stock Ownership
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<PAGE> 34
Plan compensation expense. Gross margin for the 13 week period ended January 30,
1999 increased to 45.2% from 38.2% for the 14 week period ended January 31, 1998
due to the non-recurrence of the amortization related to the step-up of Carter
inventory to fair value, partially offset by a lower margin sales mix of
aerospace products. Excluding the $4.5 million charge for amortization related
to the step-up of inventory to fair value in connection with the acquisition,
gross margin for the 14 week period ended January 31, 1998 was 48.3%.
Operating expenses for the 13 week period ended January 30, 1999 increased
$3.8 million, or 41.8%, to $12.9 million from $9.1 million in the 14 week period
ended January 31, 1998. This increase is primarily attributable to non-cash
compensation expense of $2.8 million associated with the vesting of stock
options and stock appreciation rights in connection with the stock repurchase,
an increase of $0.5 million of research and development activity, and an
increase of $0.5 million in miscellaneous corporate expenses. Operating expenses
as a percent of revenues increased to 32.2% for the 13 week period ended January
30, 1999 from 20.4% for the comparable period in 1998. Excluding the $2.8
million of non-cash compensation expense, operating expenses as a percent of
revenues would have been 25.2% for the 13 week period ended January 30, 1999.
Income from operations for the 13 week period ended January 30, 1999
decreased $2.7 million, or 34.2%, to $5.2 million from $7.9 million in the 14
week period ended January 31, 1998. This decrease was due to lower aerospace
revenues, non-cash compensation expense related to the vesting of the stock
options and stock appreciation rights in connection with the repurchase of
common stock from AT Holdings' largest stockholder and higher operating
expenses, partially offset by the non-recurrence of $4.5 million of amortization
related to the step-up of inventory in 1998. As a percent of revenues, income
from operations for the 13 week period ended January 30, 1999 decreased to 13.0%
from 17.8% for the 14 week period ended January 31, 1998.
Interest expense for the 13 week period ended January 30, 1999 decreased
$0.5 million, or 8.2%, to $5.6 million from $6.1 million for the 14 week period
ended January 31, 1998 primarily due to a lower level of term loans partially
offset by the issuance of the $55.0 million Senior Subordinated Notes in
connection with the repurchase of common stock from AT Holdings' largest
stockholder on January 4, 1999.
The income tax provision for the 13 week period ended January 30, 1999
increased $0.4 million, or 66.7%, to $1.0 million from $0.6 million in the 14
week period ended January 31, 1998. This increase is due to the effect of the
non-deductible amortization of intangible assets and compensation expense
associated with the vesting of stock options and stock appreciation rights in
proportion to lower pre-tax income.
Net income for the 13 week period ended January 30, 1999 decreased $2.6
million, or 185.7%, to a loss of $1.2 million from income of $1.4 million for
the 14 week period ended January 31, 1998 primarily due to the revenue and
expense factors discussed above.
FISCAL 1998 COMPARED WITH FISCAL 1997
Net revenues for fiscal 1998 increased $57.0 million, or 48.7%, to $174.1
million from $117.1 million for fiscal 1997. This increase is due to an increase
of $42.3 million for aerospace products, including an increase of $30.7 million
of J.C. Carter aerospace products for a full year, and an increase of $9.2
million and $5.6 million related to J.C. Carter ground fueling and industrial
marine products, respectively, for a full year, offset by a $0.1 million
reduction in Heritage Business Park revenues. Commercial aftermarket revenues
increased 16.3%, or $11.3 million, to $80.6 million and commercial original
equipment revenues increased 40.7%, or $12.2 million, to $42.2 million. These
increases are due to the inclusion of a full year of J.C. Carter revenue of $6.7
million for commercial aftermarket and $6.4 million for commercial original
equipment, and the continued increase in both airline traffic and airline
capital spending. Total military revenues increased $18.8 million to $29.8
million primarily due to the addition of $17.6 million of J.C. Carter military
sales for a full year. The decline in Heritage Business Park revenues from the
prior fiscal year was due to a reduction of $0.2 million in maintenance and
other services offered to tenants offset by an increase of $0.1 million due to a
net increase in square footage rental. Approximately 47.2% of fiscal 1998 net
revenues were attributable to export sales to foreign customers compared to
50.8% in fiscal 1997. Substantially all such sales were denominated in U.S.
dollars.
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Gross profit for fiscal 1998 increased $20.8 million, or 45.1%, to $66.9
million from $46.1 million for fiscal 1997. Gross margin decreased to 38.4% for
fiscal 1998 from 39.4% in fiscal 1997 due to amortization related to the step-up
of J.C. Carter inventory to fair market value, partially offset by favorable
J.C. Carter sales mix and improved operating performance in the Cleveland
facility. Excluding the $10.7 million and $1.5 million charge for fiscal years
1998 and 1997, respectively, for amortization related to the step-up of J.C.
Carter inventory to fair market value, gross margin would have been 44.6% and
40.6%, respectively.
Operating expenses for fiscal 1998 increased $19.4 million, or 99.5% to
$38.9 million from $19.5 million in fiscal 1997. The increase was primarily
attributable to the inclusion of a full year of J.C. Carter operating expenses
and amortization of intangible assets, $1.5 million for acquisition, initial
public offering and other corporate expenses and $0.4 million for the
implementation of a stock appreciation rights plan. Operating expenses as a
percent of revenues increased to 22.3% for fiscal 1998 from 16.6% in fiscal
1997. Excluding the $5.1 million of J.C. Carter amortization of intangible
assets, operating expenses as a percent of revenues would have been 19.4%.
Income from operations for fiscal 1998 increased $1.4 million, or 5.2%, to
$28.1 million from $26.7 million for fiscal 1997 and decreased as a percentage
of net revenue to 16.1% in fiscal 1998 from 22.8% in fiscal 1997. The increase
in income from operations was due to increased Argo-Tech aerospace sales and
improved operating efficiency in the Cleveland facility and the inclusion of a
full year of J.C. Carter operating results offset by the amortization related to
the step-up of J.C. Carter inventory to fair market value and amortization of
J.C. Carter intangible assets. Excluding the $10.7 million and $1.5 million
charge for fiscal years 1998 and 1997, respectively, for amortization related to
the step-up of J.C. Carter inventory to fair market value, income from
operations would have been 22.3% and 24.1%, respectively.
Interest expense for fiscal 1998 increased $8.2 million, or 64.1%, to $21.0
million from $12.8 million for fiscal 1997 primarily due to the issuance of
senior subordinated notes in September 1997 in connection with the simultaneous
acquisition of J.C. Carter and the repurchase of all of AT Holdings' then
outstanding preferred stock in March 1997.
The income tax provision for fiscal 1998 decreased $1.4 million, or 29.2%,
to $3.4 million from $4.8 million in fiscal 1997 due primarily to a decrease of
$6.9 million in pre-tax income, to $7.3 million for fiscal 1998 from $14.2
million for fiscal 1997. The effective tax rate for fiscal 1998 was 46.6%
compared to 34.0% for fiscal 1997. This increase is due to the effect of the
non-deductible amortization of intangible assets in proportion to lower pre-tax
income in fiscal 1998 as compared to fiscal 1997 offset by a reduction in
taxable income subject to state and local taxes.
Income before extraordinary loss decreased $5.5 million, or 58.5%, to $3.9
million in fiscal 1998 from $9.4 million in fiscal 1997 primarily due to the
amortization related to the step-up of J.C. Carter inventory to fair market
value and other revenue and expense factors discussed above. Excluding the $10.7
million charge for amortization related to the step-up of J.C. Carter inventory
to fair market value in connection with the acquisition, income before
extraordinary loss would have been $10.3 million.
Net income for fiscal 1998 decreased $3.9 million, or 50.0%, to $3.9
million from $7.8 million for fiscal 1997 primarily due to the amortization
related to the step-up of J.C. Carter inventory to fair market value and the
other revenue and expense factors discussed above partially offset by the non
recurrence of a $1.5 million after tax extraordinary loss related to the early
extinguishment of debt under a previous bank credit agreement. Excluding the
$10.7 million charge for amortization related to the step-up of inventory to
fair market value in connection with the acquisition, net income would have been
$10.3 million.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net revenues for fiscal 1997 increased $20.7 million, or 21.5%, to $117.1
million from $96.4 million for fiscal 1996 due to an increase of $22.0 million
for aerospace products, including $2.6 million of J.C. Carter aerospace
products, and an increase of $1.3 million related to J.C. Carter ground fueling
and industrial marine products offset by a $2.6 million decrease in revenues
related to Heritage Business Park. Commercial aftermarket revenues increased
29.8%, or $15.9 million, to $69.3 million and commercial original equipment
29
<PAGE> 36
revenues increased 13.6%, or $3.6 million, to $30.0 million due to a continued
increase in both airline traffic and airline capital spending. Total military
revenues increased $2.5 million to $11.0 million due to an increase of $1.5
million in military original equipment revenues and the addition of $1.5 million
of J.C. Carter military sales offset by a reduction of $0.5 million of
aftermarket revenues. The decline in Heritage Business Park revenues from the
prior fiscal year was due to a planned reduction in the maintenance and other
services offered to tenants and a reduction in the rental rate and square
footage requirements of a major tenant's lease. Approximately 50.8% of fiscal
1997 net revenues were attributable to export sales to foreign customers
compared to 45.7% in fiscal 1996. Substantially all such sales were made in U.S.
dollars.
Gross profit for fiscal 1997 increased $7.5 million, or 19.4%, to $46.1
million from $38.6 million for fiscal 1996. Gross margin decreased to 39.4% for
fiscal 1997 from 40.0% in fiscal 1996 due to the amortization related to the
step-up of J.C. Carter inventory to fair market value.
Operating expenses for fiscal 1997 were $19.5 million, a slight increase
from $19.3 million for fiscal 1996. Selling, General and Administrative expenses
increased $0.9 million primarily attributable to the addition of expenses
related to J.C. Carter and general corporate expenses. Research and development
decreased by $0.7 million primarily due to an increase in customer
reimbursements received on commercial aerospace development programs. Operating
expenses decreased as a percentage of net revenues to 16.6% in fiscal 1997 from
20.0% in fiscal 1996. The decrease was primarily the result of improved
operating leverage.
Income from operations for fiscal 1997 increased $7.5 million, or 39.1%, to
$26.7 million from $19.2 million for fiscal 1996 and increased as a percentage
of net revenues to 22.8% in fiscal 1997 from 20.0% in fiscal 1996. This increase
was due to higher net revenues and improved operating leverage.
Interest expense for fiscal 1997 increased $2.7 million, or 26.7%, to $12.8
million from $10.1 million for fiscal 1996 due to the increase in the average
amount of indebtedness outstanding related to the redemption of preferred stock
and payment of accrued dividends in March 1997 and the acquisition of J.C.
Carter.
The income tax provision for fiscal 1997 of $4.8 million represents an
effective tax rate of 34.0% compared to 39.0% for fiscal 1996. The decrease in
the effective tax rate is primarily due to the impact of lower tax rates on
Argo-Tech's foreign sales corporation's earnings and reduction in taxable income
subject to state and local taxes.
The extraordinary loss for fiscal 1997 of $1.5 million represents the
write-off of unamortized debt issuance costs, net of federal income tax
benefits, related to a bank credit facility that was refinanced on July 18,
1997. See Note 10 to the Consolidated Financial Statements.
Net income for fiscal 1997 increased $2.2 million, or 39.3%, to $7.8
million, from $5.6 million for fiscal 1996 primarily due to the factors
discussed above.
FLUCTUATIONS OF OPERATING RESULTS; LIMITATION OF QUARTERLY COMPARISONS
Argo-Tech's results of operations are subject to fluctuations from quarter
to quarter due to changes in demand for its products, changes in product mix and
other factors. Demand for its products can vary from quarter to quarter due to
changes in demand for, and timing of deliveries of, original equipment,
aftermarket and military products and services. In particular, the timing of
Argo-Tech's aftermarket sales tends not to occur on a predictable schedule and,
furthermore, the sales tend to occur in large quantities which can significantly
impact quarterly comparisons.
For example, in the first quarter of 1998, Argo-Tech's sales were higher
due to large volumes shipped to a distributor. In addition, the sales for this
period consisted of a higher percentage of aftermarket sales. This combination
of high-volume, high margin sales led to comparatively favorable results in the
first quarter, despite the amortization charges relating to the acquisition.
Accordingly, year-to-year and quarter-to-quarter comparisons of quarterly
results may not be meaningful, and quarterly results during the year are not
necessarily indicative of the results that may be expected for any future period
or for the entire year.
In addition, on September 26, 1997, Argo-Tech acquired all of the
outstanding shares of J.C. Carter Company, Inc. for $107.6 million, including
acquisition costs. Carter's inventory was increased by $12.2
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million to record inventories at their fair value as of the date of acquisition
in accordance with Accounting Principles Board Opinion No. 16 -- "Business
Combinations." Based on Carter's inventory turnover rate, $4.5 million, $4.5
million and $1.7 million of this amount is included in cost of revenues for the
first, second and third quarters of 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Argo-Tech is a holding company and receives all of its operating income
from its subsidiaries. As a result, Argo-Tech's primary source of liquidity for
conducting business activities and servicing indebtedness has been cash flows
from the operating activities of its subsidiaries.
In March 1997, AT Holdings repurchased all of its preferred stock, totaling
$25.9 million, along with accrued dividends of $19.3 million, in exchange for
$41.1 million of subordinated notes and cash of $4.1 million. Interest on those
subordinated notes was payable quarterly at 11.25% and they were to have matured
on December 31, 2007. Argo-Tech also had $5.0 million of notes payable, which
were to mature on December 31, 2007. These notes payable paid interest quarterly
at the prime rate and were subordinate to Argo-Tech's senior debt. The
subordinated notes and the notes payable, together with the accrued interest of
approximately $0.6 million, were repaid with the proceeds of Argo-Tech's
offering of $140.0 million principal amount of 8 5/8% senior subordinated notes
in September 1997.
In July 1997, Argo-Tech refinanced its credit facility. In connection with
the July refinancing, Argo-Tech recorded an extraordinary charge before tax of
$2.5 million, consisting primarily of the write-off of unamortized financing
costs. The refinanced credit facility consists of a seven-year $100.0 million
term loan, a seven-year $20.0 million revolving credit facility and a seven-year
$15.0 million delayed draw acquisition loan. Interest is calculated, at
Argo-Tech's choice, using an Alternate Base Rate ("ABR") or LIBOR, plus a
supplemental percentage determined by the ratio of total debt to EBITDA. The
interest rate for fiscal year 1998 ranged from 0.25% to 1.00% plus ABR or 1.25%
to 2.00% plus LIBOR.
In September 1997, Argo-Tech amended the refinanced credit facility to
allow for the acquisition of J.C. Carter and the issuance of $140.0 million of
8 5/8% senior subordinated notes. As of January 30, 1999, Argo-Tech had $86.0
million principal amount of term loans outstanding under this credit facility.
Argo-Tech also had available, after $0.3 million of letters of credit, $19.7
million of the seven-year $20.0 million revolving credit facility. The unused
balance of the revolving credit facility is subject to a .50% commitment fee.
The credit facility contains a number of covenants that, among other things,
limit Argo-Tech's ability to incur additional indebtedness, pay dividends,
prepay subordinate indebtedness, dispose of certain assets, create liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. It also requires Argo-Tech to comply with certain
financial ratios and tests, under which it will be required to achieve certain
financial and operating results. Argo-Tech was in compliance with all financial
ratios and tests at January 30, 1999. The credit facility contains no
restrictions on the ability of Argo-Tech's subsidiaries to make distributions to
Argo-Tech.
Proceeds from the September 1997 offering of senior subordinated notes,
together with a portion of the borrowings under the credit facility were used to
finance the acquisition of J.C. Carter, repay in full $46.1 million in notes
payable and subordinated notes, and to pay related fees and expenses. The senior
subordinated notes issued in 1997 bear interest at a rate of 8 5/8% per year,
payable on each April 1 and October 1. Interest payments commenced on April 1,
1998. These notes have been jointly, severally, fully and unconditionally
guaranteed by all of Argo-Tech's wholly owned subsidiaries, with the exception
of two inconsequential direct, and two inconsequential indirect, wholly owned
subsidiaries. The indenture under which these senior subordinated notes were
issued contains certain optional and mandatory redemption features and other
customary financial covenants and restrictions.
Argo-Tech has entered into three interest rate swap agreements with a
financial institution which fixed the interest rate on the notional amounts of
$20.0 million at 5.80% and $20.0 million at 5.715% through October 1997, and
$30.0 million at 6.66% through October 2000. The amounts of the swap agreements
for fiscal years 1998, 1997 and 1996 were $30.0 million, $30.0 million and $70.0
million, respectively. When Argo-Tech refinanced its credit facility in July
1997, it also unwound $40.0 million of the swap agreements
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<PAGE> 38
which were to terminate in October 1997. The remaining $30.0 million swap was
transferred to another financial institution in notional amounts of $10.0
million which fixed the rates at 6.775%, 6.775%, and 6.805% through October
2000. On October 1, 1998, Argo-Tech terminated a $10.0 million swap that had a
fixed rate of 6.775% that was to terminate on October 27, 2000. This swap was
replaced with a $10.0 million swap with a fixed rate of 6.08% that will
terminate on October 31, 2003. On December 15, 1998, Argo-Tech terminated a
$10.0 million swap that had a fixed rate of 6.775% that was to terminate on
October 27, 2000. This swap was replaced with a $10.0 million swap with a fixed
rate of 6.10% that will terminate on December 31, 2003. The gains/losses were
recognized as interest expense and amounted to a $0.4 million loss in fiscal
year 1998, a $0.3 million loss in fiscal year 1997 and a $0.4 loss in fiscal
year 1996. Argo-Tech has no other derivative financial instruments.
In December 1998, Argo-Tech issued $55.0 million in principal amount of
8 5/8% Senior Subordinated Notes due 2007 in a private offering. The proceeds of
the notes were used to pay a dividend of $50.0 million to AT Holdings. On
January 4, 1999, this dividend was used, together with the proceeds of AT
Holdings' sale of its preferred stock and cash on hand, to finance AT Holdings'
repurchase of 639,510 shares of its common stock held by its largest
stockholder, AT Holdings, LLC and to pay fees and expenses incurred in
connection with those transactions.
Cash Flows from Operating Activities. Cash provided by operating activities
for the first 13 weeks of fiscal 1999 decreased $6.0 million from the first 14
weeks of fiscal 1998 to $5.2 million primarily as a result of lower operating
results and an increase in inventory and receivables. Cash provided by operating
activities for fiscal 1998 increased $12.2 million to $29.8 million primarily as
a result of improved operating results, which included a full year of J.C.
Carter, a decrease in accounts receivable and an increase in accounts payable
and accrued and other liabilities offset by an increase in inventory, net of the
amortization of inventory step-up to fair value. Cash provided by operating
activities for fiscal 1997 increased $1.7 million to $17.6 million primarily as
a result of improved operating results offset by an increase in receivables and
a decrease in accounts payable. Cash provided by operations for fiscal 1996
decreased $1.9 million to $15.9 million primarily as a result of a small
increase in inventory, partially offset by an increase in operating results.
Cash Flows from Investing Activities. Argo-Tech's expenditures for
property, plant and equipment for the first 13 weeks of fiscal 1999 increased
$1.0 million from the first 14 weeks of fiscal 1998 to $1.4 million due to the
timing of the capital purchases. Net cash used in investing activities for
fiscal 1998 was $5.6 million for the purchase of property, plant and equipment.
Net cash used in investing activities for fiscal year 1997 was $110.3 million
which included the acquisition of J.C. Carter for $107.6 million and capital
expenditures of $2.7 million. Expenditures for property, plant and equipment
were $5.6 million, $2.7 million and $3.4 million for fiscal years 1998, 1997 and
1996, respectively. These expenditures reflect a normal amount of capital
investments necessary to maintain Argo-Tech's efficiency and manufacturing
capabilities.
Cash Flows from Financing Activities. Cash used in financing activities for
the first 13 weeks of fiscal 1999 was $10.0 million compared to $2.9 million for
the first 14 weeks of fiscal 1998. The increase was due to the payment of fees
associated with repurchase of common stock from AT Holdings' largest
stockholder. Cash used in financing activities for fiscal 1998 was $21.9 million
which was primarily used to make scheduled repayments as well as voluntary and
mandatory pre-payments of long-term debt. Cash provided by financing for fiscal
1997 was $88.5 million, consisting of net borrowings of $141.0 million offset by
the redemption of preferred stock and payment of accrued interest totaling $45.2
million and payment of $7.3 million in deferred financing fees related to the
credit facility and the issuance of the senior subordinated notes in 1997. Cash
used in financing for fiscal year 1996 was $11.0 million to make scheduled
repayments, as well as voluntary pre-payments, of long-term debt.
Capital Expenditures. Capital expenditures for the 13 weeks ended January
30, 1999 totaled $1.4 million. Argo-Tech expects to incur capital expenditures
of approximately $4.9 million for the remainder of fiscal year 1999, related to
the continued maintenance of facilities, equipment and systems to support
current operating activities. Argo-Tech's capital expenditures for fiscal 1998
totalled $5.6 million, which included over
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200 projects related to maintaining existing facilities and equipment. Capital
expenditures are financed with cash generated from operations. Argo-Tech
currently has no material commitments for capital expenditures.
Argo-Tech believes that cash flow from operations will provide adequate
funds for its working capital needs, planned capital expenditures and debt
service obligations. Argo-Tech's ability to fund its operations, make planned
capital expenditures, and to make scheduled payments on its indebtedness depends
on its future operating performance and cash flow. These items are subject to
prevailing conditions and to financial, business and other factors, some of
which are beyond Argo-Tech's control.
YEAR 2000
In June 1997, Argo-Tech initiated activities to identify actions necessary
to become Year 2000 compliant. The major activities included an inventory of
computer related hardware and software, problem identification and solution
definition, implementation and testing. Where necessary, Argo-Tech has
implemented these actions to provide uninterrupted, normal operations of
critical business systems, including non-information technology systems with
embedded technology, before, during and after the Year 2000. For both
information technology and non-information technology systems, inventory
activity is completed and problem identification and solution definition is
approximately 85% complete. Significant progress has been achieved in the
implementation phase and testing has begun. Argo-Tech plans to complete
implementation and testing on approximately 88% of its information technology
systems applications by the end of June 1999. The remaining applicable
information technology systems efforts are scheduled for completion on or about
September 1999. Argo-Tech plans to complete the effort that it believes is
necessary and prudent to adequately address potential Year 2000 issues on
approximately 67% of its non-information technology systems by the end of June
1999, with the remaining projects scheduled for completion on or about the end
of November 1999. Argo-Tech believes this schedule will allow it adequate time
to assess and correct any significant issues that may materialize or to develop
an appropriate contingency plan, if necessary. To date, no issues have arisen
that would require a contingency plan.
Argo-Tech is utilizing its existing internal resources to make the required
modifications and upgrades necessary to achieve Year 2000 compliance. These
internal costs, which are principally comprised of payroll and related costs for
information systems personnel, are not separately tracked. Substantially all of
the required upgrades are being done in conjunction with normal upgrades and
conversions of Argo-Tech's systems and are being funded by cash generated from
operations. The assignment of internal information system personnel to the Year
2000 problem has not materially delayed or impacted other information system
projects. Purchased hardware and software is being capitalized or expensed in
accordance with normal policy. To date, Argo-Tech has spent $0.9 million on
upgrading its computer and information technology systems, and expects to spend
an additional $0.9 million to complete the project.
Argo-Tech is also actively working with its suppliers to assess their
compliance efforts, as well as Argo-Tech's potential exposure to the failure of
such suppliers to become Year 2000 compliant. Through the use of questionnaires,
Argo-Tech's purchasing department initiated an effort in March 1998 to evaluate
the Year 2000 readiness of its vendors and suppliers. Argo-Tech has received
responses from 76% of its key suppliers, which include product and non-product
suppliers. A response analysis and follow up effort is now in progress. While
Argo-Tech has not yet identified any potential exposure to the failure of such
suppliers to become Year 2000 compliant, and currently believes that such
exposure is minimal, the reasonably likely worst case scenario is that the
failure of suppliers to become compliant could cause delays in the receipt of
necessary raw materials or supplies. This may result in interruptions in
production of certain products for a period of time, which may delay shipments
by Argo-Tech. The reasonably likely worst case scenario if Argo-Tech's systems
are not Year 2000 compliant would be that operational and administrative costs
could increase if automated functions become limited or would need to be
performed manually.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement requires that an enterprise
classify items of other comprehensive income by
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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.
Argo-Tech will adopt this standard during fiscal 1999. Management does not
believe that this adoption will have a material effect on Argo-Tech.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
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. Argo-Tech will adopt this standard during fiscal 1999.
Management does not believe that this adoption will have a material effect on
Argo-Tech.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement does not change the recognition or measurement of pension or
postretirement benefit plans, but standardizes disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures. Argo-Tech will adopt this standard during fiscal 1999. Management
does not believe that this adoption will have a material effect on Argo-Tech.
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,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS 133 is effective for fiscal quarters of fiscal years
beginning after June 15, 1999. Argo-Tech has not yet completed its evaluation of
this statement.
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BUSINESS
ARGO-TECH HISTORY AND OWNERSHIP
Argo-Tech, a Delaware corporation, was formed in 1986 to acquire the power
accessories division of TRW Inc. In 1990, Argo-Tech underwent a corporate
restructuring and disposed of substantially all of its operations except for the
aircraft accessories business. After the restructuring, Argo-Tech's owners
included, among others,
- Vestar Capital Partners, a private investment firm,
- AT Holdings, LLC and its affiliate YC International, Inc. and
- a group of 29 executives led by its current President and CEO, Michael S.
Lipscomb.
In 1994, with the participation of all of Argo-Tech's salaried employees,
the Employee Stock Ownership Plan was formed and acquired approximately 30% of
the issued and outstanding common stock of AT Holdings, including the AT
Holdings common stock previously owned by Vestar.
The proceeds of the issuance of the outstanding notes on December 17, 1998
were used to pay a dividend of $50.0 million to AT Holdings. On January 4, 1999,
this dividend was used, together with the proceeds of AT Holdings' sale of its
preferred stock and cash on hand, to finance AT Holdings' repurchase of 639,510
shares of its common stock held by its majority stockholder, AT Holdings, LLC
and to pay fees and expenses incurred in connection with those transactions.
Following AT Holdings' repurchase of common stock held by AT Holdings, LLC,
management and the Employee Stock Ownership Plan became the largest holders of
AT Holdings' common stock and hold approximately 70% of the outstanding shares.
INFORMATION ABOUT THE INDUSTRIES IN WHICH ARGO-TECH COMPETES
Aerospace
Argo-Tech expects the airline industry to grow over the next several years
as many key indicators of demand--airline traffic and profitability, aircraft
utilization and firm aircraft orders--remain favorable. According to the Boeing
Report, an industry trade publication, world air traffic grew at a rate of 6.1%
in 1997 and is expected to increase by an average of 5.0% per year over the next
ten years. The Airline Monitor, another industry trade publication, reports that
commercial airlines are currently experiencing historically high passenger
capacity ratios of approximately 70%, which suggests that the industry is
bordering on a capacity shortage. This potential shortage is evidenced by
increased demand for new aircraft as well as for spare parts and repair and
overhaul services. Moreover, delayed airline retirements of existing aircraft as
well as conversions from retired commercial passenger to freight carrier service
can extend the normal life cycle of an aircraft from 25 years to 35 years, which
in turn increases and extends the demand for typically higher margin aftermarket
services. Management believes that these favorable industry conditions will
continue for the near term. Unlike commercial aerospace demand, which has been
susceptible to regular business cycles, demand for military aerospace products
is primarily driven by the requirements of the defense industry and government
spending. In addition, demand is tied to specific military aircraft programs
which typically call for steady, low-rate production volumes.
Faced with a permanent decline in defense spending, the aerospace and
defense industry has undergone significant consolidation over the past five
years with major companies such as Martin Marietta Corp., Grumman Corp., Vought
Aircraft Co. and the defense businesses of GE, Loral Corp., Rockwell
International Corp., Texas Instruments Inc. and Westinghouse being acquired to
form three dominant U.S. aerospace and defense firms: The Boeing Company,
Lockheed Martin Corp. and Raytheon Company. Boeing, the world's largest
commercial aerospace company, purchased the defense business of Rockwell in 1996
and then merged its operations with McDonnell Douglas Corporation on August 1,
1997. In 1998, Raytheon merged with Hughes Defense.
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Ground Fueling
The demand for ground fueling products is directly related to the
construction and expansion of airports, the volume of air travel and the
maintenance and usage practices with which ground fueling products are used. As
detailed above, the Boeing Report projects that world air travel will continue
to grow. Argo-Tech believes, based on industry publications and information,
that major investments in airport expansion will be required to provide and
support adequate infrastructure. Airport expansion has already begun to take
place in international markets. This increase in expansion results in greater
demand for ground fueling components. For example, Argo-Tech's ground fueling
components have been selected for use in all nine of the major commercial
airports constructed in the past ten years, including the recently completed
Denver and Hong Kong international airports.
ARGO-TECH'S PRODUCTS
Aerospace Original Equipment
Main Engine Fuel Pumps. All Argo-Tech main engine fuel pumps are designed
and tested at the Cleveland facility. These pumps consist of an aluminum body
which is cast by certified subcontractors. The casting is then machined, a
variety of gears and other components are added, and finally, rigorous testing
is performed.
Argo-Tech is the sole source supplier of main engine fuel pumps for all
CFM56 series engines, one of the most popular series of large commercial
aircraft engines used today. The CFM56 series engines power the Airbus A-319,
A-320, A-321 and A-340 and the Boeing 737 aircraft. Argo-Tech is also the sole
source supplier of main engine fuel pumps for all engines used on the Boeing 777
aircraft.
In 1992, Argo-Tech expanded its market to include large regional and
business jet applications by securing the BR710 engine program, which is used on
the high-end Bombardier Canadair Aerospace Global Express and the Gulfstream
Aerospace Corp. V aircraft. In 1996, Argo-Tech's regional and business jet
application base was further expanded when Argo-Tech was awarded the GE CF34-8C
engine program. These engines are used on the Canadair RJ700 aircraft.
As shown in the following chart, Argo-Tech's main engine fuel pumps are
used across the full spectrum of commercial engine designs. Argo-Tech believes
that its experience with engine systems of all sizes and performance
characteristics is a competitive advantage in the bidding process to become a
supplier of components for newly designed engine systems. Information in this
chart was derived from internal research and industry knowledge.
This chart sets forth the following information:
- All airframes currently in commercial service, denoting those which are
not currently in production.
- The size of such airframes, categorized by engine thrust expressed in
pounds.
- The engines in service on such airframes for which Argo-Tech and its
three primary competitors supply main engine fuel pumps.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ENGINE INSTALLED PUMP AND ENGINE TYPE
THRUST ---------------------------------------------------------------------------------
(X 1,000 LBS.) AIRFRAME ARGO-TECH PUMP SUNDSTRAND PUMP LUCAS PUMP CECO PUMP
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Cessna Citation Williams FJ44 Pratt & Whitney Allison
Canada Engine
PW500 AE 3007
------------------------------------------------------------------------------------------------------
Raytheon Premier 1 Williams FJ44
------------------------------------------------------------------------------------------------------
Beechcraft Beech Jet Pratt & Whitney
Canada JT15D
------------------------------------------------------------------------------------------------------
British Aerospace BAe125 Allied Signal
TFE-731
------------------------------------------------------------------------------------------------------
Less British Aerospace AVRO Allied Signal
Than 10 ALF 507
------------------------------------------------------------------------------------------------------
Dassault Falcon GE/Allied
Signal CFE 738
------------------------------------------------------------------------------------------------------
Canadair GE
Challenger CF34-3
------------------------------------------------------------------------------------------------------
Canadair RJ200 GE
CF34-3
------------------------------------------------------------------------------------------------------
Embraer EMB-145 Allison
Engine
AE3007
- ---------------------------------------------------------------------------------------------------------------------------------
Canadair Global Express BMW/Rolls-Royce
BR 710
------------------------------------------------------------------------------------------------------
Canadair RJ700 GE CF34-8C
------------------------------------------------------------------------------------------------------
Boeing 727(1) 100/200 Pratt & Whitney
JT8D
------------------------------------------------------------------------------------------------------
Boeing 737(1) 100/200 Pratt & Whitney
JT8D
------------------------------------------------------------------------------------------------------
McDonnell Douglas DC 9(1) Pratt & Whitney
JT8D
------------------------------------------------------------------------------------------------------
10-22 McDonnell Douglas MD 80 Pratt & Whitney
JT8D
------------------------------------------------------------------------------------------------------
Gulfstream IV Rolls-Royce
RR Tay
------------------------------------------------------------------------------------------------------
Gulfstream V BMW/Rolls-Royce
BR 710
------------------------------------------------------------------------------------------------------
Boeing 717(4) BMW/Rolls-Royce
BR 715
------------------------------------------------------------------------------------------------------
Airbus A318(4) Pratt & Whitney
PW 6000
- ---------------------------------------------------------------------------------------------------------------------------------
Fokker 70, 100(1) Rolls-Royce
RR Tay
------------------------------------------------------------------------------------------------------
Boeing 737 300/800 GE/SNECMA
CFM56-3,7
------------------------------------------------------------------------------------------------------
Airbus A319 GE/SNECMA International
CFM56-5 Aero V2500
------------------------------------------------------------------------------------------------------
22-35 Airbus A320 GE/SNECMA International
CFM56-5 Aero V2500
------------------------------------------------------------------------------------------------------
Airbus A321 GE/SNECMA International
CFM56-5 Aero V2500
------------------------------------------------------------------------------------------------------
McDonnell Douglas MD 90 International
Aero V2500
- ---------------------------------------------------------------------------------------------------------------------------------
Airbus A340 GE/SNECMA
CFM56-5
------------------------------------------------------------------------------------------------------
35-45 Boeing 757 Rolls-Royce Pratt & Whitney Rolls-Royce
RB211-535(3) PW2000 RB211-535(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Boeing 747 Pratt & Whitney GE Rolls-Royce GE
JT9(2), PW4000 CF6 RB211-524 CF6-50(2)
------------------------------------------------------------------------------------------------------
Boeing 767 Pratt & Whitney GE GE
JT9(2), PW4000 CF6 CF6-50(2)
------------------------------------------------------------------------------------------------------
Airbus A300 Pratt & Whitney GE GE
JT9(2), PW4000 CF6 CF6-50(2)
------------------------------------------------------------------------------------------------------
Airbus A310 Pratt & Whitney GE GE
PW4000 CF6 CF6-50(2)
------------------------------------------------------------------------------------------------------
Airbus A330 Rolls-Royce GE
45-75 RB211 - Trent 700, Pratt CF6
&
Whitney PW4000
------------------------------------------------------------------------------------------------------
Airbus A340-600 RB211 - Trent
500, 600
------------------------------------------------------------------------------------------------------
McDonnell Douglas MD 11(1) Pratt & Whitney GE
PW4000 CF6
------------------------------------------------------------------------------------------------------
McDonnell Douglas DC 10(1) Pratt & Whitney GE
JT9(2), PW4000 CF6
------------------------------------------------------------------------------------------------------
Lockheed L1011(1) Rolls-Royce
RB211-524
- ---------------------------------------------------------------------------------------------------------------------------------
Boeing 777 Rolls-Royce
Greater RB211 - Trent 800,
Than 75 GE GE90, Pratt & Whitney
PW4084, PW4088,
PW4090, PW4098
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Airframe still in service, but not in current production.
(2) Engine still in service, but not in current production.
(3) Argo-Tech replaced the incumbent supplier and will begin supplying main
engine fuel pumps in the second half of 1999.
(4) Airframe in production, but not currently in service.
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<PAGE> 44
Airframe Products. Fuel pumps and other airframe fuel transfer control
systems in the airframe are necessary to transfer fuel to the engine systems and
to maintain aircraft balance by shifting fuel between tanks. Argo-Tech and J.C.
Carter manufacture boost and transfer fuel pumps and fuel transfer control
components, including fuel flow proportioners, fuel system gate assemblies, and
a variety of airframe valves, adapters, nozzles and caps. These components are
used to manage storage, fueling, transfer and engine feed functions during
ground and flight operations. The September 1997 acquisition of J.C. Carter
significantly increased Argo-Tech's presence in the airframe fuel transfer
control systems market.
Aerial Refueling Systems. Through the acquisition of J.C. Carter, Argo-Tech
has become a major supplier of components for aerial refueling systems, which
are produced only for military applications. Aerial refueling components
manufactured by J.C. Carter, including pumps and couplers, are, or are scheduled
to be, installed in the refueling systems of 100% of U.S. designed military
aircraft equipped with this capability.
New Products. Argo-Tech has successfully developed new market
opportunities, which include lube oil and scavenge pumps as well as fuel flow
dividers. Lube oil and scavenge pumps supply lubrication to aerospace and
industrial gas turbine engine components. Fuel flow dividers divide fuel flow
into precisely metered portions for more efficient combustion and lower
emissions. Argo-Tech secured a contract with Rolls-Royce to supply components on
an industrial power generation platform which is currently in production. Due to
aggressive marketing and an established record of performance with its engine
customers, Argo-Tech has also gained entry into the land-based gas turbine
business, securing development and production contracts with General Electric,
Pratt and Whitney, Rolls-Royce and Westinghouse Electric Corp.
In 1993, J.C. Carter was awarded the development contract for the McDonnell
Douglas 480 gallon external fuel tank used on the Navy's F-18 E/F aircraft and,
in December 1997 was awarded the initial production contract.
Ground Fueling Products
J.C. Carter manufactures various ground fueling hydrants, couplers and
nozzles for commercial and military airports around the world. Ground fueling
systems are used to transfer fuel from underground fuel tanks and ground fueling
trucks to the underwing fuel receptacle of the aircraft. In addition to nozzles,
couplers and hydrants, J.C. Carter sells pressure control valves and systems.
J.C. Carter has also developed the AVR2000 Fuel Delivery Meter, a hardware and
software system for customized fuel utilization management, data collection and
billing.
New Products. J.C. Carter has recently developed digital pressure control
valves. These valves incorporate a microprocessor to enhance fuel flow control
and allow for accurate measurement of pressure into fuel tanks. In addition,
Argo-Tech and J.C. Carter have identified three new potential product
applications for their ground fueling technology: railroad fuel transfers,
fueling of off-road construction and mining equipment and liquified natural gas
nozzles and receptacles for use on alternative fuel vehicles.
Industrial Marine Cryogenic Pumps
J.C. Carter has been widely recognized as a leading designer and supplier
of high performance submerged motor pumps for liquefied gas. J.C. Carter's
industrial pump business consists primarily of spare parts, testing, upgrade and
repair services. New pump delivery is extremely limited as a result of 1987 sale
of J.C. Carter's original equipment business for industrial liquid natural gas
pumps installed outside North America.
AFTERMARKET SALES
Aftermarket sales comprise the largest component of Argo-Tech's business.
Aftermarket sales consist of spare parts sales and overhaul, retrofit, repair
and technical support services to commercial and military customers worldwide.
Currently, approximately 38% of Argo-Tech's spare parts sales are attributable
to overhaul and repair services that it performs, with the remaining sales
resulting from spare part purchases by third-party shops and airlines. Argo-Tech
overhauls and repairs approximately 30% of the products it manufactures and also
performs overhaul services for products manufactured by third parties.
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<PAGE> 45
CUSTOMERS
Aerospace
Original Equipment customers for Argo-Tech's aerospace products include the
world's major aircraft engine manufacturers, including Allison Engine,
BMW/Rolls-Royce (BRR), General Electric, Pratt and Whitney, Pratt and Whitney
Canada, Rolls-Royce, SNECMA/GE (CFMI) and Williams International Corp. Customers
for Argo-Tech and J.C. Carter's airframe pumps and valves include Airbus,
Boeing, Cessna, Gulfstream, Lear Corp., Lockheed Martin, Raytheon and various
U.S. government agencies. Orders for military components come through customers
such as Lockheed Martin, Boeing and Pratt and Whitney. Argo-Tech's aftermarket
customers include all major aircraft and engine repair facilities and all major
airlines worldwide. Currently, the total number of airline and third party
customers for Argo-Tech's spare parts and overhaul services exceeds 200.
Upsilon International Corporation, in its capacity as distributor of
certain of Argo-Tech's products to foreign customers, accounted for
approximately 17% of net revenues for the fiscal year ended October 31, 1998. No
other customer accounted for more than 10% of Argo-Tech's sales during this
period.
Ground Fueling
Most ground fueling products are sold to customers through independent
distributors. Customers in the domestic markets include a variety of airlines
and airports. In international markets, Carter's ground fueling products are
purchased by several oil companies, including several state-run oil companies
and airport authorities. In fiscal 1998, approximately 50% of ground fueling
sales were to customers outside the U.S.
Industrial Marine Cryogenic Pumps
The industrial pump customer base includes shipping vessels operated by
domestic and foreign carriers, liquefied gas ship loading terminal owners,
liquefied gas receiving terminals, petrochemical plants and large architectural
and engineering companies worldwide.
SALES AND MARKETING
Engine and airframe original equipment manufacturers select suppliers of
aerospace components primarily on the basis of custom design capabilities,
product quality and performance, prompt delivery, price and aftermarket service.
Management believes that Argo-Tech meets these requirements in a timely,
responsive manner which has resulted in an extensive installed base of
components and substantial aftermarket sales. Argo-Tech also staffs an on-site
design engineer with three of its customers to represent its products and to
work closely with the customer to develop new components.
Argo-Tech markets and sells its aerospace and ground fueling products and
services through a combination of direct marketing, sales personnel, independent
manufacturing representatives and U.S. and international distributors. Argo-Tech
supplies spare parts directly to domestic airlines and third-party overhaul
shops. Foreign customers that purchase Argo-Tech's products receive their spare
parts through Upsilon International, which operates a distribution facility in
Torrance, California. Foreign customers receive spare parts for J.C. Carter
aerospace products directly from the Costa Mesa facility.
SUPPLIERS AND RAW MATERIALS
Argo-Tech uses a certified supplier program that demands a commitment to
100% quality and on-time deliveries. Supplier performance is measured by a
comprehensive supplier rating system. Currently, Argo-Tech's supplier base
includes approximately 600 companies.
The largest expenditure for products manufactured at the Costa Mesa
facility relates to outsourcing of component machining. Argo-Tech has derived
significant savings by taking advantage of advances in machining technologies
and by coordinating engineering with suppliers. Three long term suppliers
provide most of the component machining for products manufactured at the Costa
Mesa facility.
Aluminum castings are the highest volume raw material supplied for products
manufactured at the Cleveland facility. Five certified suppliers provide these
castings under long-term arrangements. Argo-Tech
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<PAGE> 46
also buys quantities of steel bar stock to produce gears and shafts from
multiple producers. However, CPM-10V, a powdered metal essential for the
manufacture of certain main engine fuel pumps, is a proprietary product
available only from Crucible Specialty Metals. Argo-Tech does not have a
contractual arrangement with Crucible Specialty Metals, but instead purchases
CPM-10V under standard purchase orders. Another material has been identified as
an alternative to CPM-10V, but that material has not yet been certified by
Argo-Tech's customers.
MANUFACTURING
Argo-Tech manufactures a major portion of its products at the Cleveland
facility. This facility houses senior management and most aerospace engineering
and design staff, sales team, and production and main distribution facilities.
This facility is organized around four manufacturing "cells" that operate
bearing, gear, housing and shaft productions. By creating cells, the necessary
people, machinery, materials and methods are organized into four distinct
business teams. Within each manufacturing cell are members from each of the
Manufacturing, Quality, Production Control, Statistical Process Control, and
Manufacturing Engineering disciplines. The design engineering staff is also
organized into cells which correspond to and complement the manufacturing cells.
The manufacturing and engineering cells work together to meet Argo-Tech's
integrated operating plan and to ensure timely production of its products.
In contrast to the substantial reliance on internal manufacturing of
Argo-Tech products, most of the machining and pre-assembly production of J.C.
Carter products are outsourced to external providers. However, internal
equipment capacity is maintained at the Costa Mesa facility, which produces
small quantity, quick turn components and to reduce setup/breakdown times on
smaller jobs. Argo-Tech has lowered the cost of J.C. Carter products by
outsourcing capital intensive tasks such as casting and machining, while
completing final assembly and testing on the premises.
In addition to manufacturing facilities, Argo-Tech maintains sophisticated
testing facilities at its Cleveland, Ohio, Inglewood, California and Costa Mesa,
California locations. These testing facilities allow for simulation of typical
conditions and stresses that will be endured by products during use. Products
are also thoroughly tested for design compliance, performance and durability. To
facilitate quality control and product development, Argo-Tech also maintains a
sophisticated chemistry and metallurgy laboratory at the Cleveland facility. The
equipment at this laboratory includes a scanning electron microscope.
Argo-Tech has obtained and preserved ISO certifications, which are becoming
a prerequisite for selling to customers located in Europe. ISO-9001
certifications are recognized by most customers, as well as by the FAA and U.S.
government supply organizations, as the most widely accepted replacement for the
Military Standards formerly used in the aerospace industry.
ENVIRONMENTAL MATTERS
Argo-Tech's operations 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 pollutants and hazardous
substances. These authorities govern permits and response actions to hazardous
substances which may have been released to the environment. This extensive
regulatory framework imposes significant compliance burdens and risks.
Although Argo-Tech believes that its operations and facilities are
currently in compliance in all material respects with applicable environmental
laws, there can be no assurance that future changes in such laws, regulations or
interpretations of such laws or the nature of our operations will not require us
to make significant additional expenditures to ensure compliance in the future.
Argo-Tech does not anticipate making material capital expenditures for
environmental remediation during fiscal year 1999.
The Cleveland facility is currently the subject of environmental
remediation activities. The cost of these activities is the responsibility of
TRW Inc. under the terms of the purchase agreement by which Argo-Tech acquired
TRW's power accessories division in 1986. Remediation has been underway since
1989 and is expected to continue for the foreseeable future. Argo-Tech has not
paid for any material portion of the cost of the remediation and does not expect
to do so in the future. Instead, TRW has funded all necessary
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<PAGE> 47
remediation costs and is expected to continue to do so in the future. Argo-Tech
estimates that TRW has spent in excess of $10 million for environmental
remediation.
The TRW purchase agreement also requires TRW, for a period of 20 years, to
indemnify Argo-Tech for:
- costs associated with third party environmental claims relating to
environmental conditions arising from activities conducted by TRW during
its operation of the power accessories division that have not been
conducted by Argo-Tech after its purchase of the assets of the division
in 1986, and
- a portion of the costs associated with third party environmental claims
arising from activities conducted by TRW and Argo-Tech. The portion of
the costs to be paid by each party is to be determined based on the
length of time each party conducted the activity giving rise to the
claim.
To date, there have been no third party environmental claims relating to
Argo-Tech or to the Cleveland facility.
In March 1986, a two thousand gallon spent underground storage tank was
removed from the Costa Mesa facility. Petroleum hydrocarbon soil contamination
was discovered during the removal of the tank, prompting the Orange County
Health Care Agency to require a site assessment. Subsequent site investigations
revealed that groundwater underlying the site is impacted by trichloroethene and
perchloroethylene. In 1990, the Regional Water Quality Control Board issued a
Cleanup and Abatement Order to J.C. Carter relating to the investigation and
remediation of groundwater contamination. To date, the full extent of the
groundwater contamination has not been ascertained. With the acquisition of J.C.
Carter, Argo-Tech has assumed responsibility for satisfying the cleanup order.
However, Argo-Tech has obtained indemnification from J.C. Carter's selling
stockholders for all costs and expenses related to satisfaction of the order.
However, there can be no assurance that such indemnification obligations with
respect to the cleanup order will be satisfied.
PATENTS AND TRADEMARKS
Argo-Tech has a number of patents and trademarks and pending patent
applications related to its products. While in the aggregate these patents and
trademarks are of material importance to Argo-Tech's business, management
believes that no single patent or trademark or group of patents or trademarks is
of material importance to Argo-Tech's business as a whole.
GOVERNMENT REGULATIONS
The commercial aerospace industry is highly regulated by both the Federal
Aviation Administration in the United States and by the Joint Aviation
Authorities in Europe, while the military aerospace industry is governed by
military quality (ISO-9000) specifications. Argo-Tech is required to be
certified by one or more of these entities, and, in some cases, by individual
original equipment manufacturers, in order to engineer and service parts and
components used in specific aircraft models. Argo-Tech must also satisfy the
requirements of its customers, including original equipment manufacturers and
airlines, that are subject to Federal Aviation Administration regulations.
Argo-Tech must provide these customers with products and services that comply
with the government regulations applicable to commercial flight operations. In
addition, the Federal Aviation Administration requires that various maintenance
routines be performed on aircraft components. Argo-Tech currently satisfies or
exceeds these maintenance standards in its repair and overhaul services. Several
of Argo-Tech's operating divisions include Federal Aviation
Administration-approved repair stations.
Argo-Tech's aviation and metals operations are also subject to a variety of
worker and community safety laws. The Occupational Safety and Health Act of 1970
mandates general requirements for safe workplaces for all employees. In
addition, this act provides special procedures and measures for the handling of
certain hazardous and toxic substances. Argo-Tech believes that its operations
are in material compliance with the Occupational Safety and Health Act of 1970's
health and safety requirements.
COMPETITION
Competition among aerospace component manufacturers is based on product
quality, reliability and on-time delivery. Argo-Tech's primary main engine fuel
pump competitors are Sundstrand Corporation,
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<PAGE> 48
Chandler-Evans Fuel Systems and Lucas Aerospace. Sundstrand Corporation is
Argo-Tech's closest competitor in the main engine fuel pump market.
Competitors in other product lines range in size from divisions of large
corporations to small privately held entities, with only one or two components
in their entire product line. Argo-Tech's primary airframe pump competitors are
GEC Marconi Aerospace, Hydroaire and Intertechnique, S.A. Its primary airframe
valve competitors are Parker-Hannifin Corporation, ITT Aerospace Controls and
Whittaker Controls, Inc., its primary ground fueling competitor is Whittaker,
and its primary aerial refueling competitor is Parker-Hannifin.
BACKLOG
Argo-Tech believes that unfilled orders are not necessarily an indicator of
future shipment levels of its products. As customers demand shorter lead times
and flexibility in delivery schedules, they have also revised their purchasing
practices. As a result, notification of firm orders may occur only within thirty
to sixty days of delivery. In addition, due to the government funding process,
backlog can vary on a period to period basis depending on the stage of
completion of the contracts represented by such backlog. Therefore, management
believes that the backlog of unfilled orders at fiscal year end cannot be relied
upon as a valid indication of Argo-Tech's sales or profitability in a subsequent
year.
EMPLOYEES
As of January 30, 1999, Argo-Tech had 772 full-time employees. 467 of these
employees are salaried and 305 are hourly. Over 36% of the salaried employees
have college degrees, with over 10% holding advanced degrees. The 228 hourly
employees located at the Cleveland facility are represented by the United Auto
Workers union under a collective bargaining agreement expiring on March 31, 2000
and have an average of over 18 years of experience in the industry.
PROPERTIES
Argo-Tech owns and operates a 150-acre business park in Cleveland, Ohio,
which includes 1.8 million square feet of engineering, manufacturing and office
space. Argo-Tech occupies approximately 475,000 square feet for its main engine
fuel pump business and leases over one million square feet of the facility to
third parties. Management believes that this facility's machinery, plants and
offices are in satisfactory operating condition. The Cleveland facility has
sufficient capacity to meet Argo-Tech's foreseeable future needs without
significant additional capital expenditures.
Argo-Tech also owns a 9.2 acre facility in Costa Mesa, California, which
encompasses 165,000 covered square feet. Argo-Tech manufactures certain of its
airframe products and accessories, ground fueling and aerial refueling equipment
at this facility. Management believes that the Costa Mesa facility has
sufficient capacity to permit further growth in Argo-Tech's product lines
without significant additional capital expenditures.
Argo-Tech's Inglewood, California leased facility occupies approximately
10,000 square feet and includes available space for expansion. Its primary
purpose is to repair and overhaul main engine fuel pumps owned by airline
customers. Inglewood's assets include test stands for testing fuel pumps after
overhaul and a small machine shop for simple rework of pump components.
LEGAL PROCEEDINGS
In October, 1996, J.C. Carter Company was named as a respondent in a
petition filed in federal district court in Santa Ana, California by Alsthom, a
French shipbuilding concern, to enforce an international arbitration award
rendered in Paris, France, in favor of Alsthom and against an entity identified
as J.C. Carter Company. Argo-Tech believes that J.C. Carter is not the J.C.
Carter Company referenced in the arbitration award. On January 22, 1999, Alsthom
filed a Motion for Summary Judgment against J.C. Carter to enforce the
international arbitration award. On February 23, 1999, the district court
granted Alsthom's motion and
42
<PAGE> 49
agreed that Alsthom is entitled to a judgment in the amount of 67,900,000 French
Francs (approximately $11.4 million) plus interest at the French official rate
from January 30, 1993 to the date of actual payment. The district court has
ordered, however, that judgment not be entered at this time because of the
claims against the remaining parties. J.C. Carter intends to seek
reconsideration of the district court's decision, and if an adverse judgment is
entered against it, to appeal any such judgment to the Ninth Circuit Court of
Appeals. J.C. Carter also intends to pursue vigorously its claims for
declaratory relief and equitable indemnification against prior owners of assets
relating to the arbitration. J.C. Carter believes that it is entitled to
indemnification relating to this claim from a previous owner, which has defended
the lawsuit since its filing. Management believes that J.C. Carter's
indemnification rights will be adequate to cover this judgment. However, if
indemnification rights are unavailable or inadequate, J.C. Carter would be
required to pay the judgment and this could be a material adverse effect on
Argo-Tech.
Argo-Tech is not presently involved in any other material legal
proceedings. However, Argo-Tech's aerospace and ground fueling operations expose
it to potential significant liabilities for personal injury or death as a result
of the failure of an aircraft component that has been designed, manufactured or
serviced by Argo-Tech, or the irregularity of metal products Argo-Tech has
processed or distributed.
43
<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF ARGO-TECH.
Directors and Executive Officers. The following table identifies
Argo-Tech's directors and executive officers. Directors serve until their
successors are elected at each annual meeting. Officers hold office until their
successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S. Lipscomb.................. 52 Chairman, President & CEO, Director
David L. Chrencik.................... 48 Vice President, Operations
Yoichi Fujiki........................ 49 Vice President and Treasurer
Paul R. Keen......................... 49 Vice President, General Counsel &
Secretary, Director
Badrik Melikian...................... 46 Chief Operating Officer, Carter
Frances S. St. Clair................. 43 Vice President & CFO, Director
</TABLE>
MICHAEL S. LIPSCOMB has been Chairman, President & Chief Executive Officer
since 1994. Mr. Lipscomb joined TRW's corporate staff in February 1981 and was
made Director of Operations for its power accessories division in 1985. Mr.
Lipscomb was named Vice President of Operations when Argo-Tech was formed in
1986, becoming President in 1990 and Chairman in 1994. Mr. Lipscomb has also
served as a director of Argo-Tech and AT Holdings since 1990.
DAVID L. CHRENCIK has been Vice President, Operations since December 1990.
Since joining Argo-Tech (TRW) in 1977, Mr. Chrencik has held various
manufacturing engineering and operations management positions.
YOICHI FUJIKI had been Vice President and Treasurer since joining Argo-Tech
in 1991. Prior to joining Argo-Tech, he was Senior Vice President and Chief
Credit Officer of American Pacific State Bank in Los Angeles. Mr. Fujiki had
also served as a director of Argo-Tech from 1991 to April 1999. Mr. Fujiki
resigned from Argo-Tech effective April 30, 1999.
PAUL R. KEEN has been Vice President, General Counsel and Secretary since
1990. Mr. Keen was named Vice President and General Counsel in 1987, and became
Secretary in December 1990. Prior to 1987, he spent the majority of his career
with TRW as Senior Counsel, Securities and Finance and as primary legal counsel
to two operating groups. Mr. Keen joined the Board of Directors of Argo-Tech in
April 1999.
BADRIK MELIKIAN has been Chief Operating Officer of Carter since January
1994. Mr. Melikian joined Carter in 1987 and held management positions in
Carter's Ground Fueling Group before becoming the General Manager of the
Industrial Marine division when it was formed in 1990.
FRANCES S. ST. CLAIR has been Vice President and Chief Financial Officer
since 1992. Ms. St. Clair joined Argo-Tech in 1991 as Controller and was
promoted to Vice President in November 1991. Ms. St. Clair received her C.P.A.
certification in 1984. Ms. St. Clair joined the Board of Directors of Argo-Tech
in April 1999.
44
<PAGE> 51
EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years 1998, 1997 and 1996,
information about the compensation paid to the Chief Executive Officer and each
of Argo-Tech's other four most highly compensated executive officers.
Other annual compensation did not exceed the lesser of $50,000 or 10% of
salary plus bonus of any of the executives named above in 1996, 1997 or 1998.
The amounts listed in the "All Other Compensation" column consist of the
value of life insurance provided by Argo-Tech for the benefit of the executives
named below in excess of the value of life insurance provided by Argo-Tech for
the benefit of all other salaried employees. For each of Mr. Lipscomb and Mr.
Fujiki, the amounts listed also include $19,000, $22,000 and $18,000 for fiscal
years 1998, 1997 and 1996, respectively, paid as directors' fees.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION
--------------------------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb.......................... 1998 $300,000 $220,080 $43,488
Chairman, President and CEO 1997 $300,000 $168,228 $44,481
1996 $263,680 $120,075 $39,334
David Chrencik............................... 1998 $153,000 $ 70,329 $ 5,434
Vice President, Operations 1997 $140,856 $ 57,348 $ 4,959
1996 $126,022 $ 57,037 $ 4,457
Yoichi Fujiki................................ 1998 $152,000 $ 67,941 $24,766
Vice President and Treasurer (until April
30, 1999) 1997 $137,640 $ 59,647 $27,264
1996 $131,072 $ 49,654 $22,754
Paul R. Keen................................. 1998 $167,496 $ 76,040 $ 6,746
Vice President, General Counsel 1997 $155,352 $ 66,691 $ 6,242
and Secretary 1996 $146,552 $ 66,737 $ 5,574
Frances S. St. Clair......................... 1998 $153,000 $ 70,329 $ 4,115
Vice President and CFO 1997 $140,856 $ 57,348 $ 3,784
1996 $126,022 $ 57,037 $ 3,436
</TABLE>
STAY PAY AND SEVERANCE AGREEMENTS
Argo-Tech has entered into Stay Pay and Severance Agreements with each of
the executives named in the summary compensation table. The Board of Directors
believes that these severance agreements benefit Argo-Tech by securing the
continued services of key management personnel and by enabling management to
perform their duties and responsibilities without the distracting uncertainty
generally associated with a change in control.
The severance agreements provide that, if a change in control occurs and
the executive remains employed by Argo-Tech on a full-time basis through the
effective date of the change in control, the executive will receive a single
lump sum "stay payment." This payment will equal 25% of the sum of the highest
annual base salary and the highest bonus amount received by the executive in the
preceding five years. Events constituting a "change in control" are defined in
the agreements.
If an executive's full-time employment is terminated without cause, as
defined in the agreements, either
- before or after a change in control has occurred, or
- upon a voluntarily termination of employment by an executive upon the
reduction of his or her base salary by 5% or more, if the reduction is not a
result of a company policy to reduce the salaries of a substantial number of
officers or employees, or
45
<PAGE> 52
- if the executive ceases to be employed in a position involving
substantially the same level of responsibility or duties as performed by the
executive on the date the severance agreement was executed (a "Qualifying
Voluntary Termination"),
the executive will receive a basic severance payment. The payment will consist
of a single lump sum equal to the sum of the highest annual base salary and the
highest bonus amount received by the executive in the preceding five years.
Additional payments will be made to the executive in the event that a
change in control has occurred and the executive's employment is terminated
without cause within the six-month period following the effective date of such
change in control, or upon a Qualifying Voluntary Termination within that
period. Until the six-month anniversary of the effective date of the change in
control, the executive will receive additional severance payments equal to the
amount he or she would have received had employment continued. The payments will
be at the same intervals and at the same rate of base salary the executive was
receiving during the month preceding termination. These additional severance
payments would be in addition to the basic severance payment and the stay
payment described above.
Each executive is entitled to several other benefits contained in the
severance agreements, including:
- life, health, medical/hospital, dental, and vision insurance benefits for
a period of 12 months in the event that an executive's full-time employment is
terminated without cause or upon a Qualifying Voluntary Termination, either
before or after a change in control has occurred, and
- gross-up payments to cover any excise tax imposed by Section 4999 of the
Internal Revenue Code upon any payment made to the executive under the severance
agreements, subject to certain limitations.
Argo-Tech has agreed to be solely responsible for any and all attorneys'
fees and related expenses incurred by the executive in the event that Argo-Tech
fails to comply with its obligations under the severance agreements.
TRUST AGREEMENT WITH MR. LIPSCOMB
In connection with an additional stay pay agreement with Mr. Lipscomb,
Argo-Tech entered into a trust agreement that established an irrevocable grantor
trust for the benefit of Mr. Lipscomb as the beneficiary. This agreement
provides for payment of $315,600 on January 1, 2007, or earlier, upon Mr.
Lipscomb's voluntary or involuntary termination of full-time employment with
Argo-Tech, with or without cause.
The assets to be held by the trust include the original deposit of
principal and any other contributions made at the option of Argo-Tech. These
trust assets are to be disposed of by the trustee when certain conditions in Mr.
Lipscomb's stay pay agreement occur or when the trustee is directed by two
officers of Argo-Tech, other than Mr. Lipscomb, to dispose of the assets.
If the amount disbursed by the trustee is insufficient to fully fund the
$315,600 payment specified under Mr. Lipscomb's stay pay agreement, Argo-Tech
will be required to pay the balance. However, if the amount disbursed by the
trustee exceeds the amount to which Mr. Lipscomb or his qualifying successor is
entitled under the stay pay agreement, Mr. Lipscomb or his qualifying successor
will be entitled to retain such excess. The trust assets and any income earned
on those assets remain at all times subject to the claims of Argo-Tech's general
creditors under state and federal law.
This agreement provides for the payment of attorneys' expenses if
enforcement of the contract becomes necessary. The agreement also contains
certain restrictions on certain types of competitive activity by Mr. Lipscomb.
The benefits provided by the trust agreement and this stay pay agreement are in
addition to the benefits provided under the severance agreements described
above, as well as Mr. Lipscomb's employment contract described below.
EMPLOYMENT AGREEMENTS WITH MR. KEEN AND MR. LIPSCOMB
Argo-Tech has entered into employment contracts with Mr. Lipscomb and Mr.
Keen. These contracts provide for the payment of severance benefits upon
termination of employment without cause. In the event of
46
<PAGE> 53
such a termination, Mr. Lipscomb will receive all salary and bonuses for a
period of twelve months from the date of termination, in an amount equal to all
salary and bonuses received during the twelve month period immediately preceding
termination. Mr. Keen will receive, in the event of such a termination, a single
lump sum payment equal to 24 months of his base salary. Mr. Keen's base salary
for purposes of the payment will be calculated from the base salary in effect
for the full month immediately preceding the date of termination. Both Mr.
Lipscomb and Mr. Keen will also receive life, health, medical/hospital, dental
and vision insurance benefits for a period of twelve months from the date of
termination.
Mr. Keen's contract provides for the payment of attorneys' expenses if
enforcement of the contract becomes necessary. Mr. Keen's contract also contains
restrictions on certain competitive activities. The benefits provided by these
employment contracts are provided in addition to the benefits provided under the
severance agreements and Mr. Lipscomb's trust agreement.
SALARIED PENSION PLAN
Argo-Tech's Salaried Pension Plan became effective on November 1, 1986.
Argo-Tech's regular, permanent, salaried employees were eligible to participate
in this plan until July 1, 1994. Participation in the plan was closed to any
person who was not a participant on that date, and all benefit accruals ceased
as of the close of business on that date. The benefits of participants in the
Salaried Pension Plan who were employees on June 30, 1994 became vested, to the
extent otherwise non-vested, as of the close of business on that date. Employee
contributions to this plan were neither required nor permitted. All Salaried
Pension Plan assets are presently invested in an annuity contract with Aetna
Life Insurance Company as the funding agent.
The monthly normal retirement benefit under the Salaried Pension Plan is
1.25% of a participant's final average monthly compensation multiplied by the
participant's years of benefit service. Compensation earned after June 30, 1994,
and service performed after June 30, 1994, are not taken into account in
determining a participant's benefit under the Salaried Pension Plan. Final
average monthly compensation means the average monthly compensation, computed
before withholdings, deductions for taxes or other purposes, and salary
reduction amounts under the Argo-Tech Employee Savings Plan, paid or payable to
the participant for the five calendar years which produce the highest such
average, determined as if the participant's employment terminated on June 30,
1994, or, if earlier, the date the participant's employment actually terminated
or the participant ceased to be within the class of employees eligible to
participate in the Salaried Pension Plan. If a participant ceased to be within
the class of employees eligible to participate or a participant's employment
terminated, or is deemed to have terminated, prior to July 1 of a calendar year,
that calendar year is not taken into account for purposes of determining final
average monthly compensation. A participant's vested benefit cannot be less than
the participant's vested benefit under the Salaried Pension Plan, if any, as of
October 31, 1989.
The Internal Revenue Code of 1986 limits the maximum annual retirement
benefit payable under the Salaried Pension Plan as well as the maximum amount of
annual compensation that can be taken into account in calculating benefits under
the Salaried Pension Plan.
At retirement, based on benefits accrued as of June 30, 1994, the monthly
retirement benefits payable to each of the individuals named in the summary
compensation table are:
<TABLE>
<CAPTION>
MONTHLY
NAME BENEFIT
---- ---------
<S> <C>
Michael S. Lipscomb......................................... $1,799.32
David L. Chrencik........................................... $ 949.57
Yoichi Fujiki............................................... $ 488.15
Paul R. Keen................................................ $1,188.83
Frances S. St. Clair........................................ $ 411.56
</TABLE>
The benefits shown above are in the form of a single life annuity
commencing as of the first day of the month after the participant attains age
65. Benefits may commence at any time after age 55 if the participant had at
least five years of service when the participant's employment terminated.
Actuarial reductions would apply for early commencement and for payment in the
form of a joint and survivor annuity.
47
<PAGE> 54
The normal form of payment under the Salaried Pension Plan is a single life
annuity. However, participants may elect payment of retirement benefits under
several joint and survivor forms of payment, subject to the requirement that a
married participant receive benefits in the form of a joint and survivor annuity
with the spouse as contingent annuitant unless the spouse consents to the
participant's election of another form of payment, another contingent annuitant,
or both, as applicable.
SALARIED SAVINGS PLAN
Argo-Tech's Salaried Savings Plan has been in place since 1987. Regular,
permanent, salaried employees who have completed at least 3 months of service
are eligible to participate in the plan. All assets of the plan are held in
trust.
Participants may elect to have "tax-deferred" (401(k) compensation
reduction) contributions made to the plan of up to 13% of their eligible
compensation. Participants may also elect to have after-tax contributions made
to the plan of up to 10% of their eligible compensation. Employer matching
contributions to the plan ceased on July 1, 1994. For periods before July 1,
1994, the Salaried Savings Plan provided for employer matching contributions as
follows: Basic matching contributions of 25% of each participant's tax-deferred
contributions in excess of 3% of compensation and discretionary additional
matching contributions of a percentage (within the range of 0% and 125%
established for each fiscal year (the "plan year") of each participant's
tax-deferred contributions not in excess of 3% of compensation. A participant's
benefit under the plan is the balance of the participant's accounts attributable
to after-tax contributions and the vested balance of the participant's accounts
attributable to employer matching contributions. Tax-deferred contributions and
after-tax contributions are always 100% vested. Participants, including former
employees, whose accounts attributable to employer matching contributions had
not been forfeited prior to November 1, 1994 became, to the extent otherwise
non-vested, 100% vested. Benefits are payable in the form of a single lump sum
payment.
The Internal Revenue Code limits the maximum annual contributions that can
be made to the Salaried Savings Plan and the maximum amount of annual
compensation that can be taken into account in calculating contributions to the
Salaried Savings Plan. Contributions for a plan year on behalf of certain highly
compensated individuals may also be limited to comply with Internal Revenue
Code's nondiscrimination requirements.
Benefits are generally payable after a participant is separated from
service. A participant who is an employee may, however, apply for an in-service
distribution of all or a portion of the participant's vested account balance
after attainment of age 59 1/2 or in the event of a hardship. "Hardship" is
defined in the Salaried Savings Plan. A participant may apply for an in-service
distribution of after-tax contributions at any age and for any reason. A
participant who is a "party in interest" may apply for a loan of up to 50% of
the participant's vested account balance under the Salaried Savings Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan was established in 1994 with the
participation of Argo-Tech's salaried employees. Key Trust Company of Ohio,
N.A., serves as the plan's trustee, and holds all of its assets in trust.
On May 17, 1994, the trustee purchased 420,000 shares of common stock of AT
Holdings with the proceeds of a $16.8 million loan from Argo-Tech to the
Employee Stock Ownership Plan. The term of the loan, unless it is prepaid or
accelerated, ends on April 28, 2004. The interest rate for the loan is fixed for
the ten year term at 7.16% per year. The purchase price for the AT Holdings
common stock was $40 per share.
The shares of AT Holdings' common stock purchased by the Employee Stock
Ownership Plan with the proceeds of the loan are held in a suspense account and
released to eligible participants on a pro rata basis as loan principal payments
are made. Shares released from the plan for each plan year are allocated to each
eligible participant's account based on the ratio of each such participant's
eligible compensation to the total eligible compensation of all eligible
participants. Forfeitures of the accounts of non-vested participants are
48
<PAGE> 55
reallocated among eligible participants in the same manner as shares of AT
Holding's common stock are released from the suspense account.
For each of the plan years ended October 31, 1996, October 31, 1997 and
October 31, 1998, 42,000 shares of AT Holdings' common stock were released from
the suspense account. Based on the loan payment schedule, the number of shares
of AT Holdings' common stock released from the suspense account each future plan
year during the loan period would be:
<TABLE>
<CAPTION>
NUMBER OF
PLAN YEAR ENDING SHARES RELEASED
---------------- ---------------
<S> <C>
October 31, 1999............................................ 42,000
October 31, 2000............................................ 42,000
October 31, 2001............................................ 42,000
October 31, 2002............................................ 42,000
October 31, 2003............................................ 42,000
October 31, 2004............................................ 21,000
</TABLE>
If Argo-Tech makes additional contributions to the Employee Stock Ownership
Plan, the plan would use the contribution to "prepay" the loan, and shares would
be released from the suspense account more rapidly than shown above. If,
however, for any reason Argo-Tech does not make contributions to the plan to pay
the principal on the loan as described above, the shares would not be released
from the suspense account as rapidly as shown above.
Argo-Tech may, for any plan year, make additional discretionary
contributions for the benefit of plan participants. These contributions may be
made in cash, shares of qualifying employer securities, or other property.
Whether the Employee Stock Ownership Plan will acquire additional shares of
AT Holdings' common stock or other qualifying employer securities in the future
depends upon future business conditions. Such purchases, if made, would be
funded through additional borrowings by the plan or additional contributions
from Argo-Tech. The timing, amount and manner of future contributions to the
plan will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations, and market
conditions.
Participants may elect to receive the shares of qualifying employer
securities credited to their accounts after their termination of employment, and
in specified instances, after attaining age 55 with 10 or more years of
participation in the Employee Stock Ownership Plan. Participants vest in their
plan accounts 20% per year of service, and service prior to the effective date
of the plan counts for this purpose. A participant can require Argo-Tech to
purchase qualifying employer securities received from the plan at the value the
stock then has, as determined for plan purposes (a "put option"). Shares of
qualifying employer securities distributed from the plan are subject to a "right
of first refusal" in favor of Argo-Tech or the Employee Stock Ownership Plan at
the value the stock then has, as determined for purposes of the plan. The put
option and right of first refusal will no longer apply if the qualifying
employer securities become tradeable on an established securities market.
Voting rights on and decisions whether to tender or exchange shares of
qualifying employer securities held in the Employee Stock Ownership Plan are
"passed through" to participants. Each participant is entitled to direct the
plan's trustee as to the voting of (1) shares of qualifying employer securities
credited to the participant's account and (2) a proportionate part of the
unallocated shares of qualifying employer securities held in the suspense
account and shares of qualifying employer securities allocated to participants'
accounts as to which no direction is received by the plan's trustee. In the
event of a tender or exchange offer for qualifying employer securities held in
the plan, each participant is entitled to direct the plan's trustee whether to
tender or exchange shares of qualifying employer securities held in the plan in
a manner similar to the voting directions described above.
49
<PAGE> 56
Because the employers' contributions to the Employee Stock Ownership Plan
are not fixed, benefits payable under the plan cannot be estimated.
For the Plan Year ended October 31, 1998, the number of shares of AT
Holdings' common stock allocated under the Employee Stock Ownership Plan to the
accounts of the individuals named in the summary compensation table were:
<TABLE>
<CAPTION>
SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1998 OCT. 31, 1998
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 387.4595 1,852.4062
David L. Chrencik................................... 387.4595 1,812.8276
Yoichi Fujiki....................................... 387.4595 1,834.6145
Paul R. Keen........................................ 387.4595 1,852.4062
Frances S. St. Clair................................ 387.4595 1,803.4418
</TABLE>
Generally accepted accounting principles require that any third party
borrowing by the Employee Stock Ownership Plan be reflected as a liability on
Argo-Tech's statement of financial condition. Since the plan is borrowing from
Argo-Tech, the obligation is not treated as an asset, but will be deducted from
shares of stock held by the Employee Stock Ownership Plan. If the plan purchases
newly issued shares of AT Holdings' common stock, total stockholders' equity
would neither increase nor decrease.
The Internal Revenue Service has issued a determination letter that the
plan is qualified under Section 401(a) of the Internal Revenue Code and is an
employee stock ownership plan under Section 4975(e)(7) thereof. Contributions to
the plan and allocations to the accounts of eligible participants thereunder are
subject to applicable limitations imposed under the Internal Revenue Code. The
plan is also subject to the requirements of the Employee Retirement Income
Security Act of 1974, and the regulations thereunder.
EMPLOYEE STOCK OWNERSHIP PLAN EXCESS BENEFIT PLAN
Argo-Tech maintains the Employee Stock Ownership Plan Excess Benefit Plan,
an unfunded plan to provide for cash payments to employees participating in the
Employee Stock Ownership Plan in respect of reduction to allocations to their
plan accounts because of limitations under the Internal Revenue Code applicable
to tax-qualified plans. Benefits under the excess benefit plan vest in the same
manner as benefits under the Employee Stock Ownership Plan and are payable at
the same time or times as benefits under the Employee Stock Ownership Plan are
distributable from that plan. In the case of benefits with respect to qualifying
employer securities subject to the put option under the Employee Stock Ownership
Plan, benefits are payable at the time the excess benefit plan participant
exercises, or is deemed to have exercised, a hypothetical "put option" under the
Employee Stock Ownership plan. All benefits under the excess benefit plan are
payable solely from Argo-Tech's general assets.
Argo-Tech maintains a bookkeeping account for amounts credited to the
accounts of the excess benefit plan participants. For the plan year ended
October 31, 1998, the amounts credited to the accounts of the individuals named
in the summary compensation table were:
<TABLE>
<CAPTION>
EQUIVALENT SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1998 OCT. 31, 1998
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 824.1365 2,829.7155
David L. Chrencik................................... 132.8148 287.0898
Yoichi Fujiki....................................... 124.9220 304.1730
Paul R. Keen........................................ 179.8903 568.7443
Frances S. St. Clair................................ 132.8148 287.0898
</TABLE>
50
<PAGE> 57
This plan was amended in December 1998. See "Recent Benefits
Restructuring."
INCENTIVE STOCK OPTION PLANS
1991 Performance Stock Option Plan. The 1991 Performance Stock Option Plan
provides for option agreements on the purchase of Class D non-voting AT
Holdings' common stock, at a price of $10.00 per share, unless and until such
stock is offered for sale to the public, in which case the price will be not
less than fair market value. The options, which were granted by the Compensation
Committee of AT Holdings upon the recommendation of Argo-Tech's compensation
committee, expire on November 9, 2001. The options may be exercised only in
quarters over four successive years, but shall become exercisable in full in the
event that the shares become registered or traded on a national exchange or in
the event of a change in control. All of the options under this plan became
fully vested in January 1999. See "Recent Benefit Restructuring."
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISABLE VALUE OF UNEXERCISED IN-
OPTIONS/SAR'S THE-MONEY
AT FY-END OPTIONS AT FY-END($)
------------- ------------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb............ 0 0 9,172/ 498 $826,489/ $44,875
0 0 1,244/ 2,241 74,777/ 134,707
Paul R. Keen................... 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
Yoichi Fujiki.................. 0 0 1,192/ 198 107,411/ 17,842
0 0 509/ 925 30,596/ 55,602
David L. Chrencik.............. 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
Frances S. St. Clair........... 0 0 2,792/ 198 251,587/ 17,842
0 0 509/ 925 30,596/ 55,602
</TABLE>
1991 Management Incentive Stock Option Plan. The 1991 Management Incentive
Stock Option Plan provides for option agreements on the purchase of Class A
voting AT Holdings' common stock, at a price not less than $10.00 per share
unless and until the stock is offered for sale to the public, in which case the
price will be not less than fair market value. The options, which were granted
by the Compensation Committee of AT Holdings upon the recommendation of
Argo-Tech's Compensation Committee, expire on November 9, 2001. The options may
be exercised only in quarters over four successive years, but shall become
exercisable in full in the event that the shares become registered or traded on
a national exchange, or in the event of a change in control. All of the options
under this plan became fully vested in January 1999. See "Recent Benefits
Restructuring."
STOCK APPRECIATION RIGHTS PLAN
The 1997 Stock Appreciation Rights Plan provides for grants of up to 34,450
stock appreciation rights. Each Stock appreciation right entitles the holder to
receive, in cash, an amount equal to the increase, if any, in the $40.00 value
of one share of AT Holdings' common stock as specified by the Compensation
Committee of Argo-Tech's Board of Directors to the date of exercise. The Stock
appreciation rights expire on January 2, 2005 and may be exercised only in
quarters over four successive years, but shall become exercisable in full in the
event that the shares become registered or traded on a national exchange or in
the event of a change in control. This plan was amended in December 1998. See
"Recent Benefits Restructuring."
51
<PAGE> 58
STOCK APPRECIATION RIGHT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE MARKET PRICE OPTION TERMS($)
GRANTED IN FISCAL PRICE ON DATE OF EXPIRATION ------------------------------
NAME (#) YEAR ($/SH) GRANT DATE 0%($) 5%($) 10%($)
---- ---------- ----------- -------- ------------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Lipscomb..... 1,995 19.3% $40.00 $100.11 01/02/05 119,919 190,064 279,918
Paul R. Keen............ 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
Yoichi Fujiki........... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
David L. Chrencik....... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
Frances S. St. Clair.... 834 8.1% $40.00 $100.11 01/02/05 50,132 79,455 117,019
</TABLE>
EXECUTIVE LIFE INSURANCE PLAN
Argo-Tech's executive life insurance plan permits certain officers and key
employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to such officers
and key employees consists of basic term and whole life insurance coverage equal
to 3 times the individual's salary.
BONUS PLAN
Argo-Tech has in effect a plan pursuant to which officers and other key
management employees may receive cash bonuses paid upon (1) the achievement of
specified cash flow goals in the preceding fiscal year and (2) individual
performance. The amounts of such bonus awards are approved by Argo-Tech's
Compensation Committee.
COMPENSATION OF DIRECTORS
Argo-Tech pays each of its directors a quarterly fee of $2,500 as well as
$3,000 plus reasonable out-of-pocket expenses for each board meeting attended.
Fees paid to Mr. Lipscomb and Mr. Fujiki are included in the Summary
Compensation Table. See "Executive Compensation."
RECENT BENEFITS RESTRUCTURING
On December 17, 1998, AT Holdings issued 30,000 shares of its preferred
stock to Chase Venture Capital Associates. The proceeds of this issuance was
used by AT Holdings, together with the proceeds of the offering of the notes, to
repurchase 639,510 shares of its common stock that were held by its majority
stockholder. In connection with these transactions, Argo-Tech restructured
certain employee benefit plans. First, Argo-Tech amended its Employee Stock
Ownership Plan Excess Benefit Plan. The amendment to the Employee Stock
Ownership Plan Excess Benefit Plan makes it clear that each participant's
account will at all times be deemed invested in AT Holdings' common stock and
that distributions from the plan will, subject to certain restrictions, be made
in whole and fractional shares of AT Holdings' common stock.
Second, Argo-Tech adopted the 1998 Equity Replacement Stock Option Plan to
provide stock options to acquire 34,450 shares of AT Holdings' common stock.
These options were granted to the participants in the 1997 Stock Appreciation
Rights Plan in exchange for the stock appreciation rights which had been granted
to the participants in the plan. The 1997 Stock Appreciation Rights Plan
provided for grants of up to 34,450 stock appreciation rights, 17,225 of which
were granted in fiscal years 1997 and 1998. The remaining stock appreciation
rights were granted in the first quarter of fiscal year 1999. Through the
adoption of the 1998 Equity Replacement Stock Option Plan and the grants of
stock options thereunder, all stock appreciation rights granted under the 1997
Stock Appreciation Rights Plan became fully vested in accordance with their
terms and were then converted into fully vested stock options. In addition, all
granted options under the 1991 Performance Stock Option Plan and 1991 Management
Incentive Stock Option Plan, to the extent not vested, became fully vested in
accordance with their terms on January 4, 1999.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
Argo-Tech is a wholly owned subsidiary of AT Holdings, which owns the only
outstanding share of Argo-Tech's common stock, par value of $.01 per share. The
following table sets forth the ownership of AT Holdings' common stock as of
April 15, 1999 by:
- each person known to Argo-Tech to be the beneficial owner of more than 5%
of AT Holdings' common stock,
- each director of Argo-Tech and AT Holdings, and
- all of Argo-Tech and AT Holdings' directors and executive officers as a
group.
On April 15, 1999, there were 713,915 shares of AT Holdings' common stock
outstanding, exclusive of treasury shares. AT Holdings also has 30,000 shares of
its preferred stock outstanding. All of these shares are held by Chase Venture
Capital Associates, L.P. These preferred shares have no voting rights.
<TABLE>
<CAPTION>
OWNERSHIP OF AT HOLDINGS' COMMON STOCK
--------------------------------------------------------------------------------
SHARES
NUMBER OF ATTRIBUTABLE TO
NUMBER IMMEDIATELY EMPLOYEE STOCK
NAME OF BENEFICIALLY EXERCISABLE OWNERSHIP PLAN
BENEFICIAL OWNER OWNED OPTIONS ACCOUNT TOTAL PERCENT OF CLASS
---------------- ------------ -------------- ------------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
KeyTrust Company of Ohio,
N.A.(1)...................... 410,891 0 0 410,891 57.6
127 Public Square
Cleveland, OH 44114
Sunhorizon International,
Inc.......................... 129,402 0 0 129,402 18.1
13221 Ranchwood Road
Tustin, CA 92680
YC International, Inc.......... 75,000 0 0 75,000(2) 10.5
725 South Figueroa Street
Suite 3870
Los Angeles, CA 90117
AT Holdings, LLC............... 22,050 75,000(2) 0 97,050 13.6
1890 Highway 50 East
Suite 4
Carson City, NV 89701
Chase Venture Capital
Associates, L.P.............. 0 46,025 0 46,025 6.4
380 Madison Ave.
New York, NY 10017
Chrencik, David................ 5,799 2,760 1,813 10,372 1.4
de Chastenet, Remi*............ 0 500 0 500 **
Dougherty, Thomas*............. 1,654 0 0 1,654 **
Fujiki, Yoichi................. 2,304 5,940 1,835 10,079 1.4
Keen, Paul+.................... 12,596 4,750 1,852 19,198 2.7
Lipscomb, Michael*+............ 23,499 14,795 1,852 40,146 5.5
Nagata, Robert*................ 0 500 0 500 **
St. Clair, Frances+............ 6,099 5,750 1,803 13,652 1.9
Storrie, Karl*................. 1,204 450 0 1,654 **
Directors and Executive
Officers as a Group (9
persons)..................... 53,155 35,445 9,155 97,755 13.0
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Director of AT Holdings Corporation
** Less than 1%
+ Director of Argo-Tech
(1) KeyTrust is the Employee Stock Ownership Plan trustee and
holds shares of AT Holdings' common stock in trust for the
benefit of the plan. Under normal circumstances, the trustee
votes all of the shares held by the plan in proportion to
the actual voting directions of the plan participants. Under
certain limited circumstances, the plan trustee may, in the
exercise of its fiduciary duty, vote the shares held by the
plan as a block. The share ownership numbers for officers do
not include shares held through the plan, other than those
shares directly attributed to the officer's account.
(2) AT Holdings, LLC has the option to purchase all of YC
International's shares of AT Holdings' common stock. AT
Holdings, LLC disclaims all beneficial ownership of those
shares.
</TABLE>
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<PAGE> 60
NEW STOCKHOLDERS AGREEMENT
On December 17, 1998, AT Holdings, Sunhorizon International, AT Holdings,
LLC, YC International, Chase Venture Capital Associates and representatives of
Argo-Tech's management investors entered into a new stockholders agreement. The
existing stockholders agreement, which had been entered into in May 1994, was
terminated. Argo-Tech is not a party to the new stockholders agreement. The new
stockholders agreement contains customary terms and conditions, including
registration rights, tag-along rights and rights of first refusal and provides:
- management the right to nominate a majority of the Board of Directors of
AT Holdings,
- Mr. Masashi Yamada, who controls AT Holdings, LLC and YC International,
the right to nominate a minority of the Board, and
- Chase Venture Capital Associates the right to designate one non-voting
representative to attend all Board and Board committee meetings.
The new stockholders agreement will remain effective until the earlier of
(a) the time that the parties to the agreement have less than 30% of the
combined voting power of AT Holdings or (b) AT Holdings consummates an initial
public offering that has a price to the public of at least $30 million.
The Employee Stock Ownership Plan and the parties to the new stockholders
agreement also entered into a supplemental stockholders agreement that will
provide the Employee Stock Ownership Plan with the same registration rights,
tag-along rights and rights of first refusal contained in the new stockholders
agreement.
DESCRIPTION OF AT HOLDINGS' PREFERRED STOCK
The preferred stock issued by AT Holdings to Chase Venture Capital
Associates includes detachable warrants to purchase 6.0% of the fully diluted AT
Holdings' common stock. These warrants are exercisable on or after December 17,
1998, the date the shares were issued. Chase Venture Capital Associates also
received warrants to purchase an additional 3.0% of the fully diluted AT
Holdings' common stock which are exercisable upon the occurrence of certain
events. Holders of the preferred stock will be entitled to receive dividends at
a rate equal to 12.0% per year, or 14.0% per year upon the occurrence of certain
events. The preferred stock:
- ranks senior in right of payment to AT Holdings' common stock with
respect to dividend rights and rights of liquidation, and
- may be redeemed by AT Holdings at any time after December 17, 1998, at
its option, at certain premium redemption prices.
AT Holdings must redeem the preferred stock on the tenth anniversary of the
closing date, which will be December 17, 2008. In addition, at its option, AT
Holdings may, on any dividend payment date after the first anniversary of the
closing date, which will be December 17, 1999, exchange all of the outstanding
preferred stock for exchange notes of AT Holdings in an aggregate principal
amount equal to $30 million.
DESCRIPTION OF THE CREDIT FACILITY
On July 18, 1997, Argo-Tech entered into its credit facility. This credit
facility provides for:
- Term Loans in an aggregate principal amount not to exceed $100 million,
- Delayed Draw Acquisition Loans in an aggregate principal amount not to
exceed $15 million and
- Revolving Credit Loans in an aggregate principal amount not to exceed $20
million.
All loans under this credit facility mature on July 18, 2004.
The proceeds of the Term Loans, initially aggregating $100 million, were
used in July 1997 to repay in full Argo-Tech's then-existing credit facility. On
July 23, 1997, Argo-Tech optionally prepaid $5 million of
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<PAGE> 61
the Term Loans. The proceeds of the Delayed Draw Acquisition Loans were used in
September 1997, together with the proceeds of the offering of $140.0 million in
principal amount of 8 5/8% senior subordinated notes due 2003 and cash on hand,
to pay the purchase price of the acquisition of Carter and related fees and
expenses.
The proceeds of the Revolving Loans may be used at any time:
- for working capital purposes,
- in an amount not to exceed a maximum of $10 million, and subject to
excess cash flow availability, to finance permitted acquisitions, to fund
distributions from the Employee Stock Ownership Plan and to fund
purchases of AT Holdings' common stock
- pursuant to outstanding put options under the Employee Stock Ownership
Plan and
- from directors and employees of Argo-Tech and its subsidiaries.
In addition, up to $2 million of the revolving commitments may be used for
letters of credit issued for general corporate purposes.
The Term Loans are repayable in twenty-eight quarterly installments, which
began with an aggregate amortization payment of $1,375,000 in October 1997 and
continue with gradually increasing amortization payments until the maturity
date. At the maturity date, an aggregate amortization payment of $8,250,000 will
become due.
Argo-Tech may optionally prepay the Term Loans from time to time in whole
or in part, without premium or penalty. At Argo-Tech's option, Revolving Loans
may be prepaid, and revolving commitments may permanently be reduced, in whole
or in part, at any time.
Argo-Tech is required to make mandatory prepayments of the Term Loans in an
amount equal to:
- 50% of excess cash flow for each fiscal year if at the end of the fiscal
year the Senior Leverage Ratio (as defined in the credit facility) is
more than 2.10 to 1.00 and
- 100% of the net cash proceeds of specified dispositions of assets,
issuance of stock or incurrence of specified types of indebtedness.
The credit facility contains a number of covenants that, among other
things, restrict the corporate activities of Argo-Tech and AT Holdings and
restrict ability of Argo-Tech, AT Holdings and its subsidiaries to
- incur additional indebtedness,
- issue preferred stock,
- create liens on assets,
- incur guarantee obligations,
- enter into mergers, consolidations or amalgamations
- liquidate, wind up or dissolve,
- dispose of assets,
- pay dividends,
- make capital expenditures,
- purchase AT Holdings' common stock,
- make advances, acquisitions, loans, extensions of credit, or capital
contributions,
- make purchases of any stock, bonds, notes, debentures or other
securities,
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<PAGE> 62
- prepay certain indebtedness or amend other debt instruments,
- engage in certain transactions with subsidiaries and affiliates,
- enter into sale and leaseback transactions, and
- pay dividends or make other distributions.
In addition, Argo-Tech is required to comply with specified financial
ratios and tests, including minimum interest coverage and maximum leverage
ratios. The credit facility also contains customary events of default. Examples
of events of default include:
- nonpayment of principal or interest,
- violation of covenants,
- incorrectness of representations and warranties in any material respect,
- cross default,
- cross acceleration,
- bankruptcy,
- material adverse judgments against AT Holdings, Argo-Tech or any of its
subsidiaries,
- defaults under the Employee Retirement Security Act of 1974,
- actual or asserted invalidity of security documents, and
- certain change in control events defined in the credit facility.
Argo-Tech's obligations under the credit facility are unconditionally and
irrevocably guaranteed by AT Holdings and by each of Argo-Tech's existing and
future domestic operating subsidiaries and each future foreign subsidiary to the
extent such guarantee would not result in adverse consequences to Argo-Tech. In
addition, Argo-Tech and each subsidiary have granted and/or pledged a first
priority security interest in all of their respective tangible and intangible
assets and capital stock held by them, except for Heritage Business Park.
Although it has no immediate plans to do so, Argo-Tech is permitted by the
credit facility to dispose of Heritage Business Park.
All loans under the credit facility bear interest, at Argo-Tech's election,
at a spread over either (1) the Eurodollar Rate or (2) the Alternate Base Rate
("ABR") which is equal to the highest of
- the Administrative Agent's Prime Rate,
- the secondary market rate for three-month certificates of deposit plus
1.0% or
- the Federal funds rate plus 0.5%.
The Eurodollar Rate is the rate offered for Eurodollar deposits for one,
two, three or six months, as selected by Argo-Tech, in the London interbank
market. The spread with respect to the Eurodollar Rate ranges from 2.00% to
1.00% and the spread with respect to the ABR ranges from 1.00% to 0% and in each
case is determined based on the ratio of Total Debt to Consolidated EBITDA (the
"leverage ratio") as of the most recent fiscal quarter end. The spread with
respect to the ABR ranges from 1.00% to 0%. Argo-Tech will pay a commitment fee
on the unused portion of the revolving commitments at a rate ranging from 0.50%
to 0.20% determined based on the leverage ratio as of the most recent fiscal
quarter end.
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<PAGE> 63
DESCRIPTION OF THE NOTES
The notes were issued under an indenture, dated December 17, 1998, among
Argo-Tech, the subsidiary guarantors and Harris Trust and Savings Bank, as
Trustee, a copy of which is available upon request to Argo-Tech. On September
26, 1997, Argo-Tech issued $140,000,000 aggregate principal amount of 8 5/8%
Senior Subordinated Notes due 2007 pursuant to an indenture dated as of
September 26, 1997 between the same parties. Those notes were subsequently
exchanged for an equal principal amount of notes having an identical interest
rate, maturity and other terms as the exchanged notes. The exchange was made
pursuant to an exchange offering registered with the Securities and Exchange
Commission. The terms of the indenture relating to the notes offered by this
prospectus are substantially equivalent to the terms of the indenture relating
to the notes issued in September 1997. The notes will have an identical interest
rate and maturity as, and will rank equally in right of payment with, the notes
issued in September 1997.
The following summary of certain provisions of the indenture and the notes
is not complete. You should read all of the provisions of the indenture,
including the definitions of certain terms and those terms made a part of the
indenture by the Trust Indenture Act of 1939. Capitalized terms used in this
summary and not otherwise defined have the meanings set forth in the section
"Definitions" starting on page 76.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of
Argo-Tech in the Borough of Manhattan, The City of New York. However, at
Argo-Tech's option, payment of interest may be made by check mailed to the
registered holders of the notes at their registered addresses. The payment
office will initially be the corporate trust office of the Trustee, at Wall
Street Plaza, 88 Pine Street, 19th Floor, New York, New York 10005.
The old notes were, and the new notes will be, issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000.
TERMS OF THE NOTES
The notes will be unsecured senior subordinated obligations of Argo-Tech,
limited to $55.0 million aggregate principal amount. The notes will mature on
October 1, 2007. Each note will bear interest at 8 5/8% from December 17, 1998,
or from the most recent date to which interest has been paid or provided for,
payable to Holders of record at the close of business on the March 15 or
September 15 immediately preceding the interest payment date on April 1 and
October 1 of each year. Interest payments will begin on April 1, 1999.
OPTIONAL REDEMPTION
The notes will be redeemable, at Argo-Tech's option, in whole or in part,
at any time on or after October 1, 2002 and before maturity. Argo-Tech must give
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address. Redemption will be made at the following
prices, which are expressed as a percentage of principal amount, plus accrued
interest, if any, to the redemption date, subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date, if redeemed during the 12-month period beginning on
October 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2002........................................................ 104.313%
2003........................................................ 102.875%
2004........................................................ 101.438%
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to October 1, 2000,
Argo-Tech may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price of
108.625% of the principal amount of the notes plus accrued interest, if any, to
the redemption date. Holders of record on
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<PAGE> 64
the relevant record date retain their right to receive interest due on the
relevant interest payment date. At least 66 2/3% of the original aggregate
principal amount of the notes must remain outstanding after each such
redemption.
Notwithstanding the preceding two paragraphs, Argo-Tech is not permitted to
redeem any notes unless, substantially concurrently with such redemption,
Argo-Tech redeems an aggregate principal amount of the notes issued in September
1997, rounded to the nearest integral multiple of $1,000, equal to the product
of:
(1) a fraction, the numerator of which is the aggregate principal amount
of notes to be so redeemed and the denominator of which is the aggregate
principal amount of notes outstanding immediately before such proposed
redemption and
(2) the aggregate principal amount of notes issued in September 1997
outstanding immediately prior to such proposed redemption.
Similarly, Argo-Tech is not permitted to redeem any of the notes issued in
September 1997 unless, substantially concurrently with such redemption,
Argo-Tech redeems an aggregate principal amount of these notes, rounded to the
nearest integral multiple of $1,000, equal to the product of:
(1) a fraction, the numerator of which is the aggregate principal amount
of notes issued in September 1997 to be so redeemed and the denominator of
which is the aggregate principal amount of notes issued in September 1997
outstanding immediately prior to such proposed redemption and
(2) the aggregate principal amount of these notes outstanding
immediately prior to such proposed redemption.
SELECTION
In the case of any partial redemption, the Trustee will select notes for
redemption on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate. However, no note of
$1,000 in original principal amount or less will be redeemed in part. If any
note is to be redeemed in part only, the notice of redemption relating to such
note shall state the portion of the principal amount thereof to be redeemed. A
new note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancelation of the original note.
RANKING
The indebtedness evidenced by the notes will be unsecured Senior
Subordinated Indebtedness of Argo-Tech. The payment of principal of, any premium
and interest on the notes
- is subordinated in right of payment, to all of Argo-Tech's existing
and future Senior Indebtedness,
- ranks equal in right of payment with all of Argo-Tech's existing and
future Senior Subordinated Indebtedness (including the notes issued in
September 1997),
- will be senior in right of payment to all of Argo-Tech's existing and
future Subordinated Obligations, and
- will also be effectively subordinated to any of Argo-Tech's Secured
Indebtedness to the extent of the value of the assets securing such
Indebtedness.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust described under "-- Defeasance" below is not
subordinated to any Senior Indebtedness or subject to the restrictions described
in this summary.
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<PAGE> 65
The indebtedness evidenced by a Subsidiary Guarantee will be unsecured
Senior Subordinated Indebtedness of the Subsidiary Guarantor issuing such
Subsidiary Guarantee. The payment of a Subsidiary Guarantee:
- is subordinate in right of payment to all existing and future Senior
Indebtedness of such Subsidiary Guarantor,
- will rank equal in right of payment with the existing and future
Senior Subordinated Indebtedness of such Subsidiary Guarantor,
including the Subsidiary Guarantees of the notes issued in September
1997, and
- will be senior in right of payment to all existing and future
Subordinated Obligations of such Subsidiary Guarantor.
Each Subsidiary Guarantee will also be effectively subordinated to any
Secured Indebtedness of the applicable Subsidiary Guarantor to the extent of the
value of the assets securing such indebtedness.
As of October 31, 1998, after giving pro forma effect to the
recapitalization which occurred on December 17, 1998:
- Argo-Tech's outstanding Senior Indebtedness would have been $87.4
million, exclusive of unused commitments, all of which would have been
Secured Indebtedness,
- Argo-Tech would have had no Senior Subordinated Indebtedness
outstanding other than the notes and the notes issued in September
1997 and no indebtedness that is subordinate or junior in right of
repayment to the notes,
- the outstanding Senior Indebtedness of the Subsidiary Guarantors,
consisting entirely of Guarantees of Senior Indebtedness, would have
been $87.4 million, all of which would have been Secured Indebtedness,
and
- the Subsidiary Guarantors would have had no outstanding Senior
Subordinated Indebtedness other than the Subsidiary Guarantees and the
Subsidiary Guarantees of the notes issued in September 1997 and no
Indebtedness that is subordinate or junior in right of payment to the
Subsidiary Guarantees.
Although the indenture contains limitations on the amount of additional
Indebtedness that Argo-Tech and its Subsidiary Guarantors may Incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness of Argo-Tech or a
Subsidiary Guarantor, as the case may be. See "-- Covenants -- Limitation on
Indebtedness" below.
"Senior Indebtedness" means the principal of, any premium and interest,
including interest accruing on or after the filing of any petition in bankruptcy
or for reorganization of Argo-Tech, regardless of whether or not a claim for
post-filing interest is allowed in such proceedings, on, and fees and other
amounts owing in respect of, Bank Indebtedness and all of our other Indebtedness
including interest thereon, whether outstanding on the Issue Date or thereafter
Incurred, unless in the instrument creating or evidencing the same or pursuant
to which the same is outstanding it is provided that such obligations are not
superior in right of payment to the notes. Senior Indebtedness will not include:
- any obligation of Argo-Tech to any Subsidiary,
- any liability for Federal, state, local or other taxes owed or owing
by Argo-Tech,
- any accounts payable or other liability to trade creditors arising in
the ordinary course of business, including Guarantees thereof or
instruments evidencing such liabilities,
- any Indebtedness or obligation of Argo-Tech that by its terms is
subordinate or junior in any respect to any other Indebtedness or
obligation of Argo-Tech, including any Senior Subordinated
Indebtedness and any Subordinated Obligations,
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<PAGE> 66
- any obligations with respect to any Capital Stock or
- any Indebtedness Incurred in violation of the indenture.
"Senior Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
Only Indebtedness of Argo-Tech or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the notes and the relevant Subsidiary Guarantee
in accordance with the provisions of the indenture. The notes and each
Subsidiary Guarantee will in all respects rank equal with all of our other
Senior Subordinated Indebtedness, including the notes issued in September 1997,
or Senior Subordinated Indebtedness of the relevant Subsidiary Guarantor,
including the Subsidiary Guarantees of the notes issued in September 1995,
respectively. Argo-Tech and each Subsidiary Guarantor has agreed in the
indenture that they will not Incur, directly or indirectly, any Indebtedness
that is subordinate or junior in ranking in any respect to Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness of us or a Subsidiary Guarantor is not deemed to be subordinate or
junior to Secured Indebtedness merely because it is unsecured.
Argo-Tech may not pay principal of, any premium or interest on, the notes
or make any deposit pursuant to the provisions described under "-- Defeasance"
below and may not otherwise purchase, redeem or otherwise retire any notes
(collectively, "pay the notes") if:
(1) any Senior Indebtedness of Argo-Tech is not paid when due or
(2) any other default on Senior Indebtedness of Argo-Tech occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been
paid in full.
However, Argo-Tech may pay the notes without regard to the foregoing if
Argo-Tech and the Trustee receive written notice approving such payment from the
Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (1) or (2) of the immediately preceding
sentence has occurred and is continuing. During the continuance of any default,
other than a default described in clause (1) or (2) of the second preceding
sentence, with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice,
except such notice as may be required to effect such acceleration or the
expiration of any applicable grace periods, Argo-Tech may not pay the notes for
a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee, with a copy to Argo-Tech of written notice (a "Blockage Notice") of
such default from the Representative of the Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter. This period will end earlier if such Payment Blockage Period is
terminated
- by written notice to the Trustee and Argo-Tech from the Person or
Persons who gave such Blockage Notice,
- by repayment in full of such Designated Senior Indebtedness or
- because the default giving rise to such Blockage Notice is no longer
continuing.
Notwithstanding the provisions described in the immediately preceding
sentence, but subject to the provisions contained in the first sentence of this
paragraph, unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, Argo-Tech may resume payments on the notes after the end of
such Payment Blockage Period, including any missed payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
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<PAGE> 67
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this section, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of Argo-Tech's assets upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to Argo-Tech or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of the Senior Indebtedness before the
note holders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which note holders
would be entitled but for the subordination provisions of the indenture will be
made to holders of the Senior Indebtedness as their respective interests may
appear. If a distribution is made to note holders that should not have been made
to them because of the subordination provisions of the indenture, such note
holders are required to hold it in trust for the holders of Senior Indebtedness
and pay it over to them as their interests may appear.
If payment of the notes is accelerated because of an Event of Default,
Argo-Tech or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or their Representative of the acceleration. If any
Designated Senior Indebtedness is outstanding, Argo-Tech may not pay the notes
until five Business Days after such holders or their Representative receive
notice of such acceleration and, thereafter, may pay the notes only if the
subordination provisions of the indenture otherwise permit payment at that time.
The terms of the subordination provisions described above with respect to
Argo-Tech's obligations under the notes apply equally to a Subsidiary Guarantor
and the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee.
By reason of such subordination provisions contained in the indenture, in
the event of insolvency, creditors of Argo-Tech or a Subsidiary Guarantor who
are holders of Senior Indebtedness of Argo-Tech or such Subsidiary Guarantor, as
the case may be, may recover more, ratably, than the note holders, and creditors
who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness, including the notes, may recover less, ratably, than holders of
Argo-Tech's Senior Indebtedness.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors, as primary obligors and not merely as sureties,
will irrevocably and unconditionally Guarantee on an unsecured senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all of Argo-Tech's obligations
under the indenture and the notes, whether for payment of principal of or
interest on the notes, expenses, indemnification or otherwise. All of such
obligations guaranteed by the Subsidiary Guarantors are referred to in this
summary as the "Guaranteed Obligations". The Subsidiary Guarantors will agree to
pay, in addition to the amount stated above, any and all expenses, including
reasonable counsel fees and expenses, incurred by the Trustee or the Holders in
enforcing any rights under the Subsidiary Guarantees. Each Subsidiary Guarantee
will be limited in amount to an amount not to exceed the maximum amount that can
be Guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
On or after the Issue Date, Argo-Tech will cause
- each Restricted Subsidiary that is a Domestic Subsidiary that Incurs
Indebtedness and
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- each Restricted Subsidiary that is not a Domestic Subsidiary that
enters into a Guarantee of any of the obligations of Argo-Tech, AT
Holdings or any of Argo-Tech's Subsidiaries pursuant to Argo-Tech's
credit facility,
to execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary will Guarantee payment of the notes. See
"-- Covenants -- Future Subsidiary Guarantors" below.
Each Subsidiary Guarantee is a continuing guarantee and shall:
- remain in full force and effect until payment in full of all the
Guaranteed Obligations, except as provided below,
- be binding upon each Subsidiary Guarantor and
- enure to the benefit of and be enforceable by the Trustee, the Holders
and their successors, transferees and assigns.
A Subsidiary Guarantee will be automatically released upon the sale,
including through merger or consolidation, of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary Guarantor if
- such sale is made in compliance with the covenant described under
"-- Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
and
- such Subsidiary Guarantor is released from its guarantees of, and all
pledges and security granted in connection with, Argo-Tech's credit
facility and any other Indebtedness of Argo-Tech, AT Holdings or any
Restricted Subsidiary.
A Subsidiary Guarantee also will be automatically released upon the
applicable Subsidiary Guarantor ceasing to be a Subsidiary of Argo-Tech's as a
result of any foreclosure of any pledge or security interest securing Bank
Indebtedness or other exercise of remedies in respect thereof if such Subsidiary
Guarantor is released from its guarantees of, and all pledges and security
interests granted in connection with, Argo-Tech's credit facility.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require Argo-Tech to repurchase
all or any part of such Holder's notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. Holders of record on the relevant record date retain
their right to receive interest due on the relevant interest payment date.
(1) prior to the earlier to occur of the first public offering of Voting
Stock of Argo-Tech or AT Holdings, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of a majority in the aggregate of the total
voting power of the Voting Stock of Argo-Tech or AT Holdings, whether as a
result of issuance of securities of Argo-Tech or AT Holdings, as the case
may be, any merger, consolidation, liquidation or dissolution of Argo-Tech
or AT Holdings, as the case may be, any direct or indirect transfer of
securities by any Permitted Holder or otherwise. For purposes of this
clause (1) and clause (2) below, the Permitted Holders shall be deemed to
own beneficially any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own, directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity;
(2) (A) any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (1)
above, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or
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only after the passage of time), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of Argo-Tech or AT Holdings,
as the case may be, and
(B) the Permitted Holders "beneficially own" (as defined in clause (1)
above), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Argo-Tech or AT Holdings, as the
case may be, than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Argo-Tech or AT Holdings, as the
case may be. For the purposes of this clause (2), such other person shall
be deemed to own beneficially any Voting Stock of a specified corporation
held by a parent corporation, if such other person "beneficially owns",
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders "beneficially
own", directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation, or
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Argo-Tech or
AT Holdings, as the case may be, together with any new directors whose
election by either Board of Directors or whose nomination for election by
the stockholders of Argo-Tech or AT Holdings was approved by a vote of
66 2/3% of the directors of Argo-Tech or AT Holdings, as applicable, still
in office who were either directors at the beginning of the two-year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board of Directors of
Argo-Tech or AT Holdings then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of notes pursuant to this
covenant, then, before the mailing of the notice to Holders provided for in the
immediately following paragraph, but within 30 days following any Change of
Control, Argo-Tech will
- repay in full all Bank Indebtedness or offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer or
- obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the notes as provided for in
the immediately following paragraph.
Within 30 days following any Change of Control, Argo-Tech will mail a
notice to each Holder with a copy to the Trustee stating:
- that a Change of Control has occurred and that such Holder has the
right to require Argo-Tech to purchase such Holder's notes at a
purchase price in cash equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest to the date of repurchase,
subject to the right of Holders of record on the relevant record date
to receive interest on the relevant interest payment date,
- the circumstances and relevant facts and financial information
regarding such Change of Control,
- the repurchase date, which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, and
- the instructions determined by Argo-Tech, consistent with this
covenant, that a Holder must follow in order to have its notes
purchased.
Argo-Tech will comply, to the extent applicable, with the requirements of
Section 14(e) of the Securities Exchange Act of 1934 and any other securities
laws or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Argo-Tech will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph by virtue thereof.
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The Change of Control purchase feature is a result of negotiations between
Argo-Tech and Chase Securities Inc. in its capacity as the initial purchaser of
the notes. Argo-Tech has no present intention to engage in a transaction
involving a Change of Control, although it is possible that Argo-Tech could
decide to do so in the future. Subject to the limitations discussed below,
Argo-Tech could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not constitute
a Change of Control under the indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect Argo-Tech's capital
structure or credit ratings.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under Argo-Tech's credit facility. Future
Senior Indebtedness of Argo-Tech may contain prohibitions of certain events that
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require Argo-Tech to repurchase the notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on Argo-Tech. Finally,
Argo-Tech's ability to pay cash to the Holders upon a repurchase may be limited
by its then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
COVENANTS
The indenture contains covenants including, among others, the following:
Limitation on Indebtedness.
(a) Argo-Tech will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness; provided, however, that Argo-Tech may Incur Indebtedness
if on the date of the incurrence, the Consolidated Coverage Ratio would be
greater than 2.00:1.00 if such Indebtedness is Incurred on or prior to September
30, 1999, and 2.25:1.00 if such Indebtedness is Incurred thereafter.
Notwithstanding the foregoing, Argo-Tech will not permit any Subsidiary to
issue, to any party other than Argo-Tech, any Preferred Stock.
(b) Notwithstanding the foregoing paragraph (a), Argo-Tech and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Bank Indebtedness relating to the Term Loan Facilities in an
aggregate principal amount not to exceed $110.0 million less the aggregate
amount of all prepayments of principal since the Original Issue Date
applied permanently to reduce any such Indebtedness;
(2) Bank Indebtedness relating to the Revolving Facility or Indebtedness
Incurred pursuant to other revolving credit, working capital or letter of
credit financings in an aggregate principal amount outstanding not in
excess of the greater of $20.0 million and the Borrowing Base in effect
from time to time;
(3) Indebtedness of Argo-Tech owing to and held by any Subsidiary or
Indebtedness of a Restricted Subsidiary owing to and held by Argo-Tech or
any Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock or any other event that results in any such Subsidiary
ceasing to be a Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Restricted Subsidiary) will be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof;
(4) Indebtedness represented by the notes and Subsidiary Guarantees and
the notes issued in September 1997 and Subsidiary Guarantees of those
notes, any Indebtedness (other than the Indebtedness described in clauses
(1) through (3) above) outstanding on the Original Issue Date, Indebtedness
that was Incurred prior to the Issue Date that was permitted under Section
4.03(a) and 4.03(b)(5) of the indenture dated September 26, 1997 and any
Refinancing Indebtedness Incurred in respect of any Indebtedness described
in this clause (4) or paragraph (a);
(5) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
Argo-Tech, other than Indebtedness Incurred as
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consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by Argo-Tech, provided,
however, that at the time such Restricted Subsidiary is acquired by
Argo-Tech, Argo-Tech would have been able to Incur $1.00 of additional
Indebtedness pursuant to paragraph (a) after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (5) and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(5);
(6) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries in the ordinary course of their
business and which do not secure other Indebtedness, and (B) under Currency
Agreements and Interest Rate Agreements, in each case entered into for bona
fide hedging purposes of the Company in the ordinary course of business;
provided, however, that, in the case of Currency Agreements and Interest
Rate Agreements, such Currency Agreements and Interest Rate Agreements do
not increase the Indebtedness of the Company outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(7) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not to exceed $10.0 million at any time
outstanding;
(8) Indebtedness of Restricted Subsidiaries (other than Indebtedness
permitted to be Incurred pursuant to any other clause of this paragraph
(b)) in an aggregate principal amount on the date of Incurrence that, when
added to all other Indebtedness Incurred pursuant to this clause (8) and
then outstanding, will not exceed $5.0 million; or
(9) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to paragraph (a) or any other clause of this paragraph (b)) in an
aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause (9) and then
outstanding, will not exceed $10.0 million.
(c) Notwithstanding the foregoing, Argo-Tech may not Incur any Indebtedness
pursuant to paragraph (b) above if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations unless such Indebtedness will be subordinated to the
notes to at least the same extent as such Subordinated Obligations. Argo-Tech
may not Incur any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, Agro-Tech may not
Incur any Secured Indebtedness that is not Senior Indebtedness unless
contemporaneously with that incurrence Argo-Tech makes provisions to secure the
notes equally and ratably with, or on a senior basis to, in the case of
Indebtedness subordinated in right of payment to the notes, such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
A Subsidiary Guarantor may not Incur any Indebtedness if such Indebtedness
is by its terms expressly subordinate or junior in ranking in any respect to any
Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness of such
Subsidiary Guarantor. In addition, a Subsidiary Guarantor may not Incur any
Secured Indebtedness that is not Senior Indebtedness of such Subsidiary
Guarantor unless contemporaneously with that incurrence Argo-Tech makes
provisions to secure the Subsidiary Guarantee of such Subsidiary Guarantor
equally and ratably with, or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to such Subsidiary Guarantee, such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that Argo-Tech or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be
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exceeded solely as a result of fluctuations in the exchange rates of currencies.
For purposes of determining the outstanding principal amount of any particular
Indebtedness Incurred pursuant to this covenant,
- Indebtedness Incurred pursuant to the credit facility prior to or on
the Original Issue Date shall be treated as Incurred pursuant to
clause (1) of paragraph (b) above,
- Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness and
- in the event that Indebtedness or any portion thereof meets the
criteria of more than one of the types of Indebtedness described in
this covenant, Argo-Tech, in its sole discretion, shall classify such
Indebtedness and only be required to include the amount of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) Argo-Tech will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock, including any payment in connection with any
merger or consolidation involving Argo-Tech, except dividends or
distributions payable solely in its Capital Stock, other than Disqualified
Stock, and except dividends or distributions payable to Argo-Tech or
another Restricted Subsidiary, and, if such Restricted Subsidiary is not
wholly owned, to its other shareholders on a pro rata basis,
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Argo-Tech or any Restricted Subsidiary held by Persons other than
Argo-Tech or another Restricted Subsidiary,
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations, other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
acquisition, or
(4) make any Investment, other than a Permitted Investment, in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein
referred to as a "Restricted Payment") if at the time Argo-Tech or such
Restricted Subsidiary make such Restricted Payment:
(a) a Default will have occurred and be continuing, or would result
therefrom;
(b) Argo-Tech could not Incur at least $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Limitation on
Indebtedness"; or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments, the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
will be conclusive and evidenced by a resolution of the Board of Directors,
declared, or made subsequent to the Original Issue Date would exceed the
sum of:
(i) 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from the beginning of the fiscal
quarter in which the Original Issue Date occurred to the end of the most
recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment, or, in case such Consolidated Net Income will be a
deficit, minus 100% of such deficit;
(ii) the aggregate Net Cash Proceeds received by Argo-Tech from the
issue or sale of its Capital Stock, other than Disqualified Stock,
subsequent to the Original Issue Date (other than an issuance or sale to
a Subsidiary of Argo-Tech or an employee stock ownership plan or other
trust established by Argo-Tech or any of its Subsidiaries);
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(iii) the amount by which Indebtedness of Argo-Tech or its Restricted
Subsidiaries is reduced on Argo-Tech's balance sheet upon the conversion
or exchange, other than by a Subsidiary, subsequent to the Original
Issue Date of any Indebtedness of Argo-Tech or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock, other than
Disqualified Stock, of Argo-Tech, less the amount of any cash or other
property distributed by Argo-Tech or any Restricted Subsidiary upon such
conversion or exchange; and
(iv) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from
- payments of dividends, repayments of the principal of loans or
advances or other transfers of assets to Argo-Tech or any Restricted
Subsidiary from Unrestricted Subsidiaries or
- the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made by Argo-Tech or
any Restricted Subsidiary in such Unrestricted Subsidiary, which
amount was included in the calculation of the amount of Restricted
Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase or redemption of Capital Stock of Argo-Tech or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of Argo-Tech, other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by Argo-Tech or any of its Subsidiaries; provided, however, that (A) such
purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale will be
excluded from clause 4 (c)(ii) of paragraph (a) above;
(2) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of Argo-Tech that is permitted to be Incurred pursuant to
paragraph (b) of the covenant described under "-- Limitation on
Indebtedness;" provided, however, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock;" provided, however,
that such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments;
(5) payment of dividends, other distributions or other amounts by
Argo-Tech for the purposes set forth in clauses (A) through (D) below;
provided, however, that such dividend, distribution or amount set forth in
clauses (A) through (D) shall be included in the calculation of the amount
of Restricted Payments for the purposes of paragraph (a) above:
(A) to AT Holdings in amounts equal to the amounts required for AT
Holdings to pay franchise taxes and other fees required to maintain its
corporate existence, and to provide for other operating costs of up to
$100,000 per fiscal year;
(B) to AT Holdings in amounts equal to amounts required for AT Holdings
to pay federal, state and local income taxes to the extent such income
taxes are attributable to Argo-Tech's income and the income of Argo-Tech's
Restricted Subsidiaries, and, to the extent of amounts actually received
from its Unrestricted Subsidiaries, in amounts required to pay such taxes
to the extent attributable to the income of such Unrestricted Subsidiaries;
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(C) to AT Holdings in amounts equal to amounts expended by AT Holdings
to repurchase Capital Stock of AT Holdings owned by former employees of
Argo-Tech or its Subsidiaries or their assigns, estates and heirs;
provided, however, that the aggregate amount paid, loaned or advanced to AT
Holdings pursuant to this clause (C) shall not, in the aggregate, exceed
(1) for each of Argo-Tech's fiscal years prior to the 2000 fiscal year,
$1.0 million per fiscal year and (2) for all other fiscal years, $2.0
million, in each case plus any amounts contributed by AT Holdings to
Argo-Tech as a result of resales of such repurchased shares of Capital
Stock; and
(D) in amounts equal to amounts expended by Argo-Tech to repurchase
shares of AT Holdings Capital Stock from deceased or retired employees in
accordance with the terms of the Employee Stock Ownership Plan as in effect
on the Original Issue Date and from employees whose employment with
Argo-Tech or any of its subsidiaries has terminated for any other reason
but only to the extent mandatorily required by the Employee Stock Ownership
Plan as in effect on the Original Issue Date, the Internal Revenue Code or
ERISA; provided that in each case above Argo-Tech has deferred making any
cash payments in respect of such repurchase obligations to the maximum
extent possible under the Employee Stock Ownership Plan as in effect on the
Original Issue Date; or
(6) the payment by Argo-Tech of a dividend or distribution on its
Capital Stock to AT Holdings, or the making of a loan by Argo-Tech to AT
Holdings, in an amount not to exceed $50,000,000, the proceeds of which
will be used, together with the proceeds from the issuance by AT Holdings
of its Cumulative Exchangeable Redeemable Preferred Stock, to finance the
payment of the purchase price, not to exceed $80,000,000, of the shares of
Capital Stock of AT Holdings held by AT Holdings, LLC; provided, however,
that such dividend, distribution or loan shall be excluded from the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Argo-Tech will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to
- pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness owed to Argo-Tech,
- make any loans or advances to Argo-Tech or
- transfer any of its property or assets to Argo-Tech, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Original Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by Argo-Tech (other than Indebtedness Incurred as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by Argo-Tech) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the
encumbrances and restrictions contained in any such refinancing agreement
or amendment are no less favorable to the noteholders than encumbrances and
restrictions contained in such agreements;
(4) in the case of clause (3), any encumbrance or restriction:
(A) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract,
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(B) by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of Argo-Tech or any
Restricted Subsidiary not otherwise prohibited by the indenture or
(C) contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements
or mortgages; and
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) Argo-Tech will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless
(1) Argo-Tech or such Restricted Subsidiary receives consideration,
including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise, at the time
of such Asset Disposition at least equal to the fair market value of the
shares and assets subject to such Asset Disposition,
(2) at least 75%, or 50% in the case of an Asset Disposition relating to
the Specified Real Estate, of the consideration thereof received by
Argo-Tech or such Restricted Subsidiary is in the form of cash and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by Argo-Tech, or such Restricted Subsidiary, as the
case may be
(A) first, within one year from the later of such Asset Disposition
or the receipt of such Net Cash Proceeds, either:
- to the extent Argo-Tech elects, or is required by the terms of
any Senior Indebtedness or Indebtedness, other than Preferred
Stock, of a Wholly Owned Subsidiary, to prepay, repay, redeem,
defease or purchase Senior Indebtedness or such Indebtedness,
in each case other than Indebtedness owed to Argo-Tech or an
Affiliate, or,
- to the extent Argo-Tech or such Restricted Subsidiary elects,
to reinvest in Additional Assets, including by means of an
Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by Argo-Tech or another Restricted
Subsidiary, or
- a combination of the foregoing,
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to make an Offer (as
defined below) to purchase notes and notes issued in September 1997
pursuant to and subject to the conditions set forth in section (b) of
this covenant, provided that if Argo-Tech elects, or is required by the
terms of any Senior Subordinated Indebtedness (in addition to the notes
issued in September 1997), such Offer may be made to ratably purchase
the notes and other Senior Subordinated Indebtedness, and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to prepay,
repay, redeem or purchase Indebtedness of Argo-Tech, other than
Indebtedness owed to an Affiliate of Argo-Tech and other than its
Disqualified Stock or Indebtedness of any Restricted Subsidiary, other
than Indebtedness owed to Argo-Tech or any of its Affiliates, in each
case described in this clause (C) within one year from the receipt of
such Net Available Cash or, if Argo-Tech made an Offer pursuant to
clause (B), six months from the date such Offer is consummated;
provided, however that in connection with any prepayment, repayment,
redemption or purchase of Indebtedness pursuant to clause (A), (B) or
(C) above, Argo-Tech or such Restricted Subsidiary will retire such
Indebtedness and will cause the related loan commitment, if any, to be
permanently reduced in an amount equal to the principal amount so
prepaid, repaid, redeemed or purchased.
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Notwithstanding the foregoing provisions of this covenant, Argo-Tech
and the Restricted Subsidiaries will not be required to apply any Net
Available Cash in accordance with this covenant except to the extent
that the aggregate Net Available Cash from all Asset Dispositions that
is not applied in accordance with this covenant exceeds $10.0 million.
For the purposes of clause (2) of this covenant, the following are deemed
to be cash:
- the assumption of Indebtedness of Argo-Tech, other than Disqualified
Stock of Argo-Tech, or any Restricted Subsidiary and the release of
Argo-Tech or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition,
- securities received by Argo-Tech or any Restricted Subsidiary from the
transferee that are promptly converted by Argo-Tech or such Restricted
Subsidiary into cash, and
- in the case of an Asset Disposition relating to the Specified Real
Estate, REIT Securities.
(b) In the event of an Asset Disposition that requires the purchase of
notes and notes issued in September 1997 pursuant to clause (a)(3)(B) of this
covenant, Argo-Tech will be required to purchase notes and notes issued in
September 1997 tendered pursuant to an offer by us for the notes and notes
issued in September 1997 (the "Offer") at a purchase price of 100% of their
principal amount plus accrued interest to the date of purchase in accordance
with the procedures, including prorationing in the event of oversubscription set
forth in the indenture. If the aggregate purchase price of notes and notes
issued in September 1997 tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the notes and notes issued in
September 1997, Argo-Tech will apply the remaining Net Available Cash in
accordance with clause (a)(3)(C) of this covenant. Argo-Tech will not be
required to make an Offer for notes and notes issued in September 1997 pursuant
to this covenant if the Net Available Cash available therefor, after application
of the proceeds as provided in clause (A) of section (a)(3) above, is less than
$5.0 million for any particular Asset Disposition, which lesser amount will be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition.
(c) Argo-Tech will comply, to the extent applicable, with the requirements
of Section 14(e) of the Securities Exchange Act of 1934 and any other securities
laws or regulations in connection with the repurchase of notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Argo-Tech will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates.
(1) Argo-Tech will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into or conduct any transaction,
including, the purchase, sale, lease or exchange of any property or the
rendering of any service, with any of its Affiliates (an "Affiliate
Transaction") on terms
- that are less favorable to Argo-Tech or such Restricted Subsidiary, as
the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate and
- that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $10.0 million, are not in writing and have not
been approved by a majority of the members of the Board of Directors
having no personal stake in such Affiliate Transaction and who are not
employed by or otherwise associated with such Affiliates.
In addition, if such Affiliate Transaction involves an amount in excess of
$15.0 million, a fairness opinion must be provided by a nationally recognized
appraisal or investment banking firm.
(2) The provisions of the foregoing paragraph (1) will not prohibit:
- any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
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- any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors,
- loans or advances to employees in the ordinary course of business in
accordance with past practices of Argo-Tech, but in any event not to
exceed $2.0 million in the aggregate outstanding at any one time,
- the payment of reasonable fees to directors of us and our Subsidiaries
who are not employees of Argo-Tech or its Subsidiaries,
- any transaction between Argo-Tech and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries or
- transactions pursuant to the Existing Agreements, as in effect on the
Original Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Argo-Tech will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except:
- to Argo-Tech or a Wholly Owned Subsidiary or
- if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary.
The proceeds of any sale of such Capital Stock permitted hereby will be
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of the covenant described under "-- Limitation on
Sales of Assets and Subsidiary Stock."
SEC Reports. Even though Argo-Tech may not be required to be or remain
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Argo-Tech will file with the SEC and provide the Trustee
and noteholders and prospective noteholders, upon request, within 15 days after
it files them with the SEC, copies of its annual report and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Securities Exchange Act of 1934. In addition, following a Public Equity
Offering, Argo-Tech shall furnish to the Trustee and the noteholders, promptly
upon their becoming available, copies of the annual report to shareholders and
any other information provided by Argo-Tech or AT Holdings to its public
shareholders generally. Argo-Tech will also comply with the other provisions of
Section 314(a) of the TIA.
Future Subsidiary Guarantors. Argo-Tech will cause:
(a) each Restricted Subsidiary that is a Domestic Subsidiary that Incurs
Indebtedness or that is a guarantor of Indebtedness Incurred pursuant to
clause (b)(1), (b)(2) or (b)(9) of the covenant described under
"-- Limitation on Indebtedness" and
- each Restricted Subsidiary that is not a Domestic Subsidiary that
enters into a Guarantee of any of the obligations of Argo-Tech or AT
Holdings or any of Argo-Tech's Subsidiaries pursuant to Argo-Tech's
credit facility to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Subsidiary will Guarantee payment of
the notes. Each Subsidiary Guarantee will be limited to an amount not
to exceed the maximum amount that can be Guaranteed by that Subsidiary
without rendering the Subsidiary Guarantee voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. Argo-Tech will not, and will not permit
any Restricted Subsidiary to, engage in any material respect in any line of
business, other than a Related Business. Argo-Tech shall not be deemed to be
engaged in the line of business associated with assets held for sale.
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Limitation on Sale/Leaseback Transactions. Argo-Tech will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless
- the net cash proceeds received by Argo-Tech or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors, of such property,
- the transfer of such property is permitted by, and Argo-Tech applies
the proceeds of such transaction in compliance with, the covenant
described under "-- Limitation on Sale of Assets and Subsidiary Stock"
and
- Argo-Tech or such Subsidiary would be entitled to
- in the case of a Sale/Leaseback Transaction involving the Specified
Real Estate, Incur $1.00 of additional Indebtedness pursuant to the
covenant described under paragraph (a) of "-- Limitation on
Indebtedness" and
- in all other cases (1) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on
Indebtedness" and (2) create a Lien on such property securing such
Attributable Debt without equally and ratably securing the notes
pursuant to the covenant described under "-- Limitation on
Indebtedness."
MERGER AND CONSOLIDATION
The indenture provides that Argo-Tech will not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not Argo-Tech) will expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of Argo-Tech under
the notes and the indenture,
(2) immediately after giving effect to such transaction, and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Restricted Subsidiary at the
time of such transaction, no Default will have occurred and be continuing,
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "-- Limitation on
Indebtedness",
(4) immediately after giving effect to such transaction, the Successor
Company will have Consolidated Net Worth in an amount which is not less
than Argo-Tech's Consolidated Net Worth immediately prior to such
transaction, and
(5) Argo-Tech will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and any such supplemental indenture
comply with the indenture.
The indenture provides that the Successor Company will succeed to, and be
substituted for, and may exercise every right and power of, Argo-Tech under the
indenture, but the predecessor company in the case of a conveyance, transfer or
lease of all or substantially all its assets will not be released from the
obligation to pay the principal of and interest on the notes.
In addition, the indenture provides that Argo-Tech will not permit any
Subsidiary Guarantor to consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its assets to any Person unless:
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- the resulting, surviving or transferee Person will be a corporation
organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia, and such Person, if not
such Subsidiary Guarantor, will expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory
to the Trustee, all the obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee,
- immediately after giving effect to such transaction, and treating any
Indebtedness which becomes an obligation of the resulting, surviving
or transferee Person as a result of such transaction as having been
Incurred by such Person at the time of such transaction, no Default
shall have occurred and be continuing, and
- Argo-Tech will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and any such supplemental indenture comply with the
indenture.
The indenture also provides that notwithstanding the foregoing clauses (2),
(3) and (4), any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to Argo-Tech.
DEFAULTS
An Event of Default is defined in the indenture as:
(1) a default in any payment of interest on any note when due, whether
or not prohibited by the provisions described under "-- Ranking" above,
continued for 30 days,
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "-- Ranking" above,
(3) the failure by Argo-Tech to comply with its obligations under the
covenant described under "-- Merger and Consolidation" above, other than a
failure to purchase notes,
(4) the failure by Argo-Tech to comply for 30 days after notice with any
of its obligations under the covenants described under "-- Change of
Control" or "-- Covenants" above, other than a failure to purchase notes,
(5) the failure by Argo-Tech to comply for 60 days after notice with its
other agreements contained in the notes or the indenture,
(6) the failure by Argo-Tech or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $5.0 million or its foreign currency equivalent (the "cross
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of
Argo-Tech or a Significant Subsidiary (the "bankruptcy provisions"),
(8) the rendering of any judgment or decree for the payment of money in
excess of $5.0 million or its foreign currency equivalent against Argo-Tech
or a Significant Subsidiary if
- an enforcement proceeding thereon is commenced or
- such judgment or decree remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed (the
"judgment default provision")
(9) any Subsidiary Guarantee ceases to be in full force and effect,
except as contemplated by the terms thereof, or any Subsidiary Guarantor
denies or disaffirms its obligations under the indenture or any Subsidiary
Guarantee and such Default continues for 10 days.
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The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4) or (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding notes notify Argo-Tech of the default and Argo-Tech does not cure
such default within the time specified in clauses (4) and (5) hereof after
receipt of such notice.
If an Event of Default, other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of Argo-Tech occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
outstanding notes by notice to Argo-Tech may declare the principal of and
accrued but unpaid interest on all the notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of Argo-Tech occurs, the principal of and interest on all the
notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding notes may rescind
any such acceleration with respect to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the Holders unless such Holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, any premium or interest when due, no Holder may pursue any remedy
with respect to the indenture or the notes unless:
- such Holder has previously given the Trustee notice that an Event of
Default is continuing,
- Holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee to pursue the remedy,
- such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense,
- the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity, and
- the Holders of a majority in principal amount of the outstanding notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Before
taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, any premium or interest on any
note, the Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests of
the noteholders. In addition, Argo-Tech is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the persons signing such certificate know of any Default that occurred
during the previous year. Argo-Tech is also required to deliver to the Trustee,
within 30 days after
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the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action Argo-Tech is taking or proposes
to take.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the
consent of the Holders of a majority in principal amount of the notes then
outstanding. Any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the notes
then outstanding. However, without the consent of each Holder of an outstanding
note affected, no amendment may, among other things,
- reduce the amount of notes whose Holders must consent to an amendment,
- reduce the rate of or extend the time for payment of interest or any
liquidated damages on any note,
- reduce the principal of or extend the Stated Maturity of any note,
- reduce the premium payable upon the redemption of any note or change
the time at which any note may be redeemed as described under
"-- Optional Redemption" above,
- make any note payable in money other than that stated in the note,
- make any change to the subordination provisions of the indenture that
adversely affects the rights of any Holder,
- impair the right of any Holder to receive payment of principal of and
interest on such Holder's notes on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with
respect to such Holder's notes,
- make any change in the amendment provisions that require each Holder's
consent or in the waiver provisions, or
- modify the Subsidiary Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, Argo-Tech and the Trustee may amend the
indenture:
- to cure any ambiguity, omission, defect or inconsistency,
- to provide for the assumption by a successor corporation of the
obligations of Argo-Tech under the indenture,
- to provide for uncertificated notes in addition to or in place of
certificated notes, provided that the uncertificated notes are issued
in registered form for purposes of Section 163(f) of the Internal
Revenue Code, or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Internal Revenue Code,
- to add Guarantees with respect to the notes,
- to secure the notes,
- to add to the covenants for the benefit of the noteholders,
- to surrender any right or power conferred upon Argo-Tech,
- to make any change that does not adversely affect the rights of any
Holder or to comply with any requirement of the Securities and
Exchange Commission in connection with the qualification of the
indenture under the TIA.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness, or any group or
representative thereof authorized to give a consent, consent to such change.
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The consent of the noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, Argo-Tech is
required to mail to noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A noteholder may transfer or exchange notes in accordance with the
indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a noteholder, among other things, to furnish appropriate endorsements
and transfer documents and Argo-Tech may require a noteholder to pay any taxes
required by law or permitted by the indenture. Argo-Tech is not required to
transfer or exchange any note selected for redemption or to transfer or exchange
any note for a period of 15 days prior to a selection of notes to be redeemed.
The notes will be issued in registered form and the registered holder of a note
will be treated as the owner of such note for all purposes.
DEFEASANCE
At any time Argo-Tech may terminate all of its obligations under the notes
and the indenture ("legal defeasance"), except for its obligations regarding the
defeasance trust (defined below):
- to register the transfer or exchange of the notes,
- to replace mutilated, destroyed, lost or stolen notes and
- to maintain a registrar and paying agent in respect of the notes.
At any time Argo-Tech may terminate its obligations under the covenants
described under "-- Change of Control," "-- Covenants," the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Subsidiaries and the judgment default provision described under "-- Defaults"
above and the limitations contained in clauses (3) and (4) under "-- Merger and
Consolidation" above ("covenant defeasance"). If Argo-Tech exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guarantee.
Argo-Tech may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If Argo-Tech exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If Argo-Tech exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) with respect only to
Subsidiaries, (8) or (9) under "-- Defaults" above or because of our failure to
comply with clause (3) or (4) under "-- Merger and Consolidation" above.
In order to exercise either defeasance option, Argo-Tech must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, any premium and interest on
the notes to redemption or maturity, as the case may be. Argo-Tech must also
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred. In the case of legal defeasance only,
the Opinion of Counsel must be based on a ruling of the Internal Revenue Service
or other change in applicable Federal income tax law.
Argo-Tech will not be permitted to exercise either defeasance option
described above with respect to the notes unless Argo-Tech defeases the notes
issued in September 1997 equivalently and substantially simultaneously.
Similarly, Argo-Tech will not be permitted to defease the notes issued in
September 1997 unless Argo-Tech simultaneously defeases the notes equivalently.
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CONCERNING THE TRUSTEE
Harris Trust and Savings Bank is to be the Trustee under the indenture and
has been appointed as Registrar and Paying Agent with regard to the notes.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
DEFINITIONS
"Additional Assets" means
- any tangible property or assets, other than Indebtedness and Capital
Stock, to be used by Argo-Tech or a Restricted Subsidiary in a Related
Business;
- the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by Argo-Tech or another
Restricted Subsidiary; or
- Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in the second or third bullet above is
primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Covenants -- Limitation on
Transactions with Affiliates" and "-- Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock,
on a fully diluted basis, of Argo-Tech or of rights or warrants to purchase such
Voting Stock, whether or not currently exercisable, and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by Argo-Tech or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than
- a disposition by a Restricted Subsidiary to the Company or by the Company
or a Restricted Subsidiary to a Wholly Owned Subsidiary,
- a disposition of inventory in the ordinary course of business,
- dispositions with a fair market value of less than $250,000 in the
aggregate in any fiscal year,
- an exchange of real estate for other similar property structured on a
tax-free like-kind basis and
- for purposes of the provisions described under
"-- Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to the covenant described under
"-- Covenants -- Limitation on Restricted Payments."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value, discounted at the interest rate
borne by the notes, compounded annually, of the total obligations of the lessee
for rental payments, other than rental payments in the nature of supplemental
rent for the lessee's proportional share of taxes, maintenance, insurance and
similar customary payments, during the
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remaining term of the lease included in such Sale/Leaseback Transaction,
including any period for which such lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
- the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by
- the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium, if any, interest, including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
Argo-Tech whether or not a claim for post-filing interest is allowed in such
proceedings, fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of AT Holdings or
Argo-Tech or any committee thereof duly authorized to act on behalf of such
Board. Unless the context otherwise requires, references to the Board of
Directors are to the Board of Directors of Argo-Tech.
"Borrowing Base" means, as of any date, an amount equal to the sum of
- 50% of the aggregate book value of inventory (adjusted to include any
LIFO reserves) and
- 85% of the aggregate book value of all accounts receivable (net of bad
debt reserves) of Argo-Tech and its Restricted Subsidiaries on a
consolidated basis, as determined in accordance with GAAP consistently
applied.
To the extent that information is not available as to the amount of
inventory or accounts receivable as of a specific date, Argo-Tech shall use the
most recent available information for purposes of calculating the Borrowing
Base.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
(i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date
of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that
(A) if Argo-Tech or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period and the discharge of any other Indebtedness repaid,
repurchased,
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defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period,
(B) if since the beginning of such period Argo-Tech or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of Argo-Tech or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to Argo-Tech
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent Argo-Tech and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(C) if since the beginning of such period Argo-Tech or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and
(D) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
Argo-Tech or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (B) or (C) above if made by Argo-Tech or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on
the first day of such period. For purposes of this definition, whenever
pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness Incurred in connection
therewith, the pro forma calculations shall be determined in accordance
with GAAP. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term as at the date of
determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Argo-Tech and its consolidated Restricted Subsidiaries, plus, to the
extent Incurred by Argo-Tech and its Subsidiaries in such period but not
included in such interest expense,
(i) interest expense attributable to Capitalized Lease Obligations,
(ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest,
(iv) noncash interest expense,
(v) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing,
(vi) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by Argo-Tech or any Restricted
Subsidiary; provided that payment of such amounts by
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Argo-Tech or any Restricted Subsidiary is being made to, or is sought by,
the holders of such Indebtedness pursuant to such guarantee,
(vii) net costs associated with Hedging Obligations (including
amortization of fees),
(viii) Preferred Stock dividends in respect of all Preferred Stock of
Subsidiaries of the Company and Disqualified Stock of Argo-Tech held by
Persons other than Argo-Tech or a Wholly Owned Subsidiary, and
(ix) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than Argo-Tech) in
connection with Indebtedness Incurred by such plan or trust; provided,
however, that there shall be excluded therefrom any such interest expense
of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by Argo-Tech or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
Argo-Tech and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (iv) below, Argo-Tech's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to Argo-Tech or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (iii) below)
and (B) Argo-Tech's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining
such Consolidated Net Income;
(ii) any net income (loss) of any person acquired by Argo-Tech or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Argo-Tech, except that (A) subject
to the limitations contained in clause (iv) below, Argo-Tech's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary during such
period to Argo-Tech or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
Argo-Tech's equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other disposition
of any asset of Argo-Tech or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise
disposed of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any Capital Stock of any
Person;
(v) any extraordinary gain or loss; and
(vi) the cumulative effect of a change in accounting principles after
the Original Issue Date. Notwithstanding the foregoing, for the purpose of
the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net
Income any dividends, repayments of loans or advances or other transfers of
assets from Unrestricted Subsidiaries to Argo-Tech or a Restricted
Subsidiary to the extent such dividends, repayments or transfers increase
the amount of Restricted Payments permitted under such covenant pursuant to
clause (a)(3)(D) thereof.
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"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Argo-Tech and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of Argo-Tech
ending at least 45 days prior to the taking of any action for the purpose of
which the determination is being made, as
(i) the par or stated value of all outstanding Capital Stock of
Argo-Tech plus
(ii) paid-in capital or capital surplus relating to such Capital Stock
plus
(iii) any retained earnings or earned surplus less (A) any accumulated
deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of Argo-Tech in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of Argo-Tech or any Restricted Subsidiary in a Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of July 18, 1997, as
amended and in effect as of the Original Issue Date and as thereafter amended,
restated, waived or otherwise modified from time to time, among Argo-Tech, AT
Holdings, the financial institutions from time to time party thereto and The
Chase Manhattan Bank, as administrative agent (except to the extent that any
such amendment, waiver or other modification thereto would be prohibited by the
terms of the indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of notes at the time outstanding).
"Cumulative Exchangeable Redeemable Preferred Stock" means the Preferred
Stock of AT Holdings, par value $1,000 per share, having an aggregate
liquidation preference of $30,000,000. The Cumulative Exchangeable Preferred
Stock includes detachable warrants to purchase common stock of AT Holdings and
is
(i) redeemable by AT Holdings, at its option, at any time, at certain
redemption prices,
(ii) exchangeable at the option of AT Holdings for exchange notes of AT
Holdings on or after the first anniversary of the Issue Date and
(iii) subject to mandatory redemption on the tenth anniversary of the
Issue Date.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (1) the Bank Indebtedness and (2)
any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $25.0
million and is specifically designated by Argo-Tech in the instrument evidencing
or governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms, or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable, or upon the happening of any
event
- matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
- is convertible or exchangeable for Indebtedness or Disqualified Stock or
- is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to the first anniversary of the Stated Maturity
of the notes.
"Domestic Subsidiary" means any Restricted Subsidiary of Argo-Tech other
than a Foreign Subsidiary.
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"EBITDA" for any period means the Consolidated Net Income for such period
(adjusted to exclude any non-cash items attributable to purchase accounting for
any acquisition transactions consummated subsequent to the Original Issue Date),
plus the following to the extent deducted in calculating such Consolidated Net
Income:
- income tax expense,
- Consolidated Interest Expense,
- depreciation expense,
- amortization expense and
- all extraordinary charges during such period and all non-cash charges
associated with Employee Stock Ownership Plan compensation and Management
Put Options, in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Subsidiary of
Argo-Tech shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the Net Income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to
Argo-Tech by such Subsidiary without prior approval that has not been obtained,
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statuses, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Existing Agreements" means the Distributorship Agreement (1994) dated as
of December 24, 1990, among Argo-Tech, Yamada Corporation and Venture Capital
Partners, Inc. and the Japan Distributorship Agreement dated as of December 24,
1990, between Argo-Tech and Upsilon International Corporation as in effect on
the Original Issue Date.
"Foreign Subsidiary" means any Restricted Subsidiary of Argo-Tech that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Original Issue Date, including those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person
- to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keepwell, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
- entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof, in whole or in part;
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "noteholder" means the Person in whose name a note is
registered on the Registrar's books.
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"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary, whether by merger,
consolidation, acquisition or otherwise, shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
- the principal of and any premium in respect of indebtedness of such
Person for borrowed money,
- the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments,
- all obligations of such Person in respect of letters of credit or
other similar instruments, including reimbursement obligations with respect
thereto,
- all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, except Trade Payables, which purchase price
is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services,
- all Capitalized Lease Obligations and all Attributable Debt of such
Person,
- the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of Argo-Tech, any Preferred Stock, but
excluding, in each case, any accrued dividends,
- all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other
Persons,
- all Indebtedness of other Persons to the extent Guaranteed by such
Person, and
- to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
"Initial Purchaser" means Chase Securities Inc.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan,
other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person, or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under
"-- Covenants -- Limitation on Restricted Payments,"
- "Investment" shall include the portion (proportionate to Argo-Tech's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of Argo-Tech at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, Argo-Tech
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (1) Argo-
Tech's "Investment" in such Subsidiary at the time of such redesignation
less (2) the portion (proportionate to Argo-Tech's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary
at the time of such redesignation; and
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(ii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind including any conditional sale or other title retention
agreement or lease in the nature thereof.
"Management Put Options" means the put option created pursuant to Article 5
of the Stockholders Agreement.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received (1) by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, or (2) in
the case of REIT Securities, upon the sale, redemption, transfer or other
disposition of such REIT Securities, in each case, only as and when received,
but excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to the properties
or assets that are the subject of such Asset Disposition or received in any
other noncash form) therefrom, in each case net of
- all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as
a consequence of such Asset Disposition,
- all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition,
- all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and
- appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by Argo-Tech or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of Argo-Tech.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Argo-Tech or the Trustee.
"Original Issue Date" means September 26, 1997, the date on which
Argo-Tech's 8 5/8% Senior Subordinated Notes due 2007 were originally issued.
"Permitted Holders" means
(a) Mr. Masashi Yamada and members of his immediate family
(b) corporations and other entities that are Controlled by one or more
of the persons referred to in clause (a),
(c) trusts for the sole benefit of one or more of the persons referred
to in clause (a),
(d) the ESOP,
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(e) individuals who are members of management of AT Holdings or
Argo-Tech as of the Original Issue Date and
(f) any Person acting in the capacity of an underwriter in connection
with a public or private offering of the Company's or Parent's Capital
Stock.
"Permitted Investment" means an Investment by Argo-Tech or any Restricted
Subsidiary in
(i) a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Argo-Tech or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(iii) Temporary Cash Investments;
(iv) receivables owing to Argo-Tech or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as
Argo-Tech or any such Restricted Subsidiary deems reasonable under the
circumstances;
(v) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of Argo-Tech or such Restricted
Subsidiary and not exceeding $1.0 million in the aggregate outstanding at
any one time;
(vii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Argo-Tech or any
Restricted Subsidiary or in satisfaction of judgments; and
(viii) stock, obligations or securities received in a transaction
permitted under "-- Limitation on Sales of Assets and Subsidiary Stock."
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes, however designated, that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Argo-Tech or AT Holdings pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after
(i) a Public Equity Offering has been consummated and
(ii) at least 15% of the total issued and outstanding common stock of
Argo-Tech or AT Holdings, as applicable, has been distributed by means of
an effective registration statement under the Securities Act.
"Purchase Agreement" means the agreement for the purchase of $55.0 million
principal amount of senior subordinated securities among Argo-Tech, the
Subsidiary Guarantors and the Initial Purchaser dated December 9, 1997.
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"Purchase Money Indebtedness" means Indebtedness
- consisting of the deferred purchase price of property, conditional sale
obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset
being financed, and
- incurred to finance the acquisition by Argo-Tech of such asset, including
additions and improvements; provided, however, that any Lien arising in
connection with any such Indebtedness shall be limited to the specified
asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such
asset is attached; and provided further, that such Indebtedness is
Incurred within 180 days after such acquisition by Argo-Tech of such
asset.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including pursuant to any defeasance
or discharge mechanism (collectively, "refinances," and "refinanced" shall have
a correlative meaning), any Indebtedness existing on the date of the indenture
relating to the 8 5/8% Senior Subordinated Notes due 2007 issued on September
26, 1997 or Incurred in compliance with the indenture (including Indebtedness of
Argo-Tech that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in the Indenture) and Indebtedness of any Restricted Subsidiary
that refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
- the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced,
- the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced,
- such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than (1) the aggregate principal amount
(or if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being refinanced plus (2) the amount
of premium or other amounts paid and fees and expenses incurred in
connection with such refinancing and
- if the Indebtedness being refinanced is subordinated in right of payment
to the notes, such Refinancing Indebtedness is subordinated in right of
payment to the notes to the extent of the Indebtedness being refinanced;
provided further, however, that Refinancing Indebtedness shall not
include (1) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of Argo-Tech or (2) Indebtedness of Argo-Tech or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"REIT" means a real estate investment trust under the Internal Revenue
Code.
"REIT Securities" means equity securities of a publicly traded, either on a
national securities exchange or on NASDAQ, REIT or equity securities convertible
into equity securities of a publicly traded, either on a national securities
exchange or on NASDAQ, REIT.
"Related Business" means any business related, ancillary or complementary
to the businesses of Argo-Tech and the Restricted Subsidiaries on the Original
Issue Date.
"Representative" means the trustee, agent or any representative for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Argo-Tech other than an
Unrestricted Subsidiary.
"Revolving Facility" means the revolving credit facility provided to
Argo-Tech under the Credit Agreement.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Argo-Tech or a Restricted Subsidiary
transfers such property to a Person and Argo-Tech or a Restricted Subsidiary
leases it from such Person, other than leases between Argo-Tech and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries.
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"Senior Credit Documents" means the collective reference to the Credit
Agreement, the notes issued pursuant thereto (if any) and the Guarantees
thereof, and the Security Agreements, the Mortgages and the Pledge Agreements,
each as defined in the Credit Agreement.
"Secured Indebtedness" means any Indebtedness of Argo-Tech secured by a
Lien.
"Senior Subordinated Indebtedness" means the notes issued on September 26,
1997, the notes and any other Indebtedness of Argo-Tech that specifically
provides that such Indebtedness is to rank equally with the notes and is not
subordinated by its terms to any Indebtedness or other obligation of Argo-Tech
which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of any
Subsidiary Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Argo-Tech within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Securities and Exchange Commission.
"Specified Real Estate" means the real estate owned by Argo-Tech
Corporation (HBP) as of the Original Issue Date.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholders Agreement" means the 1998 AT Holdings Corporation
Stockholders Agreement dated as of the Closing Date by and among AT Holdings, YC
International, Inc., AT Holdings, LLC, Sunhorizon International Inc., Chase
Venture Capital Associates, L.P. and the representatives of the Management
Investors (as defined therein).
"Subordinated Obligation" means any Indebtedness of Argo-Tech (whether
outstanding on the Original Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (1) such Person or (2) one or more
Subsidiaries of such Person.
"Subsidiary Guarantee" means any Guarantee of the notes that may from time
to time be executed and delivered by a Subsidiary Guarantor pursuant to the
terms of the indenture. Each such Subsidiary Guarantee will have subordination
provisions equivalent to those contained in the indenture and will be
substantially in the form prescribed in the indenture.
"Subsidiary Guarantors" means Argo-Tech Corporation (HBP), Argo-Tech
Corporation (OEM), Argo-Tech Corporation (Aftermarket), J.C. Carter Company,
Inc. and each Subsidiary of the Company acquired or organized after the Original
Issue Date that becomes a Subsidiary Guarantor in accordance with the terms of
the indenture relating to the notes issued in September 1997 or the indenture
relating to these notes.
"Temporary Cash Investments" means any of the following:
- any investment in direct obligations of the United States of America
or any agency thereof or obligations Guaranteed by the United States
of America or any agency thereof,
- investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company that is
organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States of
America having capital, surplus and undivided profits
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aggregating in excess of $250,000,000, or the foreign currency
equivalent thereof, and whose long-term debt is rated "A" (or such
similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436
under the Securities Act),
- repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in the first bullet point
above entered into with a bank meeting the qualifications described in
second bullet point above,
- investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an
Affiliate of Argo-Tech) organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc.
("S&P"), and
- investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by S&P or "A" by Moody's Investors Service, Inc.
"Term Loan Facilities" means the Tranche A Term Loans and the Delayed Draw
Acquisition Loans provided to Argo-Tech under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
- any Subsidiary of Argo-Tech that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
- any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of Argo-Tech (including
any newly acquired or newly formed Subsidiary of Argo-Tech) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, Argo-Tech or any other Subsidiary of Argo-Tech that is not a Subsidiary of
the Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total consolidated assets of $1,000 or less
or (B) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under the covenant entitled "Limitation on
Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (1) Argo-Tech could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "Limitation on Indebtedness"
and (2) no Default shall have occurred and be continuing. Any such designation
of a Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to
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such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality thereof, for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of Argo-Tech all
the Capital Stock of which, other than directors' qualifying shares, is owned by
Argo-Tech or another Wholly Owned Subsidiary.
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UNITED STATES FEDERAL TAX CONSEQUENCES
In the opinion of Jones, Day, Reavis and Pogue, the following discussion
accurately summarizes the material U.S. federal income tax consequences
associated with the exchange of outstanding notes for new notes and the
ownership and disposition of the notes. This summary applies only to a
beneficial owner of a note who acquired a note for cash at the initial offering
from Chase Securities Inc., the initial purchaser and for the original offering
price of the notes. This discussion is based on:
- provisions of the Internal Revenue Code of 1986,
- treasury regulations promulgated under the Internal Revenue Code, and
- administrative and judicial interpretations of the Internal Revenue
Code, all as in effect on the date of this prospectus and all of which
are subject to change, possibly with retroactive effect.
Argo-Tech has not requested, and will not request, a ruling from the U.S.
Internal Revenue Service (the "IRS") with respect to any of the U.S. federal
income tax consequences described below, and, as a result, there can be no
assurance that the IRS will not disagree with or challenge any of the
conclusions set forth in this discussion. This discussion does not address the
tax consequences to subsequent purchasers of notes and is limited to investors
who hold the notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. Furthermore, this discussion does not address all aspects
of U.S. federal income taxation that may be applicable to investors in light of
their particular circumstances, or to investors subject to special treatment
under U.S. federal income tax law. Such investors include, without limitation,
certain financial institutions, insurance companies, tax-exempt entities,
dealers in securities or foreign currency, persons who have acquired notes as
part of a straddle, hedge, conversion transaction, constructive sale, or other
integrated investment, persons whose functional currency is not the U.S. dollar
or investors in pass through entities).
EACH PROSPECTIVE PURCHASER OF NEW NOTES SHOULD CONSULT ITS TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH PURCHASER OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE
OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OFFER
The exchange of outstanding notes for new notes in the exchange offer will
not be treated as an exchange for federal income tax purposes because the new
notes will not differ materially in kind or extent from the outstanding notes
and because the exchange will occur by operation of the original terms of the
outstanding notes. As a result, holders who exchange their outstanding notes for
new notes will not recognize any income, gain or loss for federal income tax
purposes. A holder will have the same adjusted tax basis and holding period in
the new notes immediately after the exchange as it had in the outstanding notes
immediately before the exchange.
U.S. TAXATION OF U.S. HOLDERS
As used in this summary,
- the term "U.S. Holder" means a beneficial owner of a note that is, for
U.S. federal income tax purposes,
(1) a citizen or resident of the United States,
(2) a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision,
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source,
(4) a trust if a U.S. court is able to exercise primary supervision over
the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of such trust, or
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(5) a person whose worldwide income and gain is otherwise subject to
U.S. federal income taxation on a net income basis and
- the term "Non-U.S. Holder" means a beneficial owner of a note that is
not a U.S. Holder.
Payments of Interest
Stated interest payable on the notes generally will be included in the
gross income of a U.S. Holder as ordinary interest income at the time accrued or
received, in accordance with such U.S. Holder's method of accounting for U.S.
federal income tax purposes.
Original Issue Discount
A note will be treated as issued with OID if the excess of the stated
redemption price at maturity of a note over its issue price is greater than a de
minimis amount. The "stated redemption price at maturity" of a note is the sum
of all payments to be made in respect of such note, other than payments of
qualified stated interest. The "issue price" of a note is the first price at
which a substantial amount of the notes is sold to the public for cash
(excluding sales to bond houses, brokers or similar persons or organizations
acting in the capacity as underwriters, placement agents or wholesalers). The
amount of OID accruing on the new notes should be identical to the amount of OID
accruing on the outstanding notes.
A U.S. Holder is required to include OID in income as ordinary interest as
it accrues under a constant yield to maturity method in advance of receipt of
the cash payments attributable to such income. In general, the amount of OID
included in income by a U.S. Holder of a note is the sum of the daily portions
of OID for each day during the taxable year, or portion of the taxable year, on
which such U.S. Holder held such note. The "daily portion" is determined by
allocating the OID for an accrual period equally to each day in the accrual
period. The "accrual period" for a note may be of any length selected by a U.S.
Holder and may vary in length over the term of the note, provided that each
accrual period is no longer than one year and each scheduled payment of the
principal and interest occurs either on the first or final day of the accrual
period.
The amount of OID attributable to an accrual period is generally equal to
the excess of:
- the product of the note's adjusted issue price at the beginning of
such accrual period and its yield to maturity over
- the amount of any qualified stated interest payments allocable to such
accrual period.
The "adjusted issue price" of a note at the beginning of any accrual period
is the sum of the issue price of the note plus the amount of OID allocable to
all prior accrual periods minus the amount of any prior payments on the note,
other than payments of qualified stated interest. Under these rules, a U.S.
Holder generally will have to include in income increasingly greater amounts of
OID in successive accrual periods.
If the excess of a note's stated redemption price at maturity over its
issue price is de minimis, meaning less than .25% times the number of complete
years to maturity times the issue price, then such excess constitutes de minimis
OID. Under the OID rules, unless a U.S. Holder elects to treat de minimis OID in
the manner described above in respect of OID, a U.S. Holder will be required to
recognize capital gain with respect to such de minimis OID as stated principal
payments on the note are made. The amount of such gain with respect to each such
principal payment will equal the product of the total amount of the note's de
minimis OID and a fraction, the numerator of which is the amount of the
principal payment made and the denominator of which is the total stated
principal amount of the note.
Payments on Registration Default
Because the notes provide for the payment of special interest under certain
circumstances described in the exchange and registration rights agreement, the
notes may be subject to Treasury regulations applicable to debt instruments that
provide for one or more contingent payments. Under such Treasury regulations, a
U.S. Holder may be required to accrue the projected payments of special interest
into income on a constant
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yield basis over the term of the notes, which would result in a holder
recognizing income prior to the receipt of the related cash payment. However, if
the payment of such amounts is, as of the Closing Date, either a "remote" or
"incidental" contingency, the payment of special interest would not be
considered a contingent payment and the United States federal income tax
treatment of such special interest generally would be the same as that described
under "-- Payments of Interest" above (i.e., a U.S. Holder generally would be
required to include the payment of special interest in income as ordinary income
when received or accrued, in accordance with such holder's method of accounting
for U.S. federal income tax purposes). Argo-Tech intends to take the position
that, solely for these purposes, the payment of special interest is a remote or
incidental contingency. This determination is binding on a U.S. Holder unless
such holder discloses to the IRS that it is taking a contrary position.
Prospective investors should consult their tax advisors regarding the U.S.
federal income tax consequences of the receipt of special interest on the notes.
Disposition of the Notes
Upon the sale, exchange, retirement at maturity or other disposition of a
note (collectively, a "disposition"), a U.S. Holder generally will recognize
capital gain or loss equal to the difference between the amount realized by such
holder, except to the extent such amount is attributable to accrued but unpaid
stated interest, which will be treated as ordinary interest income, and such
holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a
note generally will equal the cost of the note, net of accrued but unpaid stated
interest, to such holder, increased by any OID, including any contingent
interest, as described in the preceding section, included in income through the
date of disposition. Such capital gain or loss will be long-term capital gain or
loss if the holding period for the note exceeds one year at the time of the
disposition. In general, the maximum federal income tax rate applicable to
long-term capital gains derived by individuals is 20%. Capital losses are
subject to certain limitations.
U.S. TAXATION OF NON-U.S. HOLDERS
Payments of Interest
In general, payments of interest (including OID) received by a Non-U.S.
Holder will not be subject to U.S. federal withholding tax, provided that
- the Non-U.S. Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of
Argo-Tech entitled to vote,
- the Non-U.S. Holder is not a controlled foreign corporation that is
related to Argo-Tech actually or constructively through stock
ownership, and
- the beneficial owner of the note, under penalties of perjury, either
directly or through a financial institution which holds the note on
behalf of the Non-U.S. Holder and holds customers' securities in the
ordinary course of its trade or business, provides Argo-Tech or its
agent with the beneficial owner's name and address and certifies,
under penalties of perjury, that it is not a U.S. Holder,
- the interest (including OID) received on the note is effectively
connected with the conduct by the Non-U.S. Holder of a trade or
business within the U.S. and the Non-U.S. Holder complies with certain
reporting requirements; or
- the Non-U.S. Holder is entitled to the benefits of an income tax
treaty under which the interest is exempt from U.S. withholding tax
and the Non-U.S. Holder complies with certain reporting requirements.
Payments of interest, including OID, not exempt from U.S. federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30%, subject to reduction under an applicable income tax treaty.
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Disposition of the Notes
A Non-U.S. Holder generally will not be subject to U.S. federal income tax,
and generally no tax will be withheld, with respect to gain realized on the
disposition of a note, unless
- the gain is effectively connected with a trade or business conducted
by the Non-U.S. Holder within the United States or
- the Non-U.S. Holder is an individual who is present in the United
States for 183 or more days during the taxable year of the disposition
and certain other requirements are satisfied.
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect
to the notes, including proceeds from the disposition of the Notes, are
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States, or the Non-U.S. Holder is otherwise subject
to U.S. federal income taxation on a net basis with respect to such holder's
ownership of the notes, such Non-U.S. Holder will generally be subject to the
rules described above under "-- U.S. Taxation of U.S. Holders," subject to any
modification provided under an applicable income tax treaty. Such Non-U.S.
Holder may also be subject to the "branch profits tax" if such holder is a
corporation.
WITHHOLDING AND INFORMATION REPORTING
Backup Withholding and Information Reporting
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium and interest on, and the
proceeds of the disposition of, the notes. In general, backup withholding will
be imposed only if the U.S. Holder
- fails to furnish its taxpayer identification number ("TIN"), which,
for an individual, would be his or her Social Security number,
- furnishes an incorrect TIN,
- is notified by the IRS that it has failed to report payments of
interest or dividends or
- under certain circumstances, fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has been notified by
the IRS that it is subject to backup withholding tax for failure to
report interest or dividend payments.
In addition, such payments of principal and interest to U.S. Holders will
generally be subject to information reporting. U.S. Holders should consult their
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption, if applicable.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a note who provides the certification described under "-- U.S.
Taxation of Non-U.S. Holders -- Payments of Interest" or otherwise establishes
an exemption from backup withholding.
Payments by a U.S. office of a broker of the proceeds of a disposition of
the notes generally will be subject to backup withholding at a rate of 31%
unless the Non-U.S. Holder certifies it is a Non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to a payment of the
proceeds of a disposition of notes by or through a foreign office of a U.S.
broker or a foreign broker that is a U.S. related person, unless the Non-U.S.
Holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. For this purpose, a "U.S. related person" is
- a "controlled foreign corporation" for U.S. federal income tax
purposes, or
- a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding payment, or for such part of the period that the
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broker has been in existence, is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.
The amount of any backup withholding imposed on a payment to a holder of a
note will be allowed as a credit against such holder's U.S. federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
Foreign Withholding
On October 6, 1997, the U.S. Treasury Department issued final Treasury
regulations governing information reporting and the certification procedures
regarding withholding and backup withholding on certain amounts paid to Non-U.S.
Holders. These regulations are effective for payments made after December 31,
1999. The new Treasury regulations generally would not alter the treatment of
Non-U.S. Holders described above. The new Treasury regulations would alter the
procedures for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a note. Prospective investors should consult
their tax advisors concerning the effect, if any, of such new Treasury
regulations on an investment in the notes.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the new notes will initially be issued in the
form of one or more registered notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the closing of
the sale of the notes with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co., as nominee of DTC, or will
remain in the custody of Harris Trust and Savings Bank, as trustee under the
indenture, pursuant to the FAST Balance Certificate Agreement between DTC and
the Trustee.
DTC has advised Argo-Tech that it is:
- a limited purpose trust company organized under the laws of the State
of New York,
- a "banking organization" within the meaning of the New York Banking
Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code and
- a "clearing agency" registered pursuant to Section 17A of the
Securities Exchange Act of 1934.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, including Chase Securities
Inc., the initial purchaser of the outstanding notes, banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
Argo-Tech expects that pursuant to procedures established by DTC:
- upon deposit of each Global Note, DTC will credit the accounts of
participants designated by Chase Securities Inc., as initial purchaser
with an interest in the Global Note and
- ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC, with
respect to the interests of participants, and the records of
participants and the indirect participants, with respect to the
interests of persons other than participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the Global Note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the indenture trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a participant
or an indirect participant, on the procedures of the participant through which
such holder owns its interest, to exercise any rights of a holder of notes under
the Indenture or such Global Note. Argo-Tech understands that under
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existing industry practice, in the event that Argo-Tech requests any action of
holders of notes, or a holder that is an owner of a beneficial interest in a
Global Note desires to take any action that DTC, as the holder of such Global
Note, is entitled to take, DTC would authorize the participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither Argo-Tech nor the indenture trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the indenture trustee to or at the direction of DTC or its nominee
in its capacity as the registered holder of the Global Note representing such
notes under the indenture. Under the terms of the indenture, Argo-Tech and the
indenture trustee may treat the persons in whose names the notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
payment thereon and for any and all other purposes whatsoever. Accordingly,
neither Argo-Tech nor the indenture trustee has or will have any responsibility
or liability for the payment of such amounts to owners of beneficial interests
in a Global Note, including principal, premium, if any, liquidated damages, if
any, and interest. Payments by the participants and the indirect participants to
the owners of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines, Brussels time, of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a Global Security by or through a Euroclear or Cedel participant
to a participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Cedel cash account only
as of the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform such procedures, and such procedures may be discontinued at any time.
Neither Argo-Tech nor the indenture trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
96
<PAGE> 103
CERTIFICATED NOTES
If:
- Argo-Tech notifies the indenture trustee in writing that DTC is no
longer willing or able to act as a depositary and a successor is not
named within 90 days of such notice, or
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed
within 90 days of such cessation or,
- Argo-Tech, at its option, notifies the indenture trustee in writing
that it elects to cause the issuance of notes in definitive form under
the indenture or
- upon the occurrence of other events specified in the indenture,
then, upon surrender by DTC of the Global Notes, Certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the Global Notes. Upon any such issuance, the indenture trustee
is required to register such Certificated Notes in the name of such person or
persons, or their nominee, and cause the Certificated Notes to be delivered.
Neither Argo-Tech nor the indenture trustee shall be liable for any delay
by DTC or any participant or indirect participant in identifying the beneficial
owners of the related notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the notes to be issued.
97
<PAGE> 104
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no-action letters issued to third parties, Argo-Tech believes that
new notes may be offered for resale, resold and otherwise transferred by holders
unless the holder is:
- an "affiliate" of Argo-Tech,
- a broker-dealer who acquired outstanding notes directly from
Argo-Tech, or
- a broker-dealer who acquired outstanding notes as a result of
market-making or other trading activities.
Transfers will be permitted without compliance with the registration and
prospectus delivery provisions of the Securities Act of 1933, provided that the
new notes are acquired in the ordinary course of the holders' business and the
holder has no arrangement with any person to participate in a distribution of
the new notes. Broker-dealers receiving new notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to resales of those
new notes.
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
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 connection
with resales of new notes received in exchange for outstanding notes where such
outstanding notes were acquired as a result of market-making activities or other
trading activities. Argo-Tech has agreed that, for a period of 180 days after
the expiration date of the exchange offer, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1999 all dealers
effecting transactions in the new notes may be required to deliver a prospectus.
Argo-Tech will not receive any proceeds from any sale of new notes by
broker-dealers. new notes received by broker-dealers for their own account in
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 at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account in the exchange offer and any broker or
dealer that participates in a distribution of such new notes may be deemed to be
an "underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of new notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act of 1933. 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 of 1933. Despite this acknowledgement, such broker-dealer may nonetheless be
determined to be an "underwriter" by the SEC.
For a period of 180 days after the expiration date of the exchange offer,
Argo-Tech will promptly send additional copies of this prospectus and any
amendment or supplement to any broker-dealer that requests such documents in the
Letter of Transmittal. Argo-Tech has agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
notes, other than commissions or concessions of any broker-dealer. Argo-Tech
will indemnify the holders of the notes, including any broker-dealers, against
liabilities under the Securities Act of 1933.
Chase Securities Inc., the initial purchaser of the outstanding notes, and
its affiliates perform various investment banking and commercial banking
services from time to time for Argo-Tech and its affiliates. Chase Securities
Inc. is an affiliate of The Chase Manhattan Bank, which is Argo-Tech's
administrative agent and a lender under its current credit facility. Chase
Securities Inc. is also an affiliate of Chase Venture Capital Associates, which
purchased shares of AT Holdings' preferred stock in December 1998.
98
<PAGE> 105
LEGAL MATTERS
The validity of the new notes to be issued by Argo-Tech will be passed upon
by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of Argo-Tech Corporation and
Subsidiaries (A Wholly-Owned Subsidiary of AT Holding Corporation) as of October
31, 1998 and October 25, 1997 and for each of the three fiscal years in the
period ended October 31, 1998 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and is included in reliance upon the report of that firm given upon
their authority as experts in accounting and auditing.
99
<PAGE> 106
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet at January 30,
1999................................................... F-2
Condensed Consolidated Statements of Operations for the 13
Weeks Ended January 30, 1999 and the 14 Weeks Ended
January 31, 1998....................................... F-3
Condensed Consolidated Statements of Cash Flows for the 13
Weeks Ended January 30, 1999 and the 14 Weeks Ended
January 31, 1998....................................... F-4
Notes to Condensed Consolidated Financial Statements...... F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................. F-8
Consolidated Balance Sheets at October 31, 1998 and
October 25, 1997....................................... F-9
Consolidated Statements of Net Income for the Fiscal Years
Ended October 31, 1998, October 25, 1997 and October
26, 1996............................................... F-10
Consolidated Statements of Shareholders'
Equity/(Deficiency) for the Fiscal Years Ended October
31, 1998, October 25, 1997 and October 26, 1996........ F-11
Consolidated Statements of Cash Flows for the Fiscal Years
Ended October 31, 1998, October 25, 1997 and October
26, 1996............................................... F-12
Notes to Consolidated Financial Statements................ F-13
</TABLE>
F-1
<PAGE> 107
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
JANUARY 30,
1999
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,401
Receivables, net.......................................... 23,957
Inventories............................................... 32,369
Deferred income taxes and prepaid expenses................ 6,123
--------
Total current assets.............................. 67,850
--------
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 35,655
GOODWILL, net of accumulated amortization................... 116,897
INTANGIBLE ASSETS........................................... 55,216
DEFERRED FINANCING FEES AND OTHER ASSETS.................... 17,275
--------
Total Assets...................................... $292,893
========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 7,100
Accounts payable.......................................... 5,667
Accrued liabilities....................................... 22,311
--------
Total current liabilities......................... 35,078
--------
LONG-TERM DEBT, net of current maturities................... 271,361
OTHER NONCURRENT LIABILITIES................................ 30,822
--------
Total Liabilities................................. 337,261
--------
REDEEMABLE ESOP STOCK....................................... 51,430
Unearned ESOP stock....................................... (8,820)
--------
42,610
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common Stock, $.01 par value, authorized 3,000 shares; 1
share issued and outstanding........................... --
Paid-in capital........................................... --
Accumulated deficit....................................... (86,978)
--------
Total shareholders' equity/(deficiency)........... (86,978)
--------
Total Liabilities and Shareholders'
Equity/(Deficiency)............................... $292,893
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-2
<PAGE> 108
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
13 WEEKS 14 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Net revenues................................................ $ 40,143 $44,462
Cost of revenues............................................ 21,993 27,482
--------- -------
Gross profit........................................... 18,150 16,980
--------- -------
Selling, general and administrative......................... 8,796 5,399
Research and development.................................... 2,261 1,740
Amortization of intangible assets........................... 1,869 1,932
--------- -------
Operating expenses..................................... 12,926 9,071
--------- -------
Income from operations...................................... 5,224 7,909
Interest expense............................................ 5,670 6,084
Other, net.................................................. (222) (254)
--------- -------
Income / (loss) before income taxes......................... (224) 2,079
--------- -------
Income tax provision........................................ 977 643
--------- -------
Net income / (loss)......................................... ( $ 1,201) $ 1,436
========= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 109
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
13 WEEKS 14 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income / (loss)....................................... $ (1,201) $ 1,436
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation.............................................. 1,685 1,710
Amortization of goodwill and deferred financing costs..... 2,241 2,198
Accretion of bonds........................................ 20
Compensation expense recognized in connection with
employee stock ownership plan.......................... 1,895 1,306
Compensation expense recognized in connection with stock
appreciation rights and stock options.................. 2,771 19
Amortization of inventory step-up......................... 4,488
Deferred income taxes..................................... (256) (257)
Changes in operating assets and liabilities:
Receivables............................................ (91) 686
Inventories............................................ (2,841) (1,534)
Prepaid expenses....................................... (636) 107
Accounts payable....................................... (2,004) (1,847)
Accrued and other liabilities.......................... 3,638 2,924
-------- -------
Net cash provided by operating activities................. 5,221 11,236
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,358) (313)
-------- -------
Net cash used in investing activities..................... (1,358) (313)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Senior Subordinated Notes......................... 52,250
Repayment of long-term debt............................... (1,195) (2,748)
Payment of financing related fees......................... (9,741) (186)
Dividend.................................................. (51,354)
-------- -------
Net cash used in financing activities..................... (10,040) (2,934)
-------- -------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period.................... (6,177) 7,989
Balance, Beginning of period.............................. 11,578 9,361
-------- -------
Balance, End of period.................................... $ 5,401 $17,350
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 110
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED JANUARY 30, 1999 AND 14 WEEKS ENDED JANUARY 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The principal operations of Argo-Tech Corporation (A Wholly-Owned
Subsidiary of AT Holdings Corporation) and its Subsidiaries include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, Argo-Tech leases a portion of its
manufacturing facility to other parties. Argo-Tech's fiscal year ends on the
last Saturday in October. Argo-Tech is obligated to fulfill certain obligations
of AT Holdings Corporation. As a result, those obligations have been reflected
in its financial statements. Certain reclassifications have been made in the
prior years' financial statements to conform to the current year presentation.
Argo-Tech Corporation is a parent, holding company with four wholly-owned
operating guarantor subsidiaries, Argo-Tech Corporation (HBP), Argo-Tech
Corporation (OEM), Argo-Tech Corporation (Aftermarket) and J.C. Carter Company,
Inc. Argo-Tech has no outside assets, liabilities or operations apart from its
wholly-owned subsidiaries. The Senior Subordinated Notes are fully,
unconditionally, jointly and severally guaranteed by the guarantor subsidiaries,
and therefore, separate financial statements of the guarantor subsidiaries will
not be presented. Management has determined that the information presented by
such separate financial statements of the guarantor subsidiaries is not material
to investors. All of Argo-Tech's subsidiaries are guarantors except two
wholly-owned subsidiaries that have inconsequential assets, liabilities and
equity. Their only operations are the result of intercompany activity which is
immediately dividended back to Argo-Tech.
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 Argo-Tech's financial position and results of operations and
cash flows for the interim periods presented. The results of operations for the
13 weeks ended January 30, 1999 are not necessarily indicative of the results to
be expected for the full year.
3. INVENTORIES
Inventories are stated at standard cost which approximates the costs which
would be determined using the first-in, first-out (FIFO) method. The recorded
value of inventories is not in excess of market value. Inventories consist of
the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Finished goods.............................................. $ 2,165 $ 2,289
Work-in-process and purchased parts......................... 22,119 18,668
Raw materials and supplies.................................. 11,586 12,037
------- -------
Total............................................. 35,870 32,994
Reserve for excess and obsolete inventory................... (3,501) (3,466)
------- -------
Inventories -- net.......................................... $32,369 $29,528
======= =======
</TABLE>
Inventory is recorded net of progress payments received of approximately
$0.6 and $1.4 million at January 30, 1999 and October 31, 1998, respectively.
F-5
<PAGE> 111
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. CONTINGENCIES
Environmental Matters -- The soil and groundwater at Argo-Tech's Euclid,
Ohio facility and the Costa Mesa, California facility contain elevated levels of
certain contaminants which are currently in the process of being removed and/or
remediated. Because Argo-Tech has certain indemnification rights from former
owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of Argo-Tech's management, the ultimate
outcome is not expected to materially affect its financial condition, results of
operations or liquidity.
Other Matters -- Argo-Tech is subject to various legal actions and other
contingencies. In the opinion of Argo-Tech's management, after reviewing the
information which is currently available with respect to such matters and
consulting with Argo-Tech's legal counsel, any liability which may ultimately be
incurred with respect to these additional matters is not expected to materially
affect Argo-Tech's financial condition, results of operations or liquidity.
5. RECENT RECAPITALIZATION
On December 17, 1998, AT Holdings entered into an agreement to repurchase
639,510 shares of stock from AT Holdings, LLC, the company's largest shareholder
for $79.4 million plus transaction expenses. The transaction, which was
consummated on January 4, 1999, was funded by the proceeds of Argo-Tech's
issuance of $55.0 million in principal amount of 8 5/8% Senior Subordinated
Notes, issued at a 5% discount, due 2007 in a private offering on December 17,
1998, $50.0 million of which was dividended to AT Holdings; the proceeds of the
issuance by AT Holdings of 30,000 shares of its preferred stock to Chase Venture
Capital Associates, L.P.; and cash. As a result of this recapitalization,
Argo-Tech's Employee Stock Ownership Plan became AT Holdings' majority
stockholder. In addition, AT Holdings amended its Certificate of Incorporation
to provide for the issuance of the preferred stock and Argo-Tech amended its
existing credit agreement and indenture to permit the issuance of the Notes,
payment of the dividend and amendment of the Supplemental Employee Retirement
Plan and the 1997 Stock Appreciation Rights Plan. The Stock Appreciation Rights
Plan provided for grants of up to 34,450 stock appreciation rights, 17,225 of
which were granted in fiscal years 1997 and 1998. The remaining 17,225 stock
appreciation rights were granted in November, 1998. In connection with the stock
repurchase, all stock appreciation rights became fully vested in accordance with
their terms and were converted into fully vested stock options. In addition, all
granted options under the 1991 Performance Stock Option Plan and 1991 Management
Incentive Stock Option Plan, to the extent not vested, became fully vested in
accordance with their terms on January 4, 1999. The vesting of the stock
appreciation rights and stock options resulted in a charge to pre-tax earnings
of $2.8 million. In connection with the recapitalization, management's right to
require Argo-Tech to repurchase shares of redeemable common stock was
eliminated.
6. SUBSEQUENT EVENT
In October 1996, J.C. Carter Company was named as a respondent in a
petition filed in federal district court in Santa Ana, California by Alsthom, a
French shipbuilding concern, to enforce an international arbitration award
rendered in Paris, France, in favor of Alsthom and against an entity identified
as J.C. Carter Company. Argo-Tech believes that J.C. Carter is not the J.C.
Carter Company referenced in the arbitration award. On February 23, 1999, the
federal district court granted Alsthom a Motion for Summary Judgment against
Argo-Tech's J.C. Carter subsidiary to enforce the international arbitration
award, for approximately $11.4 million plus interest with respect to a product
liability case involving industrial marine pump products. The district court has
ordered, however, that judgment shall not be entered at this time because of the
claims against the remaining parties to the action. Argo-Tech intends to seek
reconsideration of the district court's decision, and when and if an adverse
judgment is entered against it, to appeal the judgment and to vigorously
F-6
<PAGE> 112
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pursue its claims for declaratory relief and equitable indemnification against
the prior owners of assets relating to the arbitration. In the opinion of
Argo-Tech's management, after reviewing the information which is currently
available with respect to this matter and consulting with its legal counsel, any
liability which may ultimately be incurred with respect to this matter is not
expected to materially affect Argo-Tech's financial condition, results of
operations or liquidity.
F-7
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Argo-Tech Corporation and Subsidiaries
(A Wholly-Owned Subsidiary of AT Holdings Corporation)
We have audited the accompanying consolidated balance sheets of Argo-Tech
Corporation and Subsidiaries (A Wholly-Owned Subsidiary of AT Holdings
Corporation) (the "Company") as of October 31, 1998 and October 25, 1997 and the
related consolidated statements of net income, shareholders'
equity/(deficiency), and cash flows for each of the three fiscal years in the
period ended October 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 31, 1998
and October 25, 1997, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended October 31, 1998 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
December 18, 1998 (March 1, 1999 as to Note 17)
Cleveland, Ohio
F-8
<PAGE> 114
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND OCTOBER 25, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,578 $ 9,361
Receivables, net.......................................... 23,866 24,383
Inventories............................................... 29,528 38,354
Deferred income taxes and prepaid expenses................ 5,353 1,636
-------- --------
Total current assets.............................. 70,325 73,734
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 35,982 37,181
GOODWILL, net of accumulated amortization................... 117,761 121,191
INTANGIBLE ASSETS........................................... 56,223 60,245
OTHER ASSETS................................................ 7,904 8,609
-------- --------
Total Assets...................................... $288,195 $300,960
======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 5,946 $ 6,904
Accounts payable.......................................... 7,671 6,369
Accrued liabilities....................................... 19,791 17,814
-------- --------
Total current liabilities......................... 33,408 31,087
-------- --------
LONG-TERM DEBT, net of current maturities................... 221,440 241,958
OTHER NONCURRENT LIABILITIES................................ 30,685 32,137
-------- --------
Total Liabilities................................. 285,533 305,182
-------- --------
REDEEMABLE COMMON STOCK..................................... 6,713 4,813
REDEEMABLE ESOP STOCK....................................... 41,475 29,826
Unearned ESOP stock....................................... (9,240) (10,920)
-------- --------
32,235 18,906
COMMITMENTS AND CONTINGENCIES (Notes 10 and 15)
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common Stock, $.01 par value, authorized 3,000 shares; 1
share issued and outstanding........................... -- --
Paid-in capital........................................... -- --
Accumulated deficit....................................... (36,286) (27,941)
-------- --------
Total shareholders' equity/(deficiency)........... (36,286) (27,941)
-------- --------
Total Liabilities and Shareholders' Equity/(Deficiency)..... $288,195 $300,960
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-9
<PAGE> 115
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF NET INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues.............................................. $174,143 $117,086 $ 96,437
Cost of revenues.......................................... 107,203 70,954 57,882
-------- -------- --------
Gross profit......................................... 66,940 46,132 38,555
-------- -------- --------
Selling, general and administrative....................... 24,521 10,948 10,006
Research and development.................................. 6,880 5,682 6,429
Amortization of intangible assets......................... 7,480 2,852 2,842
-------- -------- --------
Operating expenses................................... 38,881 19,482 19,277
-------- -------- --------
Income from operations.................................... 28,059 26,650 19,278
Interest expense.......................................... 21,030 12,827 10,138
Other, net................................................ (268) (404) (112)
-------- -------- --------
Income before income taxes and extraordinary loss......... 7,297 14,227 9,252
Income tax provision...................................... 3,400 4,841 3,608
-------- -------- --------
Income before extraordinary loss.......................... 3,897 9,386 5,644
Extraordinary loss, net of income tax benefit of $1,019... -- 1,529 --
-------- -------- --------
Net income................................................ $ 3,897 $ 7,857 $ 5,644
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-10
<PAGE> 116
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIENCY)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 28, 1995........................ $-- $-- $(25,617) $(25,617)
Net income....................................... 5,644 5,644
Dividends accrued on preferred stock............. (3,848) (3,848)
Accretion of redeemable common stock............. (756) (756)
Accretion of redeemable ESOP stock............... (3,878) (3,878)
Other, net....................................... 236 236
--- --- -------- --------
BALANCE, OCTOBER 26, 1996........................ -- -- (28,219) (28,219)
Net income....................................... 7,857 7,857
Dividends accrued on preferred stock............. (1,527) (1,527)
Accretion of redeemable common stock............. (746) (746)
Accretion of redeemable ESOP stock............... (4,012) (4,012)
Additional minimum pension liability............. (792) (792)
Other, net....................................... (502) (502)
--- --- -------- --------
BALANCE, OCTOBER 25, 1997........................ -- -- (27,941) (27,941)
Net income....................................... 3,897 3,897
Accretion of redeemable common stock............. (1,900) (1,900)
Accretion of redeemable ESOP stock............... (9,418) (9,418)
Additional minimum pension liability............. (882) (882)
Other, net....................................... (42) (42)
--- --- -------- --------
BALANCE, OCTOBER 31, 1998........................ $-- $-- $(36,286) $(36,286)
=== === ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-11
<PAGE> 117
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 3,897 $ 7,857 $ 5,644
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 6,809 4,665 4,620
Amortization of goodwill and deferred financing
costs........................................ 8,470 3,747 4,033
Compensation expense recognized in connection
with employee stock ownership plan........... 3,911 2,920 2,329
Deferred rental income.......................... (288)
Amortization of inventory step-up............... 10,681 1,496
Deferred income taxes........................... (6,074) (413) 825
Extraordinary loss on early extinguishment of
debt......................................... 1,529
Changes in operating assets and liabilities:
Receivables.................................. 517 (4,001) 434
Inventories.................................. (1,855) 517 (168)
Prepaid expenses............................. 78 115 958
Accounts payable............................. 1,302 (1,073) 291
Accrued and other liabilities................ 1,666 (377) (2,972)
Other, net...................................... 369 615 236
--------- --------- ---------
Net cash provided by operating activities............ 29,771 17,597 15,942
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of J.C. Carter........................... (107,562)
Capital expenditures................................. (5,610) (2,690) (3,355)
--------- --------- ---------
Net cash used in investing activities................ (5,610) (110,252) (3,355)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowing of long-term debt............... 156,100
Repayment of long-term debt.......................... (21,476) (155,090) (11,000)
Redemption of redeemable preferred stock............. (25,908)
Payment of redeemable preferred dividends............ (19,298)
Sale of Senior Subordinated Notes.................... 140,000
Payment of financing related fees.................... (468) (7,344)
--------- --------- ---------
Net cash provided by (used in) financing
activities........................................ (21,944) 88,460 (11,000)
--------- --------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period............... 2,217 (4,195) 1,587
Balance, Beginning of period......................... 9,361 13,556 11,969
--------- --------- ---------
Balance, End of period............................... $ 11,578 $ 9,361 $ 13,556
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-12
<PAGE> 118
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Argo-Tech Corporation and Subsidiaries' (the "Company") (A Wholly-Owned
Subsidiary of AT Holdings Corporation) principal operations include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, the Company leases a portion of its
manufacturing facility to other parties. The Company's fiscal year ends on the
last Saturday in October. The fiscal year ended October 31, 1998 consisted of 53
weeks and the fiscal years ended October 25, 1997 and October 26, 1996 each
consisted of 52 weeks. The Company is obligated to fulfill certain obligations
of AT Holdings Corporation. As a result, those obligations have been reflected
in the Company's financial statements. Certain reclassifications have been made
in the prior years' financial statements to conform to the current year
presentation.
Effective August 3, 1997, the Company established itself as a parent,
holding company with 3 wholly-owned operating guarantor subsidiaries, Argo-Tech
Corporation (HBP), Argo-Tech Corporation (OEM) and Argo-Tech Corporation
(Aftermarket). On September 26, 1997, the Company acquired a fourth wholly-owned
operating guarantor subsidiary, J.C. Carter Company, Inc. ("Carter") (Note 3).
The Company has no outside assets, liabilities or operations apart from its
wholly-owned subsidiaries. The Senior Subordinated Notes (Note 10) are fully,
unconditionally, jointly and severally guaranteed by the guarantor subsidiaries,
and therefore, separate financial statements of the guarantor subsidiaries will
not be presented. The Company also has two wholly-owned, non-guarantor
subsidiaries that have inconsequential assets, liabilities and equity, and their
only operations are the result of intercompany activity which is immediately
dividended back to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company. All material intercompany accounts and
transactions between these entities have been eliminated.
CASH EQUIVALENTS -- Cash equivalents represent short-term investments with
an original maturity of three months or less.
RECEIVABLES -- The Company does not generally require collateral or other
security to guarantee trade receivables.
INVENTORIES -- Inventories are stated at standard cost which approximates
the costs which would be determined using the first-in, first-out (FIFO) method.
The recorded value of inventories is not in excess of market value.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated using the straight-line or an accelerated method over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 30 years
Equipment................................................... 3 to 10 years
</TABLE>
GOODWILL -- Goodwill is amortized on a straight-line basis over forty
years. Accumulated amortization at October 31, 1998 and October 25, 1997 was
$20,902,000 and $17,450,000, respectively. The Company assesses the
recoverability of goodwill by determining whether the amortization over the
remaining life can be recovered through projected undiscounted future
operations.
DEFERRED FINANCING COSTS -- The costs of obtaining financing are amortized
over the terms of the financing. The amortized cost is included in interest
expense in the consolidated statements of net income.
F-13
<PAGE> 119
Accumulated amortization at October 31, 1998 and October 25, 1997 was
$1,129,000, and $138,000 respectively.
REDEEMABLE STOCK -- Redeemable ESOP Stock and all shares of Redeemable
Common Stock have been excluded from Shareholders' Equity/(Deficiency) due to
the ability of the holders to "put", subject to certain restrictions, the shares
to the Company and the accretion of the Redeemable ESOP and Common Stock has
been charged to Accumulated Deficit.
REVENUES AND COST RECOGNITION -- Revenues are generally recognized when
goods are shipped or services provided.
The Company's product development activities are conducted principally
under cost-sharing arrangements that are funded by the Company. The need for and
timing of expenditures under these arrangements is generally determined by the
Company. The estimated unreimbursable costs under the activities are expensed as
incurred.
Costs and estimated earnings in excess of billings on uncompleted contracts
represents costs incurred plus estimated profit, less amounts billed to
customers. Incurred costs include production costs and related overhead. General
and administrative expenses and research and development expenses are considered
period costs and, accordingly, are charged to operations on a current basis.
Certain customers have title to, or security interest in, certain inventories by
reason of progress payments.
EXTRAORDINARY LOSS -- In connection with the early extinguishment of debt
under the Company's previous bank credit agreement, the Company recognized an
extraordinary loss in fiscal 1997 of $1.5 million, net of income tax benefit of
$1.0 million, resulting from the write-off of unamortized debt issuance costs.
INCOME TAXES -- Income taxes are accounted for under the asset and
liability approach, which can result in recording tax provisions or benefits in
periods different than the periods in which such taxes are paid or benefits
realized. Expected tax benefits from temporary differences that will result in
deductible amounts in future years and from carryforwards, if it is more likely
than not that such tax benefits will be realized, are recognized currently.
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.
3. ACQUISITION OF J. C. CARTER, INC.
On September 26, 1997 the Company acquired all of the outstanding shares of
Carter, a manufacturer of aircraft fluid control component parts, industrial
marine cryogenic pumps, and ground fueling components for $107.6 million,
including acquisition costs. The acquisition was funded by the issuance of
8 5/8% Senior Subordinated Notes (Note 10). The results of Carter's operations
have been combined with those of the Company since the date of acquisition. The
purchase price of $107.6 million exceeded the net assets of Carter
F-14
<PAGE> 120
at the date of acquisition by $99.7 million. Of that excess, $60.6 million was
assigned to identified intangible assets as follows:
<TABLE>
<CAPTION>
FAIR ESTIMATED
MARKET VALUE ECONOMIC LIFE
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Workforce.......................................... $ 4,900 8 Years
Contracts.......................................... 17,100 10 Years
Spare Parts Annuity................................ 38,200 10-28 Years
Patents............................................ 380 14-17 Years
-------
Total.................................... $60,580
=======
</TABLE>
Accumulated amortization of intangible assets at October 31, 1998 and
October 25, 1997 was $4,357,000 and $335,000, respectively.
The remaining excess of $39.1 million was considered goodwill that is being
amortized on a straight-line basis over 40 years.
The acquisition was accounted for using the purchase method of accounting,
and accordingly, an allocation of the purchase price has been made using
estimated fair market values of the assets acquired and liabilities assumed as
of the acquisition date.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Carter as if the
acquisition had occurred October 29, 1995.
<TABLE>
<CAPTION>
1997(a) 1996(b)
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Revenues................................................ $160,117 $138,003
Net income.............................................. $ 7,091 $ 274
</TABLE>
- ---------------
(a) Twelve months ended October 25, 1997 for Carter.
(b) Twelve months ended September 30, 1996 for Carter.
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, an
increase in the interest expense on the acquisition debt, and an adjustment on
certain shareholder expenses which were terminated concurrent with the
acquisition. In management's opinion, the unaudited pro forma combined results
of operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of fiscal year 1996 or of
future operations of the combined companies under the ownership and management
of the Company.
F-15
<PAGE> 121
4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
The major components of the following balance sheet captions were (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Accrued liabilities:
Salaries and accrued compensation.................... $ 9,179 $ 8,609
Accrued interest..................................... 1,046 979
Accrued warranty..................................... 2,631 2,778
Other................................................ 6,935 5,448
------- -------
Total........................................ $19,791 $17,814
======= =======
Other noncurrent liabilities:
Deferred income taxes................................ $20,955 $23,300
Other................................................ 9,730 8,837
------- -------
Total........................................ $30,685 $32,137
======= =======
</TABLE>
5. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Amounts billed -- net of allowance for uncollectible
amounts of $260 and $142............................. $22,773 $23,047
Amounts unbilled (principally commercial customers):
Net reimbursable costs incurred on uncompleted
contracts......................................... 14,367 13,775
Billings to date..................................... (13,274) (12,439)
------- -------
Total unbilled -- net........................ 1,093 1,336
------- -------
Net receivables........................................ $23,866 $24,383
======= =======
</TABLE>
6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods......................................... $ 2,289 $ 1,874
Work-in-process and purchased parts.................... 18,668 19,918
Raw materials and supplies............................. 12,037 20,160
------- -------
Total........................................ 32,994 41,952
Reserve for excess and obsolete inventory.............. (3,466) (3,598)
------- -------
Inventories -- net..................................... $29,528 $38,354
======= =======
</TABLE>
Inventory is recorded net of progress payments received of approximately
$1.4 and $2.7 million at October 31, 1998 and October 25, 1997, respectively.
The Carter inventory amounts at September 26, 1997 were increased by $12.2
million to record inventories at their fair value as of the date of acquisition
in accordance with Accounting Principles Board Opinion No. 16 -- "Business
Combinations." Based on Carter's inventory turnover rate, $10.7 and $1.5 million
of this amount is included in cost of revenues for the fiscal years ended
October 31, 1998 and October 25, 1997, respectively.
F-16
<PAGE> 122
7. PROPERTY AND EQUIPMENT
OWNED PROPERTY -- Property and equipment owned by the Company consists of
the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Land and land improvements............................. $ 7,628 $ 7,628
Buildings and building equipment....................... 32,168 31,941
Machinery and equipment................................ 32,724 31,927
Office and automotive equipment........................ 6,063 5,714
Construction-in-progress............................... 3,685 1,094
-------- --------
Total........................................ 82,268 78,304
Accumulated depreciation............................... (46,286) (41,123)
-------- --------
Total -- net................................. $ 35,982 $ 37,181
======== ========
</TABLE>
PROPERTY LEASED TO OTHERS -- The Company leases certain portions of its
facility in Euclid, Ohio. The leases have been accounted for as operating leases
whereby revenue is recognized as earned over the lease terms. The cost of
property leased to others is included in property and equipment and is being
depreciated over its estimated useful life. It is not practical to determine the
cost of the property that is being leased to others or the related amount of
accumulated depreciation. In addition, the Company has separate service
contracts with its tenants under which the Company provides maintenance,
telecommunications and various other services. A large portion of the Company's
cost related to the receipts based on usage is variable in nature.
Total rental revenue under the property leases and service contracts was as
follows for the fiscal years ended 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Minimum contractual amounts under property
leases........................................... $4,010 $3,960 $6,056
Service contracts revenue based on usage........... 759 949 1,484
------ ------ ------
Total.................................... $4,769 $4,909 $7,540
====== ====== ======
</TABLE>
Future minimum rentals under the noncancelable property leases and service
contracts at October 31, 1998 are (in thousands): $3,064 in 1999, $1,811 in
2000, $1,731 in 2001, $1,675 in 2002, and $799 in 2003.
8. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN -- The Company has an Employee Stock
Ownership Plan (ESOP) to provide retirement benefits to qualifying, salaried
employees. The ESOP grants to participants in the plan certain ownership rights
in, but not possession of, the common stock of the Company held by the Trustee
of the Plan. Shares of common stock are allocated annually to participants in
the ESOP pursuant to a prescribed formula. The value of the shares committed to
be released by the Trustee under the Plan's provisions for allocation to
participants was recognized as an expense of $3,911,000, $2,920,000 and
$2,329,000 for the fiscal years ended 1998, 1997 and 1996, respectively. The
cost of the shares acquired for the ESOP that are not committed to be released
to participants is shown as a contra-account, "Unearned ESOP shares".
F-17
<PAGE> 123
Summary information regarding ESOP activity consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Allocated shares.......................................... 147,000 105,000
Shares released for allocation............................ 42,000 42,000
Unearned ESOP shares...................................... 231,000 273,000
----------- -----------
Total ESOP shares......................................... 420,000 420,000
Repurchased shares received as distributions.............. (5,708) (4,480)
----------- -----------
Total available ESOP shares............................... 414,292 415,520
=========== ===========
Fair market value of unearned ESOP shares................. $23,125,410 $19,595,940
=========== ===========
</TABLE>
All of the shares acquired for the ESOP (both allocated and unearned
shares) are owned and held in trust by the ESOP.
The Company's stock is not listed or traded on an active stock market and
market prices are, therefore, not available. Annually, an independent financial
consulting firm determines the fair market value based upon the Company's
performance and financial condition.
The Company provides an "internal market" for shareholders through its
purchase of their common shares. Participants in the Company's ESOP have the
right to require the Company, within a specified period, to repurchase shares
received as distributions under the ESOP at their fair market value.
PENSION AND SAVINGS PLANS -- The Company has two noncontributory defined
benefit pension plans for qualifying hourly and salary employees. A plan
covering salaried employees provides pension benefits that are based on the
employees' compensation and years of service. The future accrual of benefits was
terminated in connection with the formation of the ESOP. A plan covering hourly
employees provides 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 Company also sponsors
three employee savings plans which cover substantially all of the Company's
employees. The plan covering Carter employees provides for a match of
participating employees' contributions. The Company's contribution, recognized
as expense was approximately $481,000 and $50,000 in fiscal years 1998 and 1997,
respectively.
A summary of the components of net periodic pension cost for the pension
plans for the fiscal years ended 1998, 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 219 $ 201 $ 218
Interest cost on projected benefit obligation............... 1,042 971 805
Actual return on plan assets................................ (1,867) (2,524) (1,488)
Net amortization and deferral............................... 585 1,429 483
------- ------- -------
Net periodic pension cost (benefit)......................... $ (21) $ 77 $ 18
======= ======= =======
</TABLE>
F-18
<PAGE> 124
The following table sets forth the funded status of the plans and amounts
recognized in the Company's balance sheets for its pension plans (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, 1998 OCTOBER 25, 1997
-------------------------- --------------------------
(ACCUMULATED (ASSETS (ACCUMULATED (ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS) BENEFITS) ASSETS) BENEFITS)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation................. $(7,080) $(8,653) $(5,585) $(8,295)
======= ======= ======= =======
Accumulated benefit obligation............ $(7,208) $(8,653) $(5,596) $(8,295)
======= ======= ======= =======
Projected benefit obligation.............. $(7,208) $(8,653) $(5,596) $(8,295)
Plan assets at fair value................... 5,886 11,243 3,429 10,177
------- ------- ------- -------
Projected benefit obligation (in excess of)
or less than plan assets.................. (1,322) 2,590 (2,167) 1,882
Unrecognized prior service cost............. 360 405
Unrecognized net (gain) or loss from past
experience different from that assumed.... 1,674 (3,187) 614 (3,023)
Adjustment required to recognize minimum
liability................................. (2,034) (1,019)
------- ------- ------- -------
Accrued pension cost recognized in the
consolidated balance sheets............... $(1,322) $ (597) $(2,167) $(1,141)
======= ======= ======= =======
</TABLE>
The assumptions used to determine net periodic pension cost as well as the
funded status are:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.0% 7.5% 8.0%
Long-term rate of return on plan assets..................... 9.0% 9.0% 9.0%
</TABLE>
The plans' assets consist primarily of insurance company pooled separate
accounts.
OTHER POSTRETIREMENT BENEFITS -- The Company provides certain
postretirement health care benefits to qualifying hourly retirees and their
dependents. Effective November 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires that costs
of these postretirement benefits be accrued during an employee's active working
career.
The Company implemented SFAS No. 106 on the immediate recognition basis by
recording a postretirement benefit obligation of $5,809,000, and, according to
Statement provisions related to business combinations occurring after December
21, 1990, a resulting increase in Goodwill and Deferred Income Taxes of
$3,485,000 and $2,324,000, respectively was recorded.
The net postretirement benefit cost for the fiscal years ended 1998, 1997
and 1996 includes the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $177 $149 $158
Interest cost on accumulated postretirement benefit
obligation................................................ 674 592 460
Net amortization and deferral............................... 91 33 --
---- ---- ----
Net postretirement benefit cost............................. $942 $774 $618
==== ==== ====
</TABLE>
F-19
<PAGE> 125
Benefit costs were generally estimated assuming retiree health care costs
would initially increase at an 11% annual rate, decreasing gradually to a 5%
annual growth rate after 12 years and remain at a 5% annual growth rate
thereafter. A 1% increase in this annual trend rate would have increased the
accumulated postretirement benefit obligation at October 31, 1998 by $1,660,000
with a corresponding effect on the 1998 postretirement benefit expense of
$164,000. The discount rate used to estimate the accumulated postretirement
benefit obligation was 7.0%, 7.5% and 8.0% for fiscal years 1998, 1997 and 1996,
respectively.
The following table sets forth the unfunded obligation and amounts
recognized in the Company's balance sheets for its postretirement benefit
obligation (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents................................... $(5,488) $(3,843)
Fully eligible active plan participants................... (1,578) (1,756)
Other active participants................................. (3,627) (3,135)
------- -------
(10,693) (8,734)
Unrecognized net loss from past experience different from
that assumed.............................................. 2,913 1,823
------- -------
Accrued postretirement benefit cost in the consolidated
balance sheets............................................ $(7,780) $(6,911)
======= =======
</TABLE>
9. INCOME TAXES
The income tax provision consists of the following for the fiscal years
ended 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
Federal................................................ $8,931 $4,118 $2,153
State and local........................................ 543 117 630
------ ------ ------
Total.......................................... 9,474 4,235 2,783
Deferred tax provision (benefit)......................... (6,074) (413) 825
------ ------ ------
Income tax provision..................................... $3,400 $3,822 $3,608
====== ====== ======
</TABLE>
The difference between the recorded income tax provision and the amounts
computed using the statutory U.S. Federal income tax rate are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income tax provision at statutory rate................... $2,554 $3,988 $3,146
State tax provision -- net of federal benefits........... 353 100 416
Other -- net............................................. 493 (266) 46
------ ------ ------
Income tax provision..................................... $3,400 $3,822 $3,608
====== ====== ======
</TABLE>
During the fiscal years ended 1998, 1997 and 1996 the Company paid (net of
refunds received) approximately $8.3, $4.6 and $2.6 million in income taxes,
respectively.
F-20
<PAGE> 126
The components of the Company's net deferred tax asset (liability) are as
follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Current:
Deductible temporary differences.......................... $ 4,837 $ 5,368
Inventories............................................... (69) (4,329)
-------- --------
Total............................................. $ 4,768 $ 1,039
======== ========
Long-term:
Salary/Hourly retiree medical............................. $ 2,867 $ 2,677
Deductible temporary differences.......................... 729 714
Property and equipment.................................... (1,373) (2,593)
Intangible assets......................................... (23,178) (24,098)
-------- --------
Total............................................. $(20,955) $(23,300)
======== ========
</TABLE>
The temporary difference described above principally represent differences
between the tax bases of assets (principally inventory, property and equipment,
and intangible assets) or liabilities (principally related to employee benefits
and loss reserves) and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years
when the reported amounts of the assets or liabilities are recovered or settled,
respectively.
10. DEBT
SUMMARY -- The Company's long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
----------- -----------
<S> <C> <C>
Term loans............................................ $ 87,212 $108,625
Senior Subordinated Notes............................. 140,000 140,000
Other................................................. 174 237
-------- --------
Total borrowings............................ 227,386 248,862
Current maturities.................................... (5,946) (6,904)
-------- --------
Long-term portion..................................... $221,440 $241,958
======== ========
</TABLE>
CREDIT FACILITY AND TERM LOANS -- In July 1997, the Company refinanced its
Old Credit Facility with the New Credit Facility, consisting of a seven-year
$100.0 million term loan, a seven-year $20.0 million revolving credit facility
and a seven-year $15.0 million Delayed Draw Acquisition Loan. In connection with
the July refinancing, the Company recorded an extraordinary charge of $2.5
million, consisting primarily of the write-off of unamortized financing costs
related to its Old Credit Facility.
On September 26, 1997, the Company amended the New Credit Facility to allow
for, among other things, the acquisition of Carter and the issuance of the
Senior Subordinated Notes. Under the Amended Credit Facility, the Company has
$110.0 million principal amount of Term Loans, of which $87.2 million is
outstanding at October 31, 1998, and also has available a seven-year $20.0
million Revolving Credit Facility. The unused balance of the Revolving Credit
Facility ($19.7 million at October 31, 1998) is subject to a .375% commitment
fee. The credit facility is collateralized by substantially all of the tangible
assets of the Company (including the capital stock of Argo-Tech) as well as the
unearned shares of the Company's common stock held by the ESOP. The Amended
Credit Facility contains a number of covenants that, among other things, limit
the Company's ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain assets, create liens, make capital
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. The Amended Credit Facility also requires the Company to
comply with certain financial ratios and tests, under which the Company will be
required to achieve certain financial and operating results. The Company was in
compliance with the covenants at
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<PAGE> 127
October 31, 1998. Interest was calculated, at the Company's choice, using an
alternate base rate (ABR) or LIBOR, plus a supplemental percentage determined by
the ratio of debt to EBITDA. The interest rate for fiscal year 1998 ranged from
0.25% to 1.00% plus ABR or 1.25% to 2.00% plus LIBOR.
The Company had entered into three interest rate swap agreements with a
financial institution which fixed the interest rate on the notional amounts of
$20.0 million at 5.80% and $20.0 million at 5.715% through October 1997, and
$30.0 million at 6.66% through October 2000. In July 1997, the Company
refinanced its Old Credit Facility and unwound $40.0 million of the swap
agreements which were to terminate in October 1997. The remaining $30.0 million
swap was transferred to another financial institution in notional amounts of
$10.0 million which fixed the rates at 6.775%, 6.775% and 6.805% through October
2000. On October 1, 1998 the Company terminated a $10.0 million swap that had a
fixed rate of 6.775% and was to terminate on October 27, 2000 and replaced it
with a $10.0 million swap that has a fixed rate of 6.08% and will now terminate
on October 31, 2003. The gains/losses on the swap agreements were recognized as
interest expense and amounted to a $0.4 million loss in fiscal year 1998, a $0.3
million loss in fiscal year 1997 and a $0.4 million loss in fiscal year 1996.
The Company has no other derivative financial instruments.
SENIOR SUBORDINATED NOTES -- The 8 5/8% Senior Subordinated Notes due 2007
(the "Notes") were issued by the Company on September 26, 1997. Proceeds from
the offering, together with a portion of the borrowings under the Amended Credit
Facility, were used (i) to finance the acquisition of Carter; (ii) to repay in
full $46.1 million in existing notes and; (iii) to pay fees and expenses
incurred in connection with the acquisition.
Interest on the Notes will be payable semiannually on April 1 and October 1
of each year, commencing on April 1, 1998. The Notes will mature on October 1,
2007. Except as described below, the Company may not redeem the Notes prior to
October 1, 2002. On or after such date, the Company may redeem the Notes, in
whole or in part, at the redemption prices at the time, together with accrued
and unpaid interest, if any, to the date of redemption. In addition, at any time
on or prior to October 1, 2000, the Company may, subject to certain
requirements, redeem up to 33 1/3% of the original aggregate principal amount of
the Notes with net cash proceeds of one or more public equity offerings by the
Company, at a redemption price equal to 108.625% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to the date of
redemption, provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding immediately after each such redemption.
The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company.
ANNUAL MATURITIES AND INTEREST PAYMENTS -- The maturities of the Company's
long-term debt during each of the next five fiscal years are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1999........................................................ $ 5,946
2000........................................................ 9,346
2001........................................................ 11,631
2002........................................................ 18,612
2003........................................................ 20,932
Thereafter.................................................. 160,919
--------
Total............................................. $227,386
========
</TABLE>
The total interest paid during the fiscal years ended 1998, 1997 and 1996
was $20.1 million, $12.5 million and $9.2 million, respectively.
F-22
<PAGE> 128
11. REDEEMABLE COMMON STOCK
Redeemable common stock represents a right (a "put") that management
shareholders have to require the Company to repurchase shares of common stock at
the greater of their fair market value or $40 per share, subject to certain
limitations through April 30, 2004. There were 67,059 of these shares
outstanding at October 31, 1998 and October 25, 1997.
12. RELATED PARTY TRANSACTIONS
Management fees and out-of-pocket expenses were charged to operations in
accordance with the provisions of a management agreement between the Company and
a related party. Fees payable to the parent company of the majority shareholder
of AT Holdings Corporation ("AT Holdings") for the guarantee of the Company's
subordinated loan, which was repaid in 1997, were charged to operations. The
total related party fees charged to operations during the fiscal years ended
1997 and 1996 approximated .6% and .8% of net revenues, respectively. There were
no related party fees incurred in fiscal year 1998. In addition, during the
fiscal years ended 1998, 1997 and 1996 sales of $30.9 million, $25.9 million and
$21.1 million, respectively, were made to a related party.
13. MAJOR CUSTOMERS AND EXPORT SALES
During the fiscal years ended 1998, 1997 and 1996, the Company had revenues
in excess of 10% from the following customers (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Customer A...................................... $29,870 $25,896 $21,167
Customer B...................................... -- 14,562 16,177
Customer C...................................... -- 12,740 --
</TABLE>
During the fiscal years ended 1998, 1997 and 1996, export sales to foreign
customers were comprised of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Europe.......................................... $29,812 $18,786 $13,158
All others (individually less than 10%)......... 52,402 40,707 30,911
------- ------- -------
Total................................. $82,214 $59,493 $44,069
======= ======= =======
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash and
short-term investments, interest rate swaps and long-term debt. The Company has
determined the estimated fair value of these financial instruments by soliciting
available market information and utilizing appropriate valuation methodologies
which require judgment. The Company believes that the carrying values of the
short term investments and long term debt approximates their fair value. The
fair value of interest rate swaps (used for hedging purposes) is the estimated
amount that the company would pay to terminate the swap agreements at October
31, 1998, taking into account current interest rates and the current
creditworthiness of the company and the respective financial institution. The
amount the company would pay to settle the three interest rate swap agreements
at October 31, 1998 would be approximately $1.4 million dollars. The company's
balance sheet does not reflect these amounts.
15. CONTINGENCIES
ENVIRONMENTAL MATTERS -- The soil and groundwater at the Company's Euclid,
Ohio facility and the Costa Mesa, California facility contain elevated levels of
certain contaminants which are currently in the process of being removed and/or
remediated. Because the Company has certain indemnification rights from
F-23
<PAGE> 129
former owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of the Company's management, the ultimate
outcome is not expected to materially affect the Company's financial condition,
results of operations or liquidity.
OTHER MATTERS -- The Company is subject to various legal actions and other
contingencies. In the opinion of the Company's management, after reviewing the
information which is currently available with respect to such matters and
consulting with the Company's legal counsel, any liability which may ultimately
be incurred with respect to these additional matters is not expected to
materially affect the Company's financial condition, results of operations or
liquidity.
16. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This 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 will adopt this
standard during fiscal 1999. Such adoption is not expected to have a material
effect on the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This 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. Such adoption is not expected to have a
material effect on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement does not
change the recognition or measurement of pension or postretirement benefit
plans, but standardizes disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures. The
Company will adopt this standard during fiscal 1999. Such adoption is not
expected to have a material effect on the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not completed its evaluation of this statement.
17. SUBSEQUENT EVENT
On December 17, 1998, AT Holdings entered into an agreement to repurchase
639,510 shares of stock ("Stock Repurchase") from AT Holdings LLC, the company's
largest shareholder, for $79.4 million plus transaction expenses. The
transaction, which was consummated on January 4, 1999, was funded by the
proceeds of a $30.0 million cumulative redeemable exchangeable preferred stock
issue by AT Holdings, Argo-Tech Corporation's issuance of $55.0 million of
8.625% Senior Subordinated Notes issued at a 5% discount, $50.0 million of which
was dividended to AT Holdings, and cash. In addition, AT Holdings amended its
Certificate of Incorporation to provide for the issuance of the preferred stock
and the Company amended its existing credit agreement and indenture to permit
the issuance of the Notes, payment of the dividend and amendment of the
Supplemental Employee Retirement Plan and the 1997 Stock Appreciation Rights
Plan ("SAR Plan"). The SAR Plan provided for grants of up to 34,450 stock
appreciation rights ("SAR's"), 17,225 of which were granted in fiscal years 1997
and 1998. The remaining 17,225 SAR's were granted in November 1998. In
connection with the Stock Repurchase, all SAR's became fully vested resulting in
a charge to pre-tax earnings of $2.5 million in the first quarter of fiscal year
1999 and were then converted into fully vested stock options.
F-24
<PAGE> 130
On February 23, 1999, a California federal district court granted a Motion
for Summary Judgment against the Company's J.C. Carter subsidiary to enforce an
international arbitration award in favor of a French shipbuilding concern, for
approximately $11.4 million plus interest with respect to a product liability
case involving industrial marine pump products. The district court has ordered,
however, that judgment shall not be entered at this time because of the claims
against the remaining parties to the action. The Company intends to seek
reconsideration of the district court's decision, and, when, and if, an adverse
judgment is entered against it, to appeal the judgment and to vigorously pursue
its claims for declaratory relief and equitable indemnification against the
prior owners of assets relating to the arbitration. In the opinion of the
Company's management, after reviewing the information which is currently
available with respect to this matter and consulting with the Company's legal
counsel, any liability which may ultimately be incurred with respect to this
matter is not expected to materially affect the Company's financial condition,
results of operations or liquidity.
F-25
<PAGE> 131
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$55,000,000
ARGO-TECH CORPORATION
[ARGO-TECH LOGO]
-----------------------
PROSPECTUS
-----------------------
OFFER TO EXCHANGE ALL OUTSTANDING
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
THAT WERE ORIGINALLY ISSUED ON DECEMBER 17, 1998
FOR NEW 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Argo-Tech's Restated Certificate of Incorporation
provides that Argo-Tech will, to the fullest extent permitted by the General
Corporation Law of the State of Delaware (including, without limitation, Section
145 thereof), as the same may be amended from time to time, indemnify any
promoter, director, or officer whom it will have power to indemnify from and
against any and all of the expenses, liabilities, or other loss of any nature,
and such indemnification will not be deemed exclusive of any other rights to
which those indemnified may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and will continue as to a person who has ceased to be promoter,
director, or officer and will inure to the benefit of the heirs, executors, and
administrators of such a person.
Subsection (a) of the Section 145 of the DGCL empowers a corporation to
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 (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he 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, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth in the paragraph above, except that
no indemnification may 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 of Chancery of the State of
Delaware or the court in which such action or suit was brought determines that
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court deems proper.
Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that any indemnification under subsections (a) and
(b) of Section 145 (unless ordered by a court) will be made by a corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145; that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may 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 such director or officer to repay such amount
unless it is ultimately determined that he is not entitled to be indemnified by
the corporation; that indemnification provided for by Section 145 will not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that a corporation is empowered to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such,
II-1
<PAGE> 133
whether or not the corporation would have the power to indemnify him against
such liability under Section 145.
Section 8.01(a) of Argo-Tech's Restated By-laws provides that Argo-Tech
will 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 arbitrative or investigative (other
than an action by or in the right of Argo-Tech) by reason of the fact that he is
or was a director, officer, employee or agent of Argo-Tech, or is or was serving
at the request of Argo-Tech as a director, officer, 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 in connection with such
action, suit or proceeding, except in such cases as involve gross negligence or
willful misconduct.
Section 8.01(b) of Argo-Tech's Restated By-laws provides that Argo-Tech
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of Argo-Tech to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of Argo-Tech, or is or was serving
at the request of Argo-Tech as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of Argo-Tech and except that no indemnification will be made in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable for negligence or misconduct in the performance of his duty to
Argo-Tech unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought determines 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 of Chancery or such other court deems proper.
In addition, Section 801(c) of Argo-Tech's Restated By-laws provides that
expenses incurred in defending a civil or criminal action, suit or proceeding
will be paid by Argo-Tech in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it is
ultimately determined that he is not entitled to be indemnified by Argo-Tech as
authorized in Article VIII of Argo-Tech's Restated By-laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1** Restated Certificate of Incorporation of Argo-Tech, dated
April 16, 1999.
3.2** Restated By-Laws of Argo-Tech, dated April 16, 1999.
4.1 Indenture dated September 26, 1997, between Argo-Tech, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between Argo-Tech, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
</TABLE>
II-2
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
4.4 First Supplemental Indenture, dated December 17, 1998
between Argo-Tech, the Subsidiary Guarantors signatory
thereto and Harris Trust and Savings Bank, related to the
Indenture dated September 26, 1997 (incorporated by
reference to Exhibit 4.4 of Argo-Tech's Current Report on
Form 8-K, filed January 14, 1999).
4.5 Indenture dated December 17, 1998 between Argo-Tech, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, related to the 8 5/8% Senior
Subordinated Notes due 2007 (a form of which is included in
such Indenture) (incorporated by reference to Exhibit 4.5 of
Argo-Tech's Current Report on Form 8-K, filed January 14,
1999).
4.6 Form of Global Exchange Note (included in Exhibit 4.5)
4.7 Exchange and Registration Rights Agreement, dated December
17, 1998 between Argo-Tech, the Subsidiary Guarantors
signatory thereto and Chase Securities Inc. (incorporated by
reference to Exhibit 4.6 of Argo-Tech's Current Report on
Form 8-K, filed January 14, 1999).
5.1* Opinion of Jones, Day, Reavis and Pogue as to the validity
of the new notes.
8.1* Opinion of Jones, Day, Reavis and Pogue as to the tax
consequences of the Exchange Offer.
10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among Argo-Tech and certain Executive Officers of
Argo-Tech (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.2 Employment Agreement dated February 13, 1989 between
Argo-Tech and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of Argo-Tech's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.3 Employment Agreement dated October 15, 1986 between
Argo-Tech and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of Argo-Tech's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994
between Argo-Tech and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between Argo-Tech and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.5 Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333- 38223).
10.6 First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.7 Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of Argo-Tech's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.8 First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of Argo-
Tech's Registration Statement on form S-1, filed October 17,
1997, SEC File No. 333-38223).
10.9 Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of Argo-
Tech's Registration Statement on form S-1, filed October 17,
1997, SEC File No. 333-38223).
</TABLE>
II-3
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.10 Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of Argo-
Tech's Registration Statement on form S-1, filed October 17,
1997, SEC File No. 333-38223).
10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of Argo-Tech's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 17, 1994 (incorporated herein by reference to Exhibit
10.12 of Argo-Tech's Registration Statement on form S-1,
filed October 17, 1997, SEC File No. 333-38223).
10.13 First Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated May 1, 1997 (incorporated
herein by reference to Exhibit 10.13 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.14 Second Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.14 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.15 AT Holdings Corporation Supplemental Stockholders Agreement,
dated May 17, 1994 (incorporated herein by reference to
Exhibit 10.15 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.16 First Amendment to AT Holdings Corporation Supplemental
Stockholders Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.16 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.17 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.18 Consulting Agreement between Argo-Tech and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of Argo-Tech's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.19 Form of Management Incentive Compensation Plan for key
employees of Argo-Tech (incorporated herein by reference to
Exhibit 10.19 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.20 1991 Management Incentive Stock Option Plan, as amended,
dated May 16, 1994 (incorporated herein by reference to
Exhibit 10.20 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.21 Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
Argo-Tech and all members of Argo-Tech's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.22 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.23 Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between Argo-Tech
and certain key employees (incorporated herein by reference
to Exhibit 10.23 of Argo-Tech's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
</TABLE>
II-4
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.24 Credit Facility, dated July 18, 1997, as amended and
restated on September 26, 1997, between Argo-Tech and Chase
Manhattan Bank (incorporated herein by reference to Exhibit
10.24 of Argo-Tech's Registration Statement on form S-1,
filed October 17, 1997, SEC File No. 333-38223).
10.25 Distributorship Agreement, dated December 24, 1990, between
Argo-Tech, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.26 Japan Distributorship Agreement, dated December 24, 1990,
between Argo-Tech, Aerotech World Trade Corporation, Yamada
Corporation, Yamada International Corporation and Vestar
Capital Partners, Inc. (incorporated herein by reference to
Exhibit 10.26 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.27 Stock Purchase Agreement, dated August 1, 1997, between
Argo-Tech, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.28 Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of
Argo-Tech's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.29 Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of Argo-Tech's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of Argo-Tech's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.31 1997 Stock Appreciation Rights Plan (incorporated by
reference of Argo-Tech's Annual Report on Form 10-K, filed
on January 29, 1999.)
10.32* AT Holdings Corporation/Argo-Tech Corporation 1998 Equity
Replacement Stock Option Plan.
10.33* Form of Stock Option Agreement in connection with the AT
Holdings Corporation/Argo-Tech Corporation 1998 Equity
Replacement Stock Option Plan.
10.34* First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan Excess Benefit Plan.
10.35** Amendment, dated December 4, 1998 to the Amended and
Restated Credit Facility, dated July 18, 1997, as amended
and restated on September 26, 1997, between Argo-Tech and
Chase Manhattan Bank.
12** Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of Argo-Tech's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit
5.1)
23.2* Consent of Jones, Day, Reavis & Pogue, as special tax
counsel to Argo-Tech (contained in Exhibit 8.1)
23.3** Consent of Deloitte & Touche LLP
25* Statement of Eligibility of Harris Trust and Savings Bank
under the Trust Indenture Act of 1939 on Form T-1 relating
to the Indenture dated December 17, 1998.
99.1* Form of Letter of Transmittal
</TABLE>
II-5
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed
** Filed herewith
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
(c) Not applicable.
II-6
<PAGE> 138
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Argo-Tech pursuant to the foregoing provisions or otherwise, Argo-Tech has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Argo-Tech of expenses incurred or
paid by a director, officer or controlling person of Argo-Tech in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Argo-Tech will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on April 22, 1999.
ARGO-TECH CORPORATION
By: /s/ PAUL R. KEEN
----------------------------------
Paul R. Keen
Vice President, General Counsel
and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB Chairman, President, Chief Executive April 22, 1999
- ------------------------------------ Officer and Director
Michael S. Lipscomb (Principal Executive Officer)
/s/ FRANCES S. ST. CLAIR Vice President, Chief Financial Officer April 22, 1999
- ------------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Controller April 22, 1999
- ------------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director April 22, 1999
- ------------------------------------
Paul R. Keen
</TABLE>
II-8
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (Aftermarket) has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cleveland, State of Ohio, on April 22, 1999.
ARGO-TECH CORPORATION (AFTER-
MARKET)
By: /s/ PAUL R. KEEN
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB Chairman, President, Chief Executive April 22, 1999
- ------------------------------------ Officer and Director
Michael S. Lipscomb (Principal Executive Officer)
/s/ FRANCES S. ST. CLAIR Vice President, Chief Financial Officer April 22, 1999
- ------------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Controller April 22, 1999
- ------------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ VICTOR AGUILAR Director April 22, 1999
- ------------------------------------
Victor Aguilar
/s/ PAUL R. KEEN Director April 22, 1999
- ------------------------------------
Paul R. Keen
</TABLE>
II-9
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (HBP) has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on April 22, 1999.
ARGO-TECH CORPORATION (HBP)
By: /s/ PAUL R. KEEN
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB President and Director April 22, 1999
- ------------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
/s/ FRANCES S. ST. CLAIR Vice President, Chief Financial Officer April 22, 1999
- ------------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Controller April 22, 1999
- ------------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director April 22, 1999
- ------------------------------------
Paul R. Keen
</TABLE>
II-10
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (OEM) has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on April 22, 1999.
ARGO-TECH CORPORATION (OEM)
By: /s/ PAUL R. KEEN
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB President and Director April 22, 1999
- ------------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
/s/ FRANCES S. ST. CLAIR Vice President, Chief Financial Officer April 22, 1999
- ------------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Controller April 22, 1999
- ------------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director April 22, 1999
- ------------------------------------
Paul R. Keen
</TABLE>
II-11
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.C. Carter
Company, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, on April 22, 1999.
J.C. CARTER COMPANY, INC.
By: /s/ PAUL R. KEEN
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB President and Director April 22, 1999
- ------------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
/s/ FRANCES S. ST. CLAIR Vice President, Chief Financial Officer April 22, 1999
- ------------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Controller April 22, 1999
- ------------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director April 22, 1999
- ------------------------------------
Paul R. Keen
</TABLE>
II-12
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1** Restated Certificate of Incorporation of the Company, dated
April 16, 1999
3.2** Restated By-Laws of the Company dated April 16, 1999
4.1 Indenture dated September 26, 1997, between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between the Company, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.4 First Supplemental Indenture, dated December 17, 1998
between the Company, the Subsidiary Guarantors signatory
thereto and Harris Trust and Savings Bank, related to the
Indenture dated September 26, 1997 (incorporated by
reference to Exhibit 4.4 of the Company's Current Report on
Form 8-K, filed January 14, 1999).
4.5 Indenture dated December 17, 1998 between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, related to the 8 5/8% Senior
Subordinated Notes due 2007 (a form of which is included in
such Indenture) (incorporated by reference to Exhibit 4.5 of
the Company's Current Report on Form 8-K, filed January 14,
1999).
4.6 Form of Global Exchange Note (included in Exhibit 4.5)
4.7 Exchange and Registration Rights Agreement, dated December
17, 1998 between the Company, the Subsidiary Guarantors
signatory thereto and Chase Securities Inc. (incorporated by
reference to Exhibit 4.6 of the Company's Current Report on
Form 8-K, filed January 14, 1999).
5.1* Opinion of Jones, Day, Reavis and Pogue as to the validity
of the new notes.
8.1* Opinion of Jones, Day, Reavis and Pogue as to the tax
consequences of the Exchange Offer.
10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among the Company and certain Executive Officers of
the Company (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.2 Employment Agreement dated February 13, 1989 between the
Company and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.3 Employment Agreement dated October 15, 1986 between the
Company and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994
between the Company and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between the Company and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
</TABLE>
II-13
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.5 Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333- 38223).
10.6 First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.7 Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.8 First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.9 Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.10 Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 17, 1994 (incorporated herein by reference to Exhibit
10.12 of the Company's Registration Statement on form S-1,
filed October 17, 1997, SEC File No. 333-38223).
10.13 First Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated May 1, 1997 (incorporated
herein by reference to Exhibit 10.13 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.14 Second Amendment to AT Holdings Corporation 1994
Stockholders' Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.14 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.15 AT Holdings Corporation Supplemental Stockholders Agreement,
dated May 17, 1994 (incorporated herein by reference to
Exhibit 10.15 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.16 First Amendment to AT Holdings Corporation Supplemental
Stockholders Agreement, dated July 18, 1997 (incorporated
herein by reference to Exhibit 10.16 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.17 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.18 Consulting Agreement between the Company and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
</TABLE>
II-14
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.19 Form of Management Incentive Compensation Plan for key
employees of the Company (incorporated herein by reference
to Exhibit 10.19 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.20 1991 Management Incentive Stock Option Plan, as amended,
dated May
16, 1994 (incorporated herein by reference to Exhibit 10.20
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.21 Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
the Company and all members of the Company's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.22 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.23 Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between the
Company and certain key employees (incorporated herein by
reference to Exhibit 10.23 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.24 Credit Facility, dated July 18, 1997, as amended and
restated on September 26, 1997, between the Company and
Chase Manhattan Bank (incorporated herein by reference to
Exhibit 10.24 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.25 Distributorship Agreement, dated December 24, 1990, between
the Company, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.26 Japan Distributorship Agreement, dated December 24, 1990,
between the Company, Aerotech World Trade Corporation,
Yamada Corporation, Yamada International Corporation and
Vestar Capital Partners, Inc. (incorporated herein by
reference to Exhibit 10.26 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.27 Stock Purchase Agreement, dated August 1, 1997, between the
Company, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.28 Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.29 Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.31 1997 Stock Appreciation Rights Plan incorporated by
reference to Exhibit 10.31, the Company's Annual Report on
Form 10-K, filed on January 29, 1999.
10.32* AT Holdings Corporation/Argo-Tech Corporation 1998 Equity
Replacement Stock Option Plan.
</TABLE>
II-15
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.33* Form of Stock Option Agreement in connection with the AT
Holdings Corporation/Argo-Tech Corporation 1998 Equity
Replacement Stock Option Plan.
10.34* First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan Excess Benefit Plan.
10.35** Amendment, dated December 4, 1998 to the Amended and
Restated Credit Facility, dated July 18, 1997, as amended
and restated on September 26, 1997, between Argo-Tech and
Chase Manhattan Bank.
12** Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit
5.1)
23.2* Consent of Jones, Day, Reavis & Pogue, as special tax
counsel to the Company (contained in Exhibit 8.1)
23.3** Consent of Deloitte & Touche LLP
25* Statement of Eligibility of Harris Trust and Savings Bank
under the Trust Indenture Act of 1939 on Form T-1 relating
to the Indenture dated December 17, 1998.
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Previously filed
** Filed herewith
II-16
<PAGE> 1
Exhibit 3.1
1999 RESTATED
CERTIFICATE OF INCORPORATION
OF
ARGO-TECH CORPORATION
Argo-Tech Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies as follows:
FIRST: The name under which the Corporation was originally
incorporated is Argo-Holdings, Inc. The Corporation filed its original
Certificate of Incorporation with the Secretary of State of Delaware on March
31, 1997. This Restated Certificate of Incorporation was proposed to the sole
stockholder of the Corporation by the Board of Directors of the Corporation as
of April 6, 1999 and was duly adopted in accordance with the provisions of
Section 242 and 245 of the Delaware General Corporation Law, as amended, by
unanimous written consent of the holder of all outstanding stock entitled to
vote thereon April 6, 1999.
SECOND: The Restated Certificate of Incorporation of the
Corporation is hereby restated and amended to read in its entirety as follows:
ARTICLE I
Name
----
The name of the corporation is Argo-Tech Corporation.
ARTICLE II
Registered Office and Registered Agent
--------------------------------------
The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
19805. The name of the Corporation's registered agent at such address is CSC/The
United States Corporation Company.
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ARTICLE III
Purpose
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The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware and to conduct and promote any business
in connection therewith.
ARTICLE IV
Capital Stock
-------------
The total number of shares which the Corporation shall have
authority to issue is 3,000 shares of Common Stock, par value $.01 per share.
ARTICLE V
Election of Directors
---------------------
Elections of directors need not be by written ballot except
and to the extent provided in the by-laws of the Corporation.
ARTICLE VI
Liability of Directors
----------------------
The liability of the Corporation's directors to the
Corporation or its stockholders shall be eliminated to the full extent permitted
by the General Corporation Law of the State of Delaware (including, without
limitation, Section 102(b)(7) thereof), as amended from time to time.
ARTICLE VII
Indemnification of Directors and Officers
-----------------------------------------
The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware (including, without limitation,
Section 145 thereof), as the same
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may be amended from time to time, indemnify any promoter, director, or officer
whom it shall have power to indemnify from and against any and all of the
expenses, liabilities, or other loss of any nature, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her 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 promoter,
director, or officer and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
ARTICLE VIII
Authority to Amend Certificate
------------------------------
Subject to any limitations contained in this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change, or
repeat any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
this reservation.
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The Corporation has caused this Restated Certificate of
Incorporation to be signed on its behalf by Michael S. Lipscomb, its President,
and attested to by Paul R. Keen, its Secretary, as of this _____ day of April,
1999.
___________________________________
Michael S. Lipscomb
Attest: President
___________________________
Paul R. Keen
Secretary
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Exhibit 3.2
ARGO-TECH CORPORATION
------
BY-LAWS
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ARTICLE I
OFFICES
Section 1.01. REGISTERED OFFICE. The registered office of
Argo-Tech Corporation (hereinafter referred to as the "Corporation") shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.02. ADDITIONAL OFFICES. The Corporation may also
have offices at such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01. TIME AND PLACE. All meetings of stockholders for
the election of Directors shall be held at such time and place, either within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place either within or without the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting.
Section 2.02. ANNUAL MEETING. Annual meetings of stockholders
shall be held for the purpose of electing a Board of Directors and transacting
such other business as may properly be brought before the meeting.
Section 2.03. NOTICE OF ANNUAL MEETING. Written notice of the
annual meeting, stating the place, date and time of such annual meeting, shall
be given to each stockholder entitled to vote at such meeting not less than ten
(10) (unless a longer period is required by law) nor more than fifty (50) days
prior to the meeting.
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Section 2.04. SPECIAL MEETING. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation may be called by the Chairman of
the Board, if any, or, if the Chairman is not present (or, if there is none), by
the President and shall be called by the President or Secretary at the request
in writing a majority of the Board of Directors, or at the request in writing of
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at such meeting. Such
request shall state the purpose or purposes of the proposed meeting. The person
calling such meeting shall cause notice of the meeting to be given in accordance
with the provisions of Section 2.05 of this Article II and of Article V.
Section 2.05. NOTICE OF SPECIAL MEETING. Written notice of
special meeting, stating the place, date and time of such special meeting and
the purpose or purposes for which the meeting is called, shall be delivered
either personally or mailed to the last known address to each stockholder not
less than ten (10) (unless a longer period is required by law) nor more than
fifty (50) days prior to the meeting.
Section 2.06. LIST OF STOCKHOLDERS. The Officer in charge of
the stock ledger of the Corporation or the transfer agent shall prepare and
make, at least ten (10) days prior to every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, at a place within the city where the meeting is to be held. Such
place, if other than the place of the meeting, shall be specified in the notice
of the meeting. The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting and may be inspected by any
stockholder who is present.
Section 2.07. PRESIDING OFFICER. Meetings of stockholder shall
be presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the President, or, if the President is not
present, by a Vice President, or, if a Vice President is not present, by such
person who may have been chosen by the Board of Directors, or, if none of such
persons is present, by a Chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if the Secretary is
not present, an Assistant Secretary, or, if an Assistant Secretary is not
present, such person as may be chosen by the Board of Directors, shall act as
secretary of meetings of stockholders, or, if none of such persons is present,
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall choose any person present to
act as secretary of the meeting.
Section 2.08. QUORUM AND ADJOURNMENTS. The holders of a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at stockholders meetings, present in person or
represented by proxy, shall be necessary to, and shall constitute a quorum for,
the transaction of business at all meetings of the stockholders, except as
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otherwise provided by statute or by the Certificate of Incorporation. The
stockholders present in person or represented by proxy at a duly organized
meeting may continue to do business until final adjournment of such meeting
whether on the same day or on a later day, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, those present in person or
represented by proxy may adjourn the meeting from time to time, until a quorum
shall be present or represented. Notice of the adjourned meeting need not be
given if the time and place of the adjourned meeting are announced at the
meeting at which the adjournment is taken. Even if a quorum shall be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote at such meeting, present in person or represented by proxy, may adjourn the
meeting from time to time without notice of the adjourned meeting if the time
and place of the adjourned meeting are announced at the meeting at which the
adjournment is taken, until a date which is not more than thirty (30) days after
the date of the original meeting. At any adjourned meeting at which a quorum is
present in person or represented by proxy and business may be transacted which
might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at such
meeting.
Section 2.09. VOTING. (a) At any meeting of stockholders,
every stockholder having the right to vote shall be entitled to vote in person
or by proxy, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one (1) vote for each share of capital stock
registered in his, her, or its name on the books of the Corporation.
(b) At a meeting at which a quorum is present, all elections
of Directors shall be determined as provided in the Certificate of
Incorporation, and, except as otherwise provided by law or the Certificate of
Incorporation, all other matters shall be determined by a vote of a majority of
the shares present in person or represented by proxy and voting on such other
matters.
Section 2.10. CONSENT. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted by law or the
Certificate of Incorporation to be taken at any meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
written consent, 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 on such action were present or represented by proxy
and voted. Such written consent shall be filed with the minutes of meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing.
ARTICLE III
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DIRECTORS
---------
Section 3.01. NUMBER AND TENURE. The number of Directors may
be changed by amendment of these Bylaws, but in no event shall there be less
than one (1) or more than seven (7) Directors. Until these Bylaws are amended or
repealed, the number of Directors shall be fixed at three (3). Except as
provided in Section 3.02 of this Article, the Directors shall be elected at the
annual meeting of the stockholders, or at any special meeting of stockholders
called for such purpose, and each Director elected shall hold office until his
or her successor is elected qualified. Directors need not be stockholders.
Section 3.02. VACANCIES. Any Director of the Corporation may
be removed with or without cause. A majority of the Directors remaining in
office may fill any such vacancy. Each Director chosen to fill a vacancy shall
hold office until the next annual election of Directors and until his or her
successor is duly elected and qualified. If there are no directors in office,
any Officer or stockholder may call a special meeting of stockholders in
accordance with the provisions of these By-laws, at which meeting such vacancies
shall be filled.
Section 3.03. RESIGNATION. Any Director may resign at any time
by giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation, or, in the absence of all of the foregoing, by
notice to any other director or officer of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect upon delivery
to the designated director or officer. It shall not become necessary for a
resignation to be accepted before it becomes effective. A majority of the
Directors remaining in office may fill any such vacancy created by a
resignation. Each Director chosen to fill a vacancy created by a resignation
shall hold office until the next annual election of Directors and until his or
her successor is duly elected and qualified.
Section 3.04. PLACE OF MEETINGS. The Board of Directors may
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 3.05. ANNUAL MEETING. Unless otherwise agreed by the
newly elected Directors, the annual meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to either incumbent or newly elected
Directors shall be necessary.
Section 3.06. REGULAR MEETINGS. Regular meetings of the Board
of Directors may be held without notice, at such time and place as may from time
to time be determined by the Board of Directors.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the Chairman of the Board or the President on four
(4) hours' notice to each Director, if such notice is delivered personally or
sent by telegram or telefax, or on five (5) days' notice if sent by mail.
Special meetings shall be called by the Chairman of the Board or the President
in like manner and on like notice on the written request of one-half or more of
the
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number of Directors then in office. The purpose of the special meeting of the
Board of Directors need not be stated in the notice of such meeting.
Section 3.08. QUORUM AND ADJOURNMENTS. Unless otherwise
provided by the Certificate of Incorporation, at all meetings of the Board of
Directors, one-half of the total number of Directors then in office shall
constitute a quorum for the transaction of business; provided, however, that
when the Board consists of one (1) Director, then one (1) Director shall
constitute a quorum. If a quorum is not present at any meeting of the Board of
Directors, the Directors present may adjourn the meeting, from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 3.09. PRESIDING OFFICER. Meetings of the Board of
Directors shall be presided over by the Chairman of the Board, if any, or if the
Chairman is not present (or if there is none), by the President, or, if the
President is not present, by such person as the board may appoint for the
purpose of presiding at the meeting from which the President is absent.
Section 3.10. ACTION BY CONSENT. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Such consent shall have the same force and effect as the unanimous vote of the
Board of Directors.
Section 3.11. TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any 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 such
participation in a meeting shall constitute presence in person at the meeting.
Section 3.12. COMPENSATION. The Board of Directors, by the
affirmative vote of a majority of the Directors then in office and irrespective
of personal interest of any Director, shall have the authority to establish
reasonable compensation for directors and may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors. No such payment shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEES
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Section 4.01. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution passed by a majority of the whole board, designate one (1) or
more committees, each committee to consist of one (1) or more Directors of the
Corporation. The Board of Directors may designate one (1) or more persons who
are not Directors as additional members of any
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committee, but such persons shall be non-voting members of such committee. The
Board of Directors may designate one (1) or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not such member or members 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. Any such
committee, to the extent provided in the resolution of the Board of Directors
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors.
Section 4.02. MINUTES OF COMMITTEE MEETINGS. Unless otherwise
provided in the resolution of the Board of Directors establishing such
committee, each committee shall keep minutes of action taken by it and file the
same with the Secretary of the Corporation.
Section 4.03. QUORUM. One-half of the number of Directors
constituting any committee shall constitute a quorum for the transaction of
business, and the affirmative vote of such Directors present at the meeting
shall be required for any action of the committee; provided, however, that, when
a committee of one (1) member is authorized under the provisions of Section 4.01
of this Article, such one (1) member shall constitute a quorum.
Section 4.04. VACANCIES, CHANGES, AND DISCHARGE. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, and to discharge any committee.
Section 4.05. COMPENSATION. The Board of Directors, by the
affirmative vote of a majority of the Directors then in office and irrespective
of the personal interest of any director, shall have authority to establish
reasonable compensation for committee members for their services as such and
may, in addition, authorize reimbursement of any reasonable expenses incurred by
committee members in connection with their duties.
ARTICLE V
NOTICES
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Section 5.01. FORM AND DELIVERY. (a) Whenever, under the
provisions of law, the Certificate of Incorporation or these By-laws, notice is
required to be given to any stockholder, it shall not be construed to mean
personal notice unless otherwise specifically provided, but such notice may be
given in writing, by mail, telecopy, telegram or messenger addressed to such
stockholder, at his or her address as it appears on the records of the
Corporation. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, with postage prepaid.
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(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these By-laws, notice is required to be given to any director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such director at the usual place of residence or
business of such director as in the discretion of the person giving such notice
will be likely to be received most expeditiously by director. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
with postage prepaid. Notice to a director may also be given personally or be
sent to such address.
Section 5.02. WAIVER. Whenever any notice is required to be
given under the provisions of law, the Certificate of Incorporation or these
By-laws, a written waiver of notice, signed by the person or persons entitled to
said notice, whether before or after the time for the meeting stated in such
notice, shall be deemed equivalent to such notice. The presence of a Director at
a Special Meeting shall constitute waiver of any notice required to be given
under the provisions of law, the Certificate of Incorporation or these Bylaws.
ARTICLE VI
OFFICERS
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Section 6.01. DESIGNATIONS. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a President and a
Secretary. The Board of Directors may also choose a Chairman of the Board, one
(1) or more Vice Presidents, a Treasurer, one (1) or more Assistant Secretaries
and one (1) or more Assistant Treasurers and other officers and agents as it
shall deem necessary or appropriate. Any officer of the Corporation shall have
the authority to affix the seal of the Corporation and to attest the affixing of
the seal by his or her signature. All officers and agents of the Corporation
shall exercise such powers and perform such duties as shall from time to time be
determined by the Board of Directors.
Section 6.02. TERM OF OFFICE AND REMOVAL. The Board of
directors at its annual meeting after each annual meeting of stockholders or at
a meeting called for that purpose shall choose Officers and agents, if any, in
accordance with the provisions of Section 6.01. Each Officer of the Corporation
shall hold office until his or her successor is elected and shall qualify. Any
officer or agent elected or appointed by the Board of Directors may be removed,
with or without cause, at any time by the affirmative vote of a majority of the
Directors then in office. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term by the Board of directors.
Section 6.03. COMPENSATION. The salaries of all officers and
agents, if any, of the Corporation shall be fixed from time to time by the Board
of Directors, and no officer or agent, shall be prevented from receiving such
salary by reason of the fact that he is also a director of the Corporation.
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Section 6.04. THE CHAIRMAN OF THE BOARD AND THE PRESIDENT. The
Chairman of the Board shall be the chief executive officer of the Corporation.
If there is no Chairman of the Board, the President shall be the chief executive
officer of the Corporation. The duties of the Chairman of the Board, and of the
President at the direction of the Chairman of the Board, shall be the following:
(i) Subject to the direction of the Board of Directors, to
have general charge of the business, affairs and property of the
Corporation and general supervision over its other officers and agents
and, in general, to perform all duties incident to the office of
Chairman of the Board (or President, as the case may be) and to see
that all orders and resolutions of the Board of Directors are carried
into effect.
(ii) Unless otherwise prescribed in the Certificate of
Incorporation of the Corporation or by the Board of Directors, to have
full power and authority on behalf of the Corporation to attend, act
and vote at any meeting of security holders of other Corporations in
which the Corporation may hold securities. At such meeting the Chairman
of the Board (or the President, as the case may be) shall possess and
may exercise any and all rights and powers incident to the ownership of
such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time
to time confer like powers upon any other person or persons.
(iii) To preside over meetings of the stockholders and of the
Board of Directors, to call special meetings of stockholders, to be an
ex-officio member of all committees of the Board, and to have such
other duties as may from time to time be prescribed by the Board of
Directors.
Section 6.05. THE VICE PRESIDENT. The Vice President, if any
(or in the event there be more than one (1), the Vice Presidents in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the President or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
President and shall generally assist the President and perform such other duties
and have such other powers as may from time to time be prescribed by the Board
of Directors.
Section 6.06. THE SECRETARY. The Secretary shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
all votes and the proceedings of the meetings in a book to be kept for that
purpose and shall perform like duties for any committees of the Board of
Directors, if requested by such committee. He shall give, or cause to be given,
notice of all meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may from time to time be
prescribed by the Board of Directors or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and, when so affixed, the seal may be attested by his or her
signature or by the signature of such Assistant Secretary.
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Section 6.07. THE ASSISTANT SECRETARY. The Assistant
Secretary, if any (or in the event there be more than one (1), the Assistant
Secretaries in the order designated, or in the absence of any designation, in
the order of their election), shall, in the absence of the Secretary or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.
Section 6.08. THE TREASURER. The Treasurer, if any, shall have
the custody of the corporate funds and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may from time to time be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursement, and shall
render to the President and the Board of Directors, at regular meetings of the
Board, or whenever they may require it, an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation.
Section 6.09. THE ASSISTANT TREASURER. The Assistant
Treasurer, if any, (or in the event there be more than one (1), the Assistant
Treasurers in the order designated, or in the absence of any designation, in the
order of their election), shall, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.10. CHAIRMAN OF THE BOARD. If a Chairman of the
Board shall be elected by the Board of Directors, the Chairman of the Board
shall preside over meetings of the stockholders and of the Board of Directors,
shall call special meetings of stockholders, shall be an ex-officio member of
all committees of the board, and shall have such other duties as may from time
to time be prescribed by the Board of Directors or the President. In the absence
of a Chairman of the Board, the above described duties shall be carried out by
the President.
Section 6.11. TRANSFER OF AUTHORITY. In case of the absence of
any officer or for any other reason that the Board of Directors deems
sufficient, the Board of Directors may transfer the powers or duties of that
officer to any other officer or to any director or employee of the Corporation,
provided a majority of the full Board of Directors concurs.
ARTICLE VII
STOCK CERTIFICATES
------------------
Section 7.01. FORM AND SIGNATURES. Every holder of stock in
the Corporation shall be entitled to have a certificate, signed by or in the
name of the Corporation, by the Chairman of the Board, the President or a Vice
President and the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Corporation, certifying the number and
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class (and series, if any) of shares owned by him, and bearing the seal of the
Corporation. Such seal and any or all of the signatures on the certificate may
be a facsimile. 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 7.02. REGISTRATION OF TRANSFER. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. REGISTERED STOCKHOLDERS. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person who is registered on its books as the owner of shares of its
capital stock to receive dividends or other distributions, to vote as such
owner, and to hold liable for calls and assessments a person who is registered
on its books as the owner of shares of its capital stock. The Corporation shall
not be bound to recognize any equitable, legal, or other claim to or interest in
such share or shares on the part of any other person whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
Section 7.04. ISSUANCE OF CERTIFICATE. No certificate shall be
issued for any share until (i) consideration for such share in the form of cash,
service rendered, personal or real property, leases of real property or a
combination thereof in an amount not less than the stated capital of such share
has been received by the Corporation and (ii) the Corporation has received a
binding obligation of the subscriber or purchaser to pay the balance of the
subscription or purchase price.
Section 7.05. LOST, STOLEN OR DESTROYED CERTIFICATES. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his or her legal
representative, to advertise the same in such manner as it shall require, and to
give the Corporation a bond in such sum, or other security in such form as it
may direct, as indemnity against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VIII
INDEMNIFICATION
---------------
10
<PAGE> 11
Section 8.01. DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS. (a)
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 arbitrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, 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 in connection with such action, suit or proceeding, except in
such cases as involve gross negligence or willful misconduct.
(b) 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 or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit 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 except that 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 for negligence or misconduct in the performance of
his or her duty to the Corporation unless and only to the extent that the Court
of Chancery or 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 of Chancery or such
other court shall deem proper.
(c) Expenses incurred in defending a civil or criminal 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, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 9.01. FISCAL YEAR. The fiscal year of the Corporation
shall be as determined from time to time by the Board of Directors.
Section 9.02. SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware." The seal or any facsimile thereof may be, but
need not be, unless required by law, impressed or affixed to any instrument
executed by an officer of the Corporation.
11
<PAGE> 12
ARTICLE X
AMENDMENTS
----------
Section 10.01. Subject to any limitations contained in the
Certificate of Incorporation, these By-laws may be altered, amended or repealed
or new By-laws may be adopted by the stockholders or by the Board of Directors,
to the extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new By-laws be contained in the notice of such special meeting.
12
<PAGE> 1
Exhibit 10.35
AMENDMENT dated as of December 4, 1998, to the
Amended and Restated Credit Agreement, dated as of July 18,
1997, as amended and restated as of September 26, 1997, as
previously amended (the "CREDIT AGREEMENT"), among ARGO-TECH
CORPORATION, AT HOLDINGS CORPORATION, the Lenders party
thereto and THE CHASE MANHATTAN BANK, as Administrative Agent.
WHEREAS, the Borrower (such term and each other capitalized term used
but not defined herein having the meanings assigned to such terms in the Credit
Agreement as amended hereby), has requested that the Lenders approve amendments
to certain provisions of the Credit Agreement; and
WHEREAS, the undersigned Lenders are willing, on the terms and subject
to the conditions set forth herein, to approve such amendments;
NOW, THEREFORE, in consideration of these premises, the Borrower,
Holdings and the undersigned Lenders hereby agree as follows:
SECTION 1. AMENDMENTS. Effective as of the Amendment Effective Date (as
defined in Section 3 hereof), the Credit Agreement is hereby amended as follows:
(a) The following definitions are added to Section 1.01 of the Credit
Agreement in their appropriate alphabetical positions:
"ARGO-TECH NOTES" means the senior unsecured subordinated
notes issued by the Borrower, at a discount, for cash consideration of
up to $50,000,000, the proceeds of which are used to pay dividends to
Holdings and which dividends are used by Holdings to purchase Common
Stock from AT Holdings, LLC.
"ARGO-TECH NOTES DOCUMENTS" means the indenture under which
the Argo-Tech Notes are issued and all other agreements and documents
evidencing, guaranteeing or providing for the terms and conditions of
the Argo-Tech Notes.
"EMPLOYEE STOCK COMPENSATION PLANS" means the SERP, the SAR
Plan or any other plan for the benefit of officers, directors or
employees of the Borrower, Holdings or any of their Subsidiaries under
which Common Stock or options to acquire Common Stock are granted to
such individuals.
"HOLDINGS PREFERRED STOCK" means up to $30,000,000 of
cumulative exchangeable redeemable preferred stock issued by Holdings
with warrants to purchase common stock of Holdings (on terms and
conditions substantially as set forth on Annex 1 hereto), the proceeds
of which are used to purchase Common Stock from AT Holdings, LLC.
(b) The definition of "Prepayment Event" in Section 1.01 of the Credit
Agreement is hereby amended by inserting at the end of clause (c) thereof the
following: "and
<PAGE> 2
the issuance of any class of common stock by Holdings PROVIDED that the proceeds
of such issuance are used to redeem Holdings Preferred Stock."
(c) Section 5.11 of the Credit Agreement is hereby amended by replacing
the reference to (a) in clause (c) thereof with (b)".
(d) Section 6.01(a) of the Credit Agreement is hereby amended by (i)
deleting the "and" at the end of clause (ix) thereof, (ii) replacing the "." at
the end of clause (x) thereof with "; and" and (iii) inserting immediately
following clause (x) thereof the following: "(xi) in the case of the Borrower,
the Argo-Tech Notes; PROVIDED that the representations, warranties, covenants,
events of default and other terms of the Argo-Tech Notes shall be no more
restrictive than the representations, warranties, covenants, events of default
and other terms contained in the Senior Subordinated Notes".
(e) Section 6.01(c) of the Credit Agreement is hereby amended by
inserting at the end thereof the following: "and any agreement entered into
between the Borrower and AT Holdings, LLC pursuant to which the Borrower agrees
to purchase Common Stock from AT Holdings, LLC with the proceeds derived from
the issuance of the Argo-Tech Notes and the Holdings Preferred Stock. Holdings
may, however, issue the Holdings Preferred Stock".
(f) Section 6.02(b) of the Credit Agreement is hereby amended by
replacing the reference to "Pledge Agreement" contained therein with "Loan
Documents".
(g) Section 6.04 is hereby amended by (A) deleting the figure
"$2,500,000" and substituting therefor "$3,500,000" in clause (i) thereof and
(B) (i) deleting the "and" at the end of clause (1) thereof, (ii) replacing the
"." at the end of clause (m) thereof with "; and" and inserting after clause (m)
thereof the following: "(n) Holdings may purchase up to 650,000 shares of Common
Stock from AT Holdings, LLC with the proceeds of the Argo-Tech Notes and
Holdings Preferred Stock."
(h) Section 6.08(a) (iii) of the Credit Agreement is hereby amended by
replacing all references to "(a)" contained therein with "(b)".
(i) Section 6.08(a) of the Credit Agreement is hereby amended by (i)
deleting the "and" at the end of clause (iii) thereof, (ii) replacing the "." at
the end clause (iv) thereof with "; and (iii) inserting after clause (iv)
thereof the following: "(v) The Borrower may pay dividends to Holdings from the
proceeds of the Argo-Tech Notes, and the proceeds of such dividends shall be
used to make the Restricted Payments contemplated by and permitted under Section
6.04(n); and (vi) Holdings may declare and pay dividends with respect to the
Holdings Preferred Stock solely in additional shares of such stock.
(j) Section 6.09 is hereby amended by (i) replacing the word "and" at
the end of clause (e) with "," and inserting after clause (f) thereof the
following: "Holding's purchase of up to 650,000 shares of Common Stock from AT
Holdings, LLC with the proceeds of the Argo- Tech Notes and Holdings Preferred
Stock.
2
<PAGE> 3
(k) Section 6.10 of the Credit Agreement is hereby amended by (i)
deleting the word "and" at the end of clause (iv) thereof, (ii) replacing the
"." at the end of clause (v) thereof with "," and (iii) inserting after clause
(v) thereof the following: "(vi) the foregoing shall not apply to restrictions
and conditions imposed by the Argo-Tech Notes Documents PROVIDED that the
restrictions and conditions imposed by the Argo-Tech Notes Documents shall be no
more restrictive than the restrictions and conditions contained in the Senior
Subordinated Notes and (vii) the foregoing shall not apply to restrictions on
dividends under the Holdings Preferred Stock".
(1) Section 6.11(b) of the Credit Agreement is hereby amended by
inserting after clause (b) thereof the following: "PROVIDED that the
Stockholders' Agreement may be amended so long as (i) such amendment does not
have a material adverse effect on the interests of the Lenders under this
Agreement and (ii) the Administrative Agent and its counsel have had an
opportunity to review such amendment".
(m) Section 6.11(a) of the Credit Agreement is amended by inserting
after the proviso the following: "and the organizational documents of Holdings
may be amended so long as (i) such amendment does not have a material adverse
effect on the interests of the lenders under this Agreement and (ii) the
Administrative Agent and its counsel have had an opportunity to review such
amendment".
(n) Section 6.11(f) of the Credit Agreement is hereby amended by
inserting "and the Argo-Tech Notes Documents" immediately after the reference to
"Senior Subordinated Notes Documents" contained therein.
(o) Schedule 3.13 of the Credit Agreement is hereby amended by
replacing it with Schedule 3.13 hereto.
(p) Annex 1 is hereby added as Annex 1 to the Credit Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and
Holdings represents and warrants to each of the Lenders that, after giving
effect to the amendments contemplated hereby, (i) the representations and
warranties of the Borrower and Holdings set forth in the Loan Documents are true
and correct on and as of the date of this Amendment and (ii) no Default has
occurred and is continuing.
SECTION 3. EFFECTIVENESS. This Amendment shall become effective as of
the date (the "AMENDMENT EFFECTIVE DATE") when all of the following conditions
shall have been met:
(i) the Administrative Agent (or its counsel) shall have received
copies hereof that, when taken together, bear the signatures
of the Borrower, Holdings and the Required Lenders; and
(ii) the Argo-Tech Notes or the Holdings Preferred Stock shall have
been issued.
3
<PAGE> 4
SECTION 4. AMENDMENT FEE. The Borrower shall pay to the Administrative
Agent a fee for the account of each Lender that executes and delivers a copy of
this Amendment to the Administrative Agent (or its counsel) on or prior to
December 4, 1998, in an amount equal to .125% of the sum of such Lender's
Revolving Commitment (whether used or unused) and outstanding Term Loans, in
each case as of the Amendment Effective Date. Such fee shall be payable on the
date on which the issuance of the Argo-Tech Notes and the Holdings Preferred
Stock has been completed.
SECTION 5. APPLICABLE LAW. This Amendment shall be construed in
accordance with and governed by the law of the State of New York.
SECTION 6. NO OTHER AMENDMENTS. Except as expressly set forth herein,
this Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of any party under, the
Credit Agreement, nor alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. This Amendment shall apply and be effective
only with respect to the provisions of the Credit Agreement specifically
referred to herein.
SECTION 7. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one contract. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 8. HEADINGS. Section headings used herein are for convenience
of reference only, are not part of this Amendment and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Amendment.
SECTION 9. EXPENSES. The Borrower shall reimburse the Administrative
Agent for its reasonable out-of-pocket expenses incurred in connection with this
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
4
<PAGE> 5
IN WITNESS WHEREOF, the Borrower, Holdings and the undersigned Lenders
have caused this Amendment to be duly executed by their duly authorized
officers, all as of the date first above written.
AT HOLDINGS CORPORATION
By /s/ Paul R. Keen
------------------------------------------
Name: Paul R. Keen
Title: Vice President
ARGO-TECH CORPORATION
By /s/ Yoichi Fujiki
------------------------------------------
Name: Yoichi Fujiki
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By /s/ Matthew H. Massie
------------------------------------------
Name: Matthew H. Massie
Title: Managing Director
BANK ONE, NA
By /s/ Laurence S. Christ
------------------------------------------
Name: Laurence S. Christ
Title: Vice President
5
<PAGE> 6
COMERICA BANK
By /s/ Jeffrey J. Judge
------------------------------------------
Name: Jeffrey J. Judge
Title: Vice President
CREDIT AGRICOLE INDOSUEZ
By /s/ W. Leroy Startz
------------------------------------------
Name: W. Leroy Startz
Title: First Vice President
By /s/ Katherine L. Abbott
------------------------------------------
Name: Katherine L. Abbott
Title: First Vice President
CREDIT LYONNAIS CHICAGO
BRANCH
By /s/ Mary Ann Klemm
------------------------------------------
Name: Mary Ann Klemm
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By /s/ William McDonnell
------------------------------------------
Name: William McDonnell
Title: Vice President
6
<PAGE> 7
HELLER FINANCIAL, INC.
By /s/ Linda W. Wolf
------------------------------------------
Name: Linda W. Wolf
Title: Senior Vice President
KEY BANK NATIONAL ASSOCIATION
By /s/ Thomas J. Purcell
------------------------------------------
Name: Thomas J. Purcell
Title: Vice President
NATIONAL CITY BANK
By /s/ Maureen M. Orsini
------------------------------------------
Name: Maureen M. Orsini
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By
------------------------------------------
Name:
Title:
7
<PAGE> 1
Exhibit 12
----------
ARGO-TECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Year Ended 14 13
October 29 October 28, October 26, October 25, October 31, Weeks Ended Weeks Ended
1994 1995 1996 1997 1998 January 31, 1998 January 30, 1999
--------------------------------------------------------------------- ----------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical:
Income from operations $ 10,644 $ 15,059 $ 19,278 $ 26,650 $ 28,059 $ 7,909 $ 5,224
Other, net 75 (588) (112) (404) (268) (254) (222)
--------- --------- --------- --------- --------- --------- ---------
Earnings as Adjusted $ 10,569 $ 15,647 $ 19,390 $ 27,054 $ 28,327 $ 8,163 $ 5,446
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Interest expense $ 10,117 $ 11,924 $ 10,138 $ 12,827 $ 21,030 $ 6,084 $ 5,670
========= ========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed 1.0x 1.3x 1.9x 2.1x 1.3x 1.3x (a)
Charges
</TABLE>
(a) No ratio is presented for the 13 weeks ended January 30, 1999 as the
earnings for that period were $224,000 less than the fixed charges.
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-73179 of Argo-Tech Corporation of our report dated December 18, 1998 (March
1, 1999 as to Note 17), appearing in the Prospectus, which is part of such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
April 22, 1999
